Malaysia’s universities working to make the grade

Universities in Malaysia have been given a key role in government plans to raise the country to developed-nation status within the decade, but more investments may be necessary if higher education institutions are to meet the targets that have been set by the state.

According to government figures, 25% of all Malaysians between the ages of 18 and 24 are taking part in some form of higher education, a level of participation that Prime Minister Najib Razak says will help the country overcome income inequality and reach its goal of being a high-income nation by 2020.

“The odds of people succeeding in their socioeconomic upward mobility are significantly improved by raising access to education,” he said while attending a ceremony at the Unitar International University in Kelana Jaya on February 27. “Only with equity can we narrow the gap of income inequality and achieve a resilient national unity.”

Working to make the grade

However, it is not just greater access to higher education that is in the government’s sights – Malaysia is aiming to boost the quality of academics as well. The goal is to have at least one local institution ranked among the top 50 global universities by 2020, with a minimum of three in the top 100.

Meeting this target may prove difficult to achieve by the deadline set. In the latest edition of the QS World University Rankings, the preferred benchmark according to the Ministry of Education, the highest-placed Malaysian institution was Universiti Malaya, which came in at 167, followed by Universiti Kebangsaan Malaysia (269), Universiti Sains Malaysia (355) and Universiti Teknologi Malaysia (355).

Malaysia’s universities fared better in the QS World University Rankings by Subject, however, which was released at the end of February. Eight institutions are rated within the top 200 in at least one of the 30 disciplines reviewed, two more than made the grade last year.

Best-performing was Universiti Sains Malaysia, which ranked 28 for environmental sciences, while also joining the top 100 for computer science and information systems, chemical engineering, civil engineering and mechanical engineering. Universiti Malaya reached the top 100 in six categories, including computer science and information systems, chemical engineering, electrical engineering and mechanical engineering.

This year’s results show that Malaysian universities are operating at an increasingly high level within a range of academic disciplines, QS head of research, Ben Sowter, told the local media.

“Overall, the performance of Malaysian institutions has improved compared to last year,” he said. “Through taking a more targeted approach to ranking universities, we have been able to pick up on the particular strengths of Malaysian institutions much more effectively than is possible in overall institutional rankings.”

Academic credence, economic gain

Apart from gaining credibility in the academic world, success in various ratings surveys are of importance to individual universities and the country, and can bring clear financial benefits. Better rankings help universities attract more international students, staff, business investment and research partners.

Another advantage of a stronger higher education system could be a reduction in the flow of Malaysian students overseas, with up to 80,000 studying abroad annually, of whom roughly one third have some form of sponsorship. While a similar number of international students come to Malaysia, the balance of revenue from higher education could be swung more firmly in the country’s favour if it was able to keep more of its students at home while attracting additional fee-paying foreigners from other markets.

One encouraging fact is that many of the disciplines where Malaysian universities scored high in the QS rankings were in technical and scientific fields, indicating strength in areas that have practical applications for economic development. Though Malaysia may find it a challenge to reach the upper tiers of global university rankings, the country appears to be making the grade in terms of moving closer to its national economic targets.

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Malaysia forms ties to the Gulf to develop Islamic financial services

A cooperation agreement between the bourses of Malaysia and Saudi Arabia – the world’s two largest Islamic financial services markets – stands to help the industry grow at a greater clip in both countries.

The deal, signed on February 20, will see the exchanges in Kuala Lumpur and Riyadh share expertise and develop human resources jointly. It covers topics such as equities, mutual funds and sukuk (Islamic bonds), and comes after an agreement between Malaysia’s central bank and the UAE in October on bolstering economic ties, including in the arena of IFS.

Combined, Malaysia and Saudi Arabia hold $682bn in Islamic banking assets, according to Reuters. The Saudi exchange, Tadawul, lists the world’s biggest Islamic banks, while Bursa Malaysia hosts the largest and most liquid market for sukuk.

Expanding its draw

The Malaysian market in particular is set to expand this year thanks to greater international interest, according to ratings agency Standard & Poor’s (S&P). “Malaysia already benefits from a broad sukuk investor base and liquid debt market. So the increased interest from issuers – notably in the Middle East and Asia – in tapping the Malaysian ringgit and dollar market should in our view continue over the next few years as Malaysia cements its leading position in the industry,” S&P wrote on February 4.

Major international investors, too, are extending Malaysia’s clout in IFS. AIG, the US-based insurance company, revealed in early February that by June it plans to start a sharia-compliant reinsurance business in Malaysia – a country that accounted for 11% of the $20bn global takaful (Islamic insurance) market in 2013, according to a February 13 report from the Malaysia International Islamic Financial Centre

Also in February, Libya’s ambassador to Malaysia, Anwar A Y Elfeitori, said his country was seeking more cooperation with Malaysia to assist in the development of its Islamic banking sector.

As a result of such global positioning, the IFS market has the potential to provide a significant boost to the economy, particularly in talent and employment, Adnan Alias, CEO of the Islamic Banking and Finance Institute Malaysia, told the local media recently.

“Malaysia has the right landscape and regulatory framework to further spur the development of talent in Islamic finance,” he said, adding that the IFS workforce was expected to grow from 144,000 to 200,000 in the next eight years. He noted the contribution of IFS to GDP was set to be around 10-12% in 2020, compared with the latest figure of 8.6% in 2010.

Steps toward further growth

While Malaysia has had a significant degree of success in the international IFS market – the Kuala Lumpur-based IFS Board, for example, is one of two global standards-setting bodies – the South-east Asian country faces increasing competition. Potential competitors include Dubai, which in recent months has signalled its intentions to establish the emirate as a centre for IFS.

According to some observers, Malaysia could be doing more to ensure continued growth in the IFS market. Islamic banking and finance could account for 50% of the financial sector if domestic banks like Maybank and CIMB Group give “a big push” to their IFS strategies, Humayon Dar, visiting professor of Islamic Finance at the Academy for Contemporary Islamic Studies, Universiti Teknologi MARA, wrote in an op-ed published by Malaysian Reserve on February 24.

Humayon said this would involve “Islamising” businesses by making more procedures sharia-compliant. “This is perhaps the time for the government to consider converting Cagamas [the Malaysian national mortgage company] into a fully-fledged Islamic financial institution, as almost 50% of its business is already sharia-compliant,” he added.

Others say the local IFS sector could receive a boost if Malaysia were to adopt sharia-compliant laws. Speaking in February at a conference on Islamic banking and finance law in Kuala Lumpur, former chief justice Tun Abdul Hamid Mohamad pointed out that many countries have set up regulatory frameworks to facilitate the development of Islamic finance products such as sukuk, but none has drafted sharia-compliant laws that could be used to settle the disputes that arise from their use. This could provide an edge for Malaysia, which is already viewed as a “model Islamic country”, he said.

As the global market grows – Islamic financial assets are currently valued at $1.3trn and S&P expects the industry to grow 20% annually from 2011 to 2015 – Malaysia is in pole position to capitalise on its early entry into the sector. While linking up with Gulf countries will help spread and develop Malaysian expertise on Islamic finance, new competitors in the sector continue to arise. This means that Kuala Lumpur must strive for the innovation that will keep its IFS sector ahead of developing trends.

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Malaysia focusing on qualitative growth rather than quantitