Children Education Fund

Since my son was born, I was approached by a couple of insurance agents to sign up for their children education fund product. I declined their offer since I'm not looking into taking up insurance products as my son's education plan. I have some other things in mind. Besides, my employer covers for his hospitalization and my wife's employer covers for his outpatient and hospitalization benefits. Basically, he is quite well protected should he need treatment at hospitals.

Insurance needs differ from person to person. But generally, it's safe to say that you don't need insurance product as your child's education plan. Before you take up an insurance product, better ask yourself a few questions. This will avoid yourself and your family from being over insured. The money might well be spent elsewhere. Ask yourself these questions:

Loan To Value (LTV) Ruling

Recently Bank Negara Malaysia (BNM) announced the maximum loan-to-value (LTV) of 70% which will be applicable to the third house financing facility taken by borrower. This move by BNM is to moderate the excessive investment and speculative activity in the residential property market.

I think this is what will happen:

1. Speculative activity will moderate but will not be eliminated. Even the developers say so. Most speculative activities are related to the high end residential properties. Speculators in general are those with lots of cash. They buy and flip in a year or two for quick bucks. Paying a 30% down payment for a residential property will not be so much of a burden to them. In fact, if they take up 2 loans per year and sell them off the next year, they will only need a 10% down payment for each property. They repeat the process and by taking up two property loans per year, the ruling might have negligible effect on them. I do think by having the tiered pre-2007 Real Property Gains Tax (RPGT) will have much more impact to speculators.

2. Those so to say genuine investors who invest for cash flow will be the most affected. These are people who buy and hold the property for some time and sell when necessary. To get the greatest yield for cash flow investment, minimum upfront investment is the way to go. But with this ruling, for the third and subsequent properties, the initial capital outlay will be bigger hence reducing yield. Although with bigger initial capital outlay, the monthly positive cash flow will be bigger, the yield will be much more smaller. This in turn will be decisive whether the investment is feasible or not.

Wealth Mentors 2 Hour Free Seminar

I had a chance last Saturday to attend a 2 hour free introduction seminar at Concorde Hotel Shah Alam by Wealth Mentors. They are promoting the full seminar by Mirriam MacWilliams. The seminar is to share her knowledge about Options trading. She was not present during the free seminar. Representative from Wealth Mentors conducted it.

From the free seminar, I did learn a few new things although they are related to US Options trading which I'm totally new to. In fact, even Options trading is new to me. I don't think Options is for me since I don't really understand the fundamental. However, there are still new info to be gathered from the experts which hopefully I could apply in my shares investment. Some useful info:

Investment Seminar by Milan Doshi

1. I attended a seminar by Milan Doshi 2 weeks back. Its about property and stock investment. I have to say it was really an eye opener and its worth all the money I paid for it.

2. I've learned on what are the ways to increase your borrowing ability from the bank for property investment.

3. A few books was recommended by Milan. Among them are Personality Plus, Secret of Millionaire Mind, Science of Getting Rich and Think and Grow Rich. I plan to read all these books and reread a few books that I've read before such as both Milan's book and Rich Dad Poor Dad. The reason is I want to extract as much as possible ideas and points from these books. I think I didn't get the best out of those books that I've read before.

4. Milan also discussed about the advantages of investing in REIT. I'm planning to shift part of my investment towards REIT in the future and of course no more unit trusts lah. Invest directly into share markets better.

5. I also learned the 4 methods for stock investing. They are very simple, non technical and common sense. Since I suck at stocks fundamental analysis, these methods will be useful to me.

6. A few negotiation skills are also shared by Milan and it will be really handy in the future.

7. I really recommend anyone of you who wants to be successful in your financial journey to attend this course (I'm not paid to write this). It's worth all my money. It's a bit costly though. I paid RM4988 for the 3 days course. There are ways for you to get to attend the same course at RM2988 per person. Everything got way one. All of us are doing professional con job anyway.

Islamic or Not?

Something really struck me yesterday. Me and my wife have actually bought a new investment property in Shah Alam. The S&P has been signed and waiting for stamping. I'm currently trying to secure a loan with Hang Suka Bantu Cek bank. When I enquired about the status of our S&P to my lawyer, she asked me about my financing plan. She advised me to take up an Islamic property loan. If not, I would be involved with riba and its not good for a Muslim etc. I was given a ceramah lah basically.

To put things straight, I actually planned to take up an Islamic loan with Hang Suka Bantu Cek bank. Unfortunately due to the Islamic concept used by the bank, its not applicable for incomplete properties. I only came to know about this when I wanted to sign the application form. Instead, I applied for a conventional loan. One might ask, why did I compromised with my principal of supporting Islamic banking when I can actually find other Islamic loan with other banks. There are aplenty in the market.

Here are my reasons:

1. The agent has been really helpful with my application. She has been responsive and prompt with her service. Unlike Cek Ingat Mu Bagus banks' agents. Even asking for quotation is like asking for loan approval. What else when I asked the agent to come and collect the required documents. He took his own sweet time and will only come over the weekend. Their service has been poor even though I engaged 2 agents.
   
2. I had a few bad experiences with Rasa Hebat Benor bank. It was during loan application for my second property some where last year. It took me almost 3 months to get the loan approved just because their different departments does not speak to each other. Even complaining to the respective departments did not help. I almost gave up and did not know who to turn to for complaints. The reason I wanted the loan from Rasa Hebat Benor bank is because I had an existing loan with that bank. Its just about convenience in managing the loans.
3. Rasa Hebat Benor bank went a step further. In May, I complained to the bank that they actually deduct more than what they were supposed to for my April installment. Although they attended to my complaint, the reasons given were really unsatisfactory. I just gave in hopefully this matter will be solved. Perhaps they just forgot to issue a payment advice letter for my installments. But the same thing happened to my May and June installments even after they issued the new payment advice. I complained again to their customer service. Until now, I haven't received any feedback from them. By the way, both the loans are Islamic loans. Is this how an Islamic bank should operate? Simply deducting the installment amount not in accordance with the payment advice. Isn't that riba' in a way? I don't mind paying what I'm supposed to, but what is so difficult with issuing a new payment advice when there is a change in the installment amount stating the reasons such as increase in BFR or change in the profit rate?
4. An additional point. This is extracted from my loan agreement with Rasa Hebat Benor bank. "....upon the occurrence of the Abandonment Event, the Customer shall.... pay to the bank based on the following formulae:

Disbursed amount + Outstanding Forward Ijarah Payments
For info, this is a Musyarakah Mutanaqisah (MM) agreement where it is based on joint venture between the bank and customer to purchase a property. The share holding of the customer on the property is gradually transferred from the bank as the loan tenure goes on. Well it is obvious to me that this is unfair towards the customer in the event of abandonment since the customer will have to bear all the costs involved up till the abandonment. Senang sama2, susah sorang2 yea? Apa punya bank lah. Is this an Islamic value that the bank is trying to project? You don't need to be an ulama' to know this is not fair. I just don't know what kind of shariah advisors the bank has.
My conscience is pretty clear. If you are promoting Islamic banking, the values must be right i.e, no riba', fair, just etc. The bank is an entity which has the capabilities to access whether the developer has the means in completing the project as opposed to an individual. If the bank deemed that the project is risky, then just don't approve the loan. Its as simple as that. But when the bank approves the loan, they must be willing to take the risk as well. If the project goes bust, tanggung sama2 lah. Bukan customer sorang2 tanggung. Hang Suka Bantu Cek bank is pretty clear on this stuff. Their MM loan agreement is deemed not suitable for incomplete property. So they just don't offer it. And by doing that, they are avoiding any misunderstanding that may arise and tarnish Islamic banking values. So if you can't offer a truly Islamic banking system, just don't offer it. Full stop.

Unless my loan is rejected by Hang Suka Bantu Cek bank, I plan to take up the loan even though its a conventional loan just because the agent provided me with good service. To me, that shows an Islamic value. What's the point of taking up an Islamic loan when dealing with agents and servicing the installments does not adhere to Islamic values?

My advice to those agents selling Islamic financial products, treat your customers with respect. Islamic banking system is not just about its name. Islamic values come together. Agents are the front line of Islamic banking. Show good values and Islamic financial system will be respected.

As for me, this time around is an exception even though some might argue that I did not have a strong reason not to take up Islamic loan. I will continue to support Islamic banking in my journey towards my financial goals. Hopefully those involved with the industry will buckle up and may Allah bless all of us.

2010 Real Estate Congress

Additional point number 8.

On Sunday, 4th of July 2010, I had the chance to attend the 2010 Real Estate Congress organized by WMA at Cititel Hotel, Midvalley. The speakers were Milan Doshi and 2 of his past students, Nancy and Prudence. I attended it for free because I had registered for Milan's 3 days workshop. Otherwise, it would have cost almost RM300 per person.

Nancy and Prudence has made it big through property investment. They have more than RM10 million in property loans each. Milan, being their guru of course is of similar wealth. The congress mainly was about motivation by the two Milan's past students and how they started and made the millions through property investment. Milan himself presented about the need of having 3 to 5 million in property loans in order to retire comfortably in the next 5 years.

These are some points that I got from the one day event:

1. Shah Alam will soon have a Jaya Jusco shopping mall located somewhere nearby Tesco Xtra. This development should add some value to properties nearby.

2. In order to make it big in property investment, commercial property is the way to go. Milan and his students made it big because they invested in commercial properties. From their presentation, some of the profits made through commercial properties are really out of this world. But of course one should take baby steps first before jumping to commercial properties.

3. I learnt that we can actually sell our properties under construction. There are ways to do it and that really made me think whether...... hmmmm...

4. Try to buy niche properties especially commercial properties. Examples are corner units and units facing the main road. Those kind of properties can command higher resale values.

5. The mindset that I really need to change is that take property loans as long as you can with no intention to actually settle the loans. Refinance the property every 3 to 5 years to pull out some cash for other investments.

6. If you have 1 or 2 property loans and you are having difficulties in servicing them, that is your problem. But if you have lots of property loans and having difficulties servicing them, it becomes the banks' problem. They will try to find a solution to the problem if of course you have been a good paymaster to them.

7. At the event, I came across Mr. Esa, the blog owner of Terra Nusa. My failure is to actually expand my own network. I came back from the event without actually making any new friends or established new contacts. Since property investment is more about networking and human relation, I'd better start working on this weakness of mine in order to be successful in property investment.

8. At one stage of your property investment journey, its better to have a portfolio comprising of commercial properties rather than high end condominiums. The logic is, the expatriate community in Malaysia is dwindling. The most obvious indication is lesser foreign direct investments (FDI) coming in. The only people who can afford to rent high end condos are these people because mostly, their company is the one paying for the rental. It is unlikely that a normal Malaysian citizen would want to rent these places. Supply is aplenty in the city centre but the community is shrinking. So you can be sure that one day supply will exceed demand. When that time comes, the tenants will be the one determining the rental price.

ASB explained

1. In May and June 2010 editions of Personal Money, both Dr. Zurina Shafii and Mahadzir Ahmad wrote at length about ASB investment in the Islamic Financial Planning column. First it was Dr Zurina with "Sussing out halal options" and then it was Mahadzir with "Finding an alternative".

2. Dr Zurina wrote in her article about how a fund is categorized to be Shariah compliant fund. Basically this is the guide how Securities Commission (SC) determines Shariah compliant funds. From the guide, ASB is not categorized as Shariah compliant fund because it has more than 30% investment in riba based banking. Besides that, ASB also does not have a Shariah advisory council to advise on its investments.

3. Mahadzir in his article elaborate on why ASB is categorized as non Shariah compliant fund and the different rulings by Jawatankuasa Fatwa Majlis Kebangsan Bagi Hal Ehwal Ugama Islam Malaysia, the Selangor state fatwa committee and the Perak state fatwa committee with regards to ASB investment by Muslims.

4. While I have to agree that ASB can be categorized as one of the best investment available to Bumiputera in the market. No risk, capital protected and handsome yearly dividends. Who can resist all that?

5. Its good to know that PNB is actually trying to introduce an ad-hoc special project of Shariah compliancy under its president and group CEO, Tan Sri Hamad Kama Piah according to Dr Zurina. Whether new Shariah compliant products will be introduced or ASB will be restructured remains to be seen but I do hope for the latter.

6. I'm certainly in support of promoting Islamic financial products especially for Muslims. If the Muslims themselves does not support the system, who else will?

7. But when it involves our hard earned money, there are certainly many of us who are not willing to take unnecessary risks hence ASB is seen as the ultimate choice. That's just human conscience.

8. Since there are different rulings, to me, there is no right or wrong in this matter. It depends on how you look at it. Even the scholars have different views, why can't each of us? If we were to go on and argue on each rulings, there will be no ending to it. Just stick to what you believe and invest accordingly.

9. Thus, I hope PNB will expedite the introduction of the Shariah advisory council as its advisor.

Property Investment for The New Decade

Last Saturday, 22 May 2010, I attended a seminar by one of the financial coach at Cititel Hotel, Midvalley. I attended this seminar because besides reading books, I think attending seminars will further enhance my knowledge especially in property investments. The seminar is a whole day event from 9am to 5.30pm and my expectations were very high.

Unfortunately to say the least, I think paying RM700 for the seminar is really not worth it. Because of the title of the seminar, I was expecting something really out of this world. But what I encountered was the opposite. About 3/4 of the seminar content was about content in his books which I had read a few of them. Only about 1/4 of the seminar I found to be something new to me and useful. Even during the lunch break, I even told my friend that he better share something useful after the lunch break because I don't think its worthwhile to pay and listen to him repeating points from his books.

Even if the seminar is about the content of his books, I was expecting him to elaborate more on the points that he can't include in his books. Unfortunately, even this did not happen. One of his point is buying properties below market value through auctions. Surprisingly, if I recalled it correctly, his only story about property auction is the terrace house he bought in Subang Jaya many years ago which you can find the story in his books. If he only did it once, how can he emphasize so much on that? He should be an expert on that to talk about that. One property from auctions can't say too much about you right?

Now to the useful points. From his seminar, he predicted that property bubble will occur sooner or later. Well, this is just a prediction. Whether he is right or wrong, only time will tell. So don't panic. His prediction is based on causes of the US sub-prime crisis which had began to occur in the Malaysian property market. I can't agree more with him actually.

Looking at the current property market trend, we are seeing ridiculously priced property. Even a medium high cost apartment in Shah Alam is selling in the range of RM250k. People who can't afford to own properties are forcing their way to buy what they can't afford. Owning a property have become easier with easier financing and low or no down payments. When the borrowers can't pay, they bank will land into trouble later. Somehow, something will give way eventually.

Besides that, he also shared what are the steps to be taken to face this challenge which are sensible in my opinion. The main thing is to be prepared for a crisis and grab the opportunity when it comes. The last hour of his seminar was a session with a lawyer. The lawyer is also an author of a book. Many legal questions were thrown to him and they really gave me more insights from the legal point of view with regards to property investment.

The Secrets of a Multi-Millionaire Property Investor Seminar

Last Saturday, 15 May 2010, I had a chance to attend a 3 hour seminar by Milan Doshi. Requirements to attend the seminar is just by buying his books, RM48 for his first book or RM68 for his second book. With that purchase, you will be given two free tickets to attend the seminar. But since I already have both books, I opt to have his DVD instead. The seminar was held at D'Rapport in Ampang, just behind Gleneagles Hospital and next to the Korean Embassy.

First, a bit about D'Rapport. I was really surprised about the existence of this project since I have been working in Great Eastern Mall, just opposite Gleneagles Hospital for 6 years and I was not aware about this project. I think this is a pretty ambitious project. Not to sure who's the developer but it's a joint venture by a Korean architecture firm and a Malaysian developer to construct 900 units of condos in that area. Starting price is about RM1.5 million. When I went through the brochure, the project is supposed to be ready by December 2010. However, at the site, there is only its sales office with a small hall where the seminar was held. Advertising has started since 2007 and works are quite minimal to be seen. I noticed that the financier for this project is some Sabah Development Bank. Heard of it? Next to its site is the Risda quarters built many years ago. What I heard was the building have yet to obtain CF since the building is tilting. With that I think its pretty much clear where this project is heading right? Well, the reason why the event was held there is free food and hall.

To be honest, I was not expecting too much from this seminar though after the frustration of Peter Yee's free seminar. But to my surprise, Milan actually gave a good short seminar with lots of point. Of course he did promote his actual seminar but that is only for the last 15 minutes. The first 10 minutes was allocated for D'Rapport to show off their promotional video. After that, the seminar started.

In his seminar, he shared about investment mistakes that people do. And he is very much against unit trust investments. Well, I guess the reasons are pretty obvious though. High service charges, annual management fees etc. What I like about this seminar is that he actually make everything looks simple and lots are based on common sense.

His simple solution to retirement is "Choose to never work again within the next 5 years by having RM3 million in property loans". That might sound scary to some. With knowledge that I currently have, I don't have any clue as how to achieve that. That's really a mind opener. The purpose of the seminar is to share on "what" and not "how". So in order to know the "how", I will need to attend the real seminar.

I like his idea of investing in combination of the stock market and property. He claim that investing in the stock market is just by using common sense and not too much on technical analysis that we always see in newspapers. One of his stock market investment strategy is the art of crisis investing. That chapter is even included in his first book. It's really mind boggling how easy he make share investment look like.

He shares a lot and show proofs on how much his net worth is and how much money he had made in the stock markets. To me, that speaks volume on what he knows. At the end of the day, of course the short seminar is inadequate to know everything. I have to admit that his 3 days seminar is very costly. But once you realized that you need to pay for good advice and for your self improvement, you will be willing to depart with your hard earned money. I think I began to realize where I'm heading to now.

Investment Ideas

Recently, I thought of having a fund called a "Feel Good Factor Fund". The purpose of having this fund is to grow the money to sustain certain lifestyle of mine. Among others, I hope this fund will be able to be a source of car down payment for every 10 year period. Due to wear and tear, I think changing cars every decade is a reasonable time frame. Besides that, the fund also aims to be a source for house renovation when necessary, overseas vacation and children marriage when necessary (I'm forward thinking here).

I'm thinking between these lines for this particular fund:

Fund Name: Feel Good Factor Fund
Start up capital: RM10,000
Objective: To grow the fund to RM100,000 every 10 years.

Since my car is already 3 years old, I will likely be changing to a new car in 7 years time. That will be in 2017. This fund is already 3 years late. To achieve the target amount in 7 years, I would have to grow the fund at 39% per year. For a 10 year period, the fund will need to grow at 26% per annum.

The only way I see this fund can grow at that pace is by investing in the stock market. I have to admit that I'm not a fan of the stock market since I find it very difficult to understand the fundamentals. However, I think this fund is necessary. Some might argue that I should practice delayed gratification. I'm practicing it right now actually. But having a fund which can pamper you once in a while is something reasonable to do after working hard to grow your money. There's nothing wrong with it since I'm not jeopardizing my retirement fund, I'm not taking it from my emergency fund and it's not stopping me from continuing to invest in properties. It is totally a stand alone fund.

Since I don't know much about the stock market, I'm thinking of taking advice from magazines on what stock to pick. I read Personal Money every month and Insiderasia provides their insight on what stocks to look for in each issue. To date, I find their picks to be reasonably wise. At the same time, I will learn more about stock investing. I aim to do the stock trading online since there are many available platforms around. This is a pretty daunting task to me but I wish I will succeed.

Do give me your thoughts on this matter.

Why I Invest in Unit Trust

Since I was young, my parents taught me to save money. Back then, whenever I have savings especially after Hari Raya, I will bank in the money into my ASB account. Being a kid, I actually didn't see the purpose of saving money let alone growing them. I just thought it was something noble to do. Maybe I will need it later. For what, only time will tell.

When I started working, I began to search for something fulfilling to invest in. Of course I wanted something that gives high return. Things that came to my mind at that time was stocks. I started to learn about stocks. Somehow along the way, I came across about Futures. I attended classes by a guy from CIMB. I tried to learn about all the technical stuffs. Graphs, candlestick etc. But along the way, I found out that I can't actually understand all these stuffs. It seems that I'm pretty bad at reading graphs and projecting what's going to happen. At last, I didn't even invest a single cent in Futures.

When I went to a property expo in Midvalley Megamall back in 2006, I came across a unit trust agent. He was promoting a new fund. To be frank, that was actually the first time I heard about unit trust. Without realizing it, ASB is actually a unit trust which back then I thought was just a normal bank account where I can keep my money and collect dividends yearly. He explained to me about the fund he was promoting. It impressed me that unit trust can actually generate returns of about 15% per year. I only understood about returns at that time.

Being new and skeptical, I went back and asked my friends about this particular unit trust management company. My friends gave good remarks about the unit trust management company. So there I go with my first unit trust investment. I started investing without knowing too much about unit trust. Only after being an investor did I learn more about unit trust.

What seems to be easy about investing in unit trust to me is that I don't actually have to crack my head on what stocks to invest in. I only need to choose a theme and put my money in. If I like Malaysian stock market, then I just choose a fund that invest heavily in Malaysian stocks. If I like China stock market, there are China funds available. If I like property market, there are Real Estate Invest Trusts (REIT) to choose from. All the stock selection will be done by the fund manager. As long as I choose a good fund with a good fund manager in a good unit trust management company, that should be good enough.

Even though the service charge for unit trust is quite high, 5% to 6%, I believe it's money well spent since I don't have the expertise to pick good stocks. The fund manager will do the thinking for me. Bottom line is I must make money from the investment. Not to say I can leave it entirely to the fund manager. As long as I know what to do and when to do it i.e repurchase/switching, I should be fine. I set my long term goal and I use unit trust to achieve it.

Choosing an Apartment

My first encounter of being a landlord started in 2006 when I bought a medium cost apartment in Ampang. The reason I bought the apartment was to move our from the apartment that I was staying with my brother back then since he had a few plans laid out for himself. Instead of renting, I thought it might be better off to buy a cheap apartment for my own stay. My budget at that time was a below RM 100k apartment.

Before I went searching for an apartment, I first laid out the criteria that I wanted in an apartment. The criteria I developed not through reading books but instead from my own experience staying in an apartment for the first 2 years of my working years. Here are the criteria:

1. Find a property with freehold title. Well this reason is pretty obvious and you can find it in any property investment books. Among the advantages of freehold property easier to sell, faster transfer of land ownership and higher price compared to leasehold property.
2. Find apartment near amenities. Well this is also an obvious reason since I don't plan to stay in that apartment forever. Renting it out in the future is a possibility. So this criteria will make the apartment more appealing to tenants.
   
3. Try avoiding units at the highest level. Certain books do mention about this criteria. When I stayed at the apartment with my brother, occasionally my room will be flooded due to very heavy downpour. Anything got to do with the roofs, certainly the top unit will have to bare the costs of repair or will suffer due to leaking roof.
4. Try also avoiding the ground floor unit. There are 2 reasons for this. First, the ground floor unit will likely be the main pathway where residents go up and down the apartment. It's likely that this area will be noisy and dirty. Secondly, imagine car alarms going off in the middle of the night and it don't stop until the next morning. Scary? Yup, that's the reality. If it's your car, then fine, you can always switch it off. But what if you don't even know the car owner? Can you stand the alarm until next morning? Even staying at higher floors does not guarantee that you will not hear the car alarm. But the effect is quite minimal compared to the ground floor.
5. Try finding apartments with no or minimal maintenance fee. Well this is not a common thing but there are certainly these type of apartments out there. To spot these apartments, here are few criteria; normally low rise with 4-5 storeys and no lifts, no perimeter fences and no security guards, they are unlikely to have swimming pools or shops within the compound. Reason for choosing this type of apartment is the fee is beyond your control. The property manager can always increase the fee without justifying the reasons. There might be certain laws to address this issue that I don't know. If the maintenance is not up to the standard, what can you do as property owner?
6. Find an apartment with water connection direct to the Water Board i.e Syabas, Puas etc. What is normally done by property managers nowadays is that they buy water from the Water Board and sell them to the apartment residents, of course at a slightly higher price. Residents pay their water bills to the property manager, not to the Water Board. The property manager even goes one step further to cut the water supply in case the resident do not pay the maintenance fee. How dissatisfied you are with the property management, you basically can't do anything rather than complaint which they might or might not listen too. Having your water bills paid directly to the Water Board will eliminate this risk. Just in case you are not satisfied with the property management standard, just don't pay the maintenance fee until actions are taken. At least you have something to hold on to.

I did manage to get some of the criteria mentioned in my first property purchase, not all of course. Having these criteria in place certainly helped narrowed down my choice of apartment.

Free Property Seminar by Peter Yee

I attended the free property seminar by Peter Yee last Saturday with my brother. As stated in my post You Can Become Rich in Property, two free tickets will be given when you purchase the book. As expected, the free seminar will be his stepping stone to promote his actual seminar. A good last half an hour of the seminar was spent to promote his actual seminar.

I went into the seminar not expecting a whole lot of information to be obtained. I know its going to be short and any information shared will barely touch on surface only. What I'm frustrated about is that he used this free seminar to actually elaborate on points in his book. His book is actually easy to understand and I don't see the need to elaborate more on it.

I was expecting him to share some sort of tips or information that the general public do not know. Even if he did not elaborate on these information, at least we as participant would feel the need to enrol in his actual seminar to gain more knowledge about them. This certainly is not a RM 400 worth of free seminar. It's only worth the book price.

However, I did go back with some sort of information that I wish to share:

1. As I've stated in my post about his book, his favourite term is "in the direction of growth of a town". Based on his experience, the rate of growth is about 1 km per year. With this, you could estimate when will the town growth reach your area.
2. According to him, freehold land is a trend before the year 2000. Thereafter, all are leasehold land. Even though you still find freehold properties around, the logic behind this would be the land had been acquired before year 2000 and only developed now.
3. When there are lots of advertisements in newspapers on perishable items, that is a sign of recession. When time is not good, it's certainly a high time to buy provided you are well prepared for it.
   
4. Simple signs of a motivated seller are; big "For Sale" banners around the property, many banners in one particular property and worn out banners at the property. Look out for these signs guys!

During the seminar, we did discuss about the 5% Real Property Gain Tax (RPGT) that was recently announced in Budget 2010. This is what probably would happen: Seller will probably lower down the selling price in S&P to avoid paying higher tax. In return, with the lower selling price, the buyer will be paying lower stamp duty. This is the same method used when you declare higher property value to obtain 100% loan from bank. It's just the other way round. Of course it would require both parties to agree on the documentation. These are all legal ways to avoid or reduce taxes paid. In the end, instead of curbing speculation in the property market as what the government wish, they end up losing money instead.

Spending Tracker

Often I ask my friends about their financial state. How much do you exactly spend each month? Most of the time, the answer that I will get is "I don't know". It just puzzles me how people don't know how much they are spending each month. This either shows lack of knowledge or they just simply don't care about their own money. They might be spending as long as there is money in their bank account and they might not even know whether their monthly cash flow is positive or negative.

Of course money spent differs from month to month due to different commitments we undertake such as paying car insurance, taxes etc. But as a person, we should know how much on average we are spending each month and whether our cash flow is positive or negative. Positive cash flow means you are living within your own means while negative cash flow means you are living beyond your means using other people's money which spells trouble in the long run.

I would really like to share my method of tracking my monthly spending. My habit of tracking my spending dated back to my high school years. I was in form 2, if I'm not mistaken when I first started to track my spending. Back then, my simple method of tracking is to print out the monthly calender template available in Microsoft Words and keep it in my locker (I was in a boarding school back then). Every time I withdrew money from the ATM machine, I will write it on the template the amount on the date I withdrew it. At the end of each month, I will roughly know how much I've spent over the entire month. I practiced this method until my university years.

When I started working back in 2004, I created a simple excel spreadsheet to track my spending (alpha version). A couple of months back, I upgraded this version (beta version) so that it can track my monthly cash flow precisely. To download my spreadsheet, please click here (it's FREE!). The alpha version basically only tracks my spending i.e cash outflow. The beta version meanwhile tracks my exact monthly cash flow taking into account all my incomes and cash outflow. All I need to do is input all my incomes and my expenses as the day goes by.

If you look hard enough over the Internet, you will actually find all sorts of free budget software. I'm actually not a fan of budget software because you can only budget so much for your fixed expenses such as loan installments and insurance premium. All others such as foods, petrol etc are not fixed and changes during the course of the entire month. Besides, making a budget is troublesome to me since I need to think ahead to project my expenses for the month. This consume time and arguably the reason why people simply don't like to track their expenses.

Having seen the budget software, I decided to come up with my own user friendly spending tracker spreadsheet. I've been doing it for more than 5 years, everyday of every month without fail. So I don't see why others can't do the same. Of course you will need to have our own will to do this. Hey, nothing is easy in this world. Even eating requires you to feed the food into your mouth. So I've prepared a few answers for the Frequently Asked Questions (FAQ):

• I'm too busy. I don't have time to do this - Perhaps, this is the most frequent answer I've heard. The solution is quite simple. If you work in the office, most probably, you will use the computer everyday. Just save this spreadsheet on your desktop. Every morning or after lunch, make it a point to update your spending tracker. If its on your desktop, its only a click away. Is that too hard? If you don't work with computers frequently, another option will be to print the spreadsheet and keep it at a place where you spend most of your time at. Just update it whenever you spend money. The moment you have the chance to update the soft copy, just do so with reference to your hard copy spreadsheet. This way you will not miss anything.
• How about the days I don't attend to my computer?, I will certainly forget how much I've spent - The days when you don't attend to your computer will most probably be during weekends, holidays or when you are outstation. The method I use during these situations is my hand phone's notepad. I will write all my spending on the notepad and update it into my spreadsheet the moment I have the chance. This way I still keep track of my spending even though I'm not around my computer. What's the use of technology though if you don't know how to maximize the usage? Be creative.
  
• It's hard to remember what I've spent for the entire day - A normal working adult will spend on a few normal items daily which include breakfast, lunch, parking fees etc. Once you've spent the money, immediately update the spreadsheet to avoid memory loss. Money spent beyond working hours, just update it the next morning. I bet your memory does not disappear that fast.

These are a few guidelines that I adhere to make this spreadsheet effective:

1. When I spend using credit card, I update the spreadsheet based on the date I use it. Not the day I pay the credit card company. This way I know I'm still using my own money to spend and I will not go overboard in spending. If you owe the credit card company, ensure that you include the interest charged when you pay them. This is technically money out from your pocket. It's considered as an expense.
2. Information on salary, KWSP, Tabung Haji are all taken from my payslip. This way I will not go wrong with these figures.
3. If you use a service which charges a fee, do include that in your expenses. Example is when you reload your Touch & Go card at ATM machines, you will be charged RM0.50 as a service fee. This should be included in your expenses since this is money out from your pocket.
4. Remember to include every cent of your expenses. Often people tend to ignore the huge impact of such a small amount. Without these cents, there will not be a Ringgit.
5. Include your monthly commitments upfront such as car loan installment, home loan installment etc. This way you will have a rough idea on how much money left for others.
6. Once you noticed that your cash flow is decreasing to an alarming level during the month, do take necessary actions to reduce your expenses for the remaining days to maintain the positive cash flow.
   

The key to remember is that this spreadsheet only serves as a monthly cash flow indicator. It does not track income from investments such as unit trusts, Tabung Haji and KWSP. I don't regard those as income. I track my investments using different spreadsheet. Money spent for investments is technically money out from your pocket since you can't use the money.

The items included in the spreadsheet is my spending pattern. Feel free to modify it to suit your spending pattern. Be creative. You don't have to make others understand your spreadsheet. It's only for you. Make sure you and only you understand your spreadsheet. No one else will be looking at this spreadsheet.

Knowing your monthly cash flow will help in planning for future commitments that you might want to undertake. It's certainly a start for more good things to come. Good Luck!

Budget 2010

This is my take on the recently announced 2010 Budget:

1. EPF contributors can utilise both current and future savings under Account 2 and their take home pay to get higher mortgage. This move will certainly boost the purchasing power of house buyers. But it could also cause buyers to buy properties that they can't actually afford. Caution needed here.
2. RM50 service tax will be imposed on each principal credit card every year and RM25 for every supplementary card. I understand this as a move to curb over spending by credit card users. However, by imposing this, customers who actually use credit card for the convenience of not carrying cash is being victimized here. I would think having one card without the service tax will be better. Only additional card will be imposed with the RM50 service tax.
3. 5% Real Property Gain Tax (RPGT) will be imposed from sale of property regardless of year. This is a move I presume to curb speculation in property market. While it is good for the market, I do think prices of properties will be further inflated due to this tax. I would certainly hope disposal of property beyond the 5th year will not be taxed.
4. It came as a surprise that the government did not increase taxes for cigarette and alcohol drinks. In effort to promote better health and to reduce the budget deficit, this is certainly an avenue. I have to apologize to smokers, but some of them has certainly become a nuisance in our society. Just look at irresponsible drivers who throw their cigarette butts out of their car window at high speed. And look at food stalls where the premise's floor has become their ashtray.
   
5. All the exemptions for green technology certainly is a boost for the environment. I hope green technology will be mandatory in building specifications as an effort to save mother nature.
   

New MRT Lines for KL

In my previous post of LRT Extension, I did provide links for information regarding the LRT extension project. In addition to that post, I would like to share a few more links which provide extra information regarding this project and a possible future MRT project for the Klang Valley.

My previous post does not include the exact location of the new LRT stations that will be built. From Patchay.com, these are the 13 locations where the new stations will be built for Kelana Jaya Line extension: Aman Crimson, Subang Depot, Kelana Centre Point, Subang Parade, Jalan Jengka SS15, Jalan Jengka SS18, USJ7/Subang Perdana, USJ8/Goodyear C3/Taipan,Wawasan School USJ14, Tropika Paradise USJ21, Seksyen 27, Alam Megah Seksyen 28 and Giant Putra Heights.

For the Ampang-Sri Petaling Line extension, these are the new 13 locations where the stations will be built: Taman Esplanade/Bukit OUG, Kampung Muhibah, Bukit Kinrara 9, Giant Bandar Kinrara, Kinrara Industrial Part/Taman Puncak Kinrara, IOI Mall, Tesco Puchong/Bandar Puteri, Rakan Muda Complex, Batu 12, Puchong Perdana/Indah, Puchong Prima, Kampung Tengah/Sri Aman and Giant Putra Heights.

In addition to the LRT extension project, I came across another public transportation project for the Klang Valley. However, this information has not been officially released in the main stream media. The reason I guess is because the feasibility study is still under way. The project is dubbed Kota Damansara - Cheras New MRT Line. I first encountered about this project through a forum. Since then, I've tried to search around and found these information at Patchay.com, transitmy.org and skyscrapercity.com.

The project is said to be 42km long and will possibily extend to the Sungai Buloh KTM from Kota Damansara to allow integration with KTM Komuter. It will cost around RM25 billion and will be part of 10th Malaysian Plan. It will start construction in 2012 and will take approximately 4-5 years to complete. Among hotspots that the new MRT line will service are Mutiara Damansara, Bangsar Shopping Centre, Bangsar Village, Nu Sentral, Pavillion KL, Sungei Wang, Berjaya Times Square, Cheras Leisure Mall, Plaza Phoenix and Bandar Tun Hussein Onn.

The reason I highlighted about these projects are the snowball effects they will bring to the surrounding area. Obviously, an area with good public transportation accesibility will fetch good capital appreciation and also rentals. For the LRT extension project, the obvious beneficary is of course Putra Heights with both Kelana Jaya and Ampang Lines meeting there. But unfortunately, there are not many apartments/condos around this area which can be a potential hit for property investors.

In case you are looking for properties either for staying or investment purposes, do study these 2 projects before making any decision. Eventhough the new MRT line is still at its early stages, be mindful the effects that it can bring to your property value when it's in place. However, I must caution here that the routes are likely to change when the feasibilty study is complete. As has been seen in the initial route for the LRT extension and the one announced by the government in August. Nevertheless, some info is better than no info at all.

BBA vs BTS 10-90 - continued

This post is a continuation from my earlier post entitled "BBA vs BTS 10-90".

After reading the article in Personal Money, I've sent an email to Mahadzir Ahmad to enquire whether the same applies to Musharakah Mutanaqisah (MM) principle since my Islamic loan for my house is using MM concept.

Here is the extract of my email to him:

"My home loan is based on Musyarakah agreement which is based on Musyarakah Mutanaqisah concept. Does the same as BBA applies in my case if the property that I purchased is abandoned? What I understand from this concept is that its a joint venture between the bank and customer. I've gone through the agreement and found out that in case
of an abandonment, the bank and customer will share the cost. Since this concept is based on units gradually transferred from bank to customer, what is my position like since in a case of abandonment, it will likely happen within 1-2 years after I entered into the agreement? At that point of time, of course the bank's portion of unit is bigger. Is it whatever that I've paid during construction period will be refunded to me by the bank? If not, how does this concept
protect house buyers from project abandonment by a developer?"

Musharakah according to the terms in the agreement means "the joint venture entered into between the Bank and the Customer in which the Bank and the Customer contribute to the capital of the Musharakah (whether in cash or in kind) to facilitate the ownership of the Property and the gradual purchase by the Customer of the Bank's stake in the Musharakah throughout the duration of the Equity Home Financing-i Facility based on the Shariah principle of Musharakah Mutanaqisah". In layman terms, MM concept is buying a property via a partnership or joint venture.

While going through the Musharakah Agreement, this is what I found. In case of abandonment of the property:

• any loss incurred due to the abandonment will be shared by the Customer and the Bank in accordance with each party's contribution to the Musharakah respectively; and
• provision set out in clause 6 of the Purchase Undertaking shall be invoked by the Bank. Clause 6 states that the Customer shall pay to the Bank based on the following formulae:
• Disbursed Amount + Outstanding Forward Ijarah Payments.

I'm really confused with the terms used in the agreement. At first, it states that the loss will be shared between Customer and Bank based on each party's contribution. What I understand from this is that since in an event of abandonment of the project, it is likely to happen within the first 5 years of the project. Hence, in the early stages of the agreement, the Bank should be the one who's holding a bigger stake in the agreement.

However, the subsequent point states that the Customer needs to pay the Bank based on what has been disbursed by the Bank. There seems to be 2 conflicting points in the agreement from my understanding.

According to Mahadzir's reply to my email, MM concept has not been tested in court. Hence a base case can't be established on what it will be like in case of abandonment. There is possibility that the judge will just annulled the so-called MM contract (because the partnership's validity is highly suspected) and apply the equity principle is always there. He also attached an article entitled "Shari'ah and legal issues of musharakah mutanaqisah" by Adam Ng. Please read the article for better understanding of the implications. The conclusion of this article is rather interesting which states "It is not the permissibility of MM contracts per se, but their indiscreet use, faulty structuring and ‘window dressing’ which are igniting the perception that MM is no different from BBA, or, worse still, conventional home-financing".

Perhaps there are still lots to be done in order to get a perfect Islamic home financing concept which really adheres to the principal of Shariah and protects the interest of house buyers.

Tribute to Mahadzir Ahmad for his great effort in promoting Islamic Finance. Wallahu'alam

BBA vs BTS 10-90

I read an article by Mahadzir Ahmad in the August 2009 edition of Personal Money with great interest. The article is entitled "Islamic banking and the BTS 10-90 - Islamic financing contracts should help protect house buyers from ending up without a property". Mahadzir Ahmad is an Islamic financial planner (IFP) and an Islamic finance senior consultant with HeiTech i-Solutions.

In his article, he highlighted the plight of house buyers which are burdened with abandoned housing projects which led the government to introduce the Build-Then-Sell 10-90 concept. With conventional banking, house buyers still have to settle their housing loans regardless whether the house is complete or not. Sounds fair? This certainly has affected thousands of house buyers who had to suffer in silence.

He cited an example of using Bai Bithaman Ajil (BBA) contracts by Islamic banking to mitigate abandoned projects which cause distress to house buyers. BBA is a sale contract. He highlighted the fact that if a house is not completed and abandoned, the buyer has the right to cancel the purchase and stop making further payments. The Islamic bank should be the one responsible in delivering the house. To me, this is a fair responsibility to the Islamic banks since they have all the resources to determine whether the housing project is liable and the developer is reliable to complete the project. After all, they are the one who will finance the housing project.

Unfortunately according to him, the role of Islamic banks has yet to reach an ideal situation where they take responsibility in delivering the house and yet at the same time house buyers are protected from the risk of abandoned project. Apart from pursuing the BTS 10-90 concept, another way to mitigate risks of abandoned project is by entering into a BBA financing contract with an Islamic bank.

He cited a recent decision by the Court of Appeal in a case involving Bank Islam (BIMB) which confirmed that BBA contracts are syariah-compliant and valid. A BBA contract is a sale transaction and it differs from a loan transaction of a conventional bank. Although there are issues pertaining BBA which is widely accepted in Malaysia but not in the Middle East, this is an issue to be discussed another day. The bottom line is we don't have to look far for solutions when the answer is actually right in front of our face.

Isn't this a good enough reason for us to change to Islamic banking?

Emergency Fund

I've just completed my emergency fund. In case you are guessing, an emergency fund is used when you suffer a lost of income. Life must go on and yet money is required. That's where emergency fund comes in. Read any financial books, one of the criteria of a good financial planning is to have an emergency fund.

Some time ago, I read the book "Automatic Millionaire" by David Bach. According to him, one of the criteria of an emergency fund is that the money must work for you as an investment. Meaning to say, its a waste if your emergency fund stays stagnant without growing because an emergency fund could be as much as tenth thousands of ringgit.

Books on financial planning will suggest that you have an emergency fund of 3 to 6 months of your monthly salary. How much to choose its totally up to you. Its a feel good factor on how long you think you can secure a new job in case you suffer lost of income. As for me, I'm comfortable with 3 months salary. Among the reasons that I can think of why we need emergency funds:

1. In case you are terminated by your employer, you will need time to secure a new job. This can sometimes take up to 2-3 months. During financial crisis, anything can happen. So, be prepared.
   
2. If suddenly you are diagnosed with a critical illness. Treatment can take weeks, sometimes months. A normal company will only give you up to 20 days of medical leaves per year. Any extra medical leaves required will eat up your annual leave. Once you are out of annual leaves, you have to take up unpaid leave. Unpaid leaves will certainly reduce your monthly income.
   
3. There are cases where employer fails to pay their workers for up to a few months during economic crisis. You certainly need your emergency fund during that period.

These are a few criteria that an emergency fund must have from my perspective:

1. It must be easily accessible i.e liquid.
   
2. It must grow at a slow rate.
   
3. It must be in separate account from your day to day money.
   
4. It must be invested according to Syariah.
   

Having listed my criteria, I actually contemplated on a few options as my emergency fund. My first option was Fixed Deposit (FD). Before the economic downturn, FD can fetch rates up to 3.5% annually. But now, you are considered lucky if you can get a rate of 2.3% per year. While FD is a good place to invest your emergency fund, it still depends on the banks rate which will only increase the longer you park your money there.

My second option was a Money Market (MM) fund. I've done my analysis on this and the return on MM fund is not that good. You can barely fetch up to 2.5% annually. This is certainly not good in my book. Anyway, the service charge for this fund is quite minimal. Only 0.25% of your investment amount.

Next is in Tabung Haji (TH). I already have an existing account with TH for my hajj preparation. So I prefer not to mix them up. On another note, TH is giving quite a good consistent return of 2 to 3% annually after zakat.

Amanah Saham Bumiputera (ASB). I have actually taken out all my investments in ASB due to the halal and haram issue. Its really up to that individual to decide. Some says its harus and some haram. If you think its not an issue, then go ahead. ASB do give good consistent return of 7 to 9% per year without any service charges. Where else can you get better investment than that?

Option that I choose was Income Fund (IF). An IF is actually a fairly conservative fund. When making comparisons between IF and MM fund, IF actually gives better return. The return ranges between 3-4% per year. Besides, the service charge is the same at 0.25%. So I've decided to take up a bit more of risk for my emergency fund in order for the money to work harder for me. Hopefully with the return, I would not have to add to my emergency fund later in case there is a change of lifestyle where I require my pool of emergency fund to be bigger. Besides it complies to all the 4 criteria that I've mentioned above.

Before investing my emergency fund in the Income fund, my emergency fund was actually mixed up with my day to day money. I left my emergency fund in my savings and current accounts. One thing for sure is that I never always felt that I have adequate money since the emergency fund is always on my mind. Whenever I want to spend money on big ticket items, I was not sure whether my emergency fund is adequate or not since they are all mixed up. Now for sure, I can sleep better knowing I've separated my emergency fund from my day to day money. Its a simple task but yet important

So if you have not started your emergency fund, start studying your options today. Its a good financial planning foundation. Good Luck!

Truth About Leasehold Property

Recently, I received the Sale & Purchase Agreement (SPA) for the house that me and my wife recently bought for our signature. Flicking thru the agreement, then only I discovered the true meaning of a leasehold property. All this while, my understanding about leasehold property was that the land is leased to the house owner for a period normally 99 years from the day the owner takes vacant possession of the house.

However, in my agreement, it is stated that the leasehold period is for 99 years and will expire in the year 2095. What this mean is that the leasehold tenure has started since year 1996. The house that we bought is still under construction and will only be ready by 2011. This means that we already lost out 15 years of the leasehold period. We are only left with 84 years to stay in the house. How did this happen?

The normal practice for developing residential properties in Malaysia is that the developer will acquire a piece of land to be developed. Then, the land will be developed and sold in phases because of capital contraints. The whole development might take up to 20 years to be completed. Even though the development will take up to 20 years, the leasehold period for the whole land will start the moment the developer acquires it. Owner of the later phases will have shorter leasehold period compared to the earlier phases owner.

For certain people, 84 years is a long time. Not many will even reach to that age. As for me, if I were to live another 84 years, I'll be more than 100 years young! So why should I bother about the leasehold being only left with 84 years? Well, it was not a concern in the first place until I discovered something in the current book I'm reading.

In this book, the author stated that for leasehold property with tenure less than 60 years, its quite difficult to get financing from banks. This means, the target market is significantly reduced because only buyers with cold hard cash can afford the property. This also means, since the target market will only consist of a small pool of people, you will be at the losing end if any negotiation takes place. I have yet to confirm this fact with any banker but to me, the reasoning is quite logic. Why should a bank hold onto a mortgage which decline in value? Take note, when I say decline in value means when the leasehold period is lesser than 60 years. Not before that. Should this be the case, it also means that ideally we stay for about 20 years in this property before selling it to fetch a fairly good value (if it rise in value of course) for the property instead of waiting the leasehold to be less than 60 years.

Of course ideally, whenever you can, try to buy freehold property. This way, you will not have to worry about the declining value. But in reality, it has to be admitted that freehold property has become scarce in our part of world today. Even if you can get one, surely you will have to pay a premium for it. As a precaution, follow these steps. It might help:

1. Whenever buying a leasehold property, find out when was the first phase of development started. If the salesperson could not answer this question, request to have a copy of their SPA. It is clearly stated when will the leasehold period expires.

2. Always try to buy early phases in a development. This way you will get more leasehold years.

3. Pray and fingers crossed that the state government will convert all leasehold land to freehold like what the Perak Pakatan Rakyat government wanted to do before they were toppled. Hope the Selangor government will do the same.

4. If possible, try to sell off property before its leasehold period is less than 60 years.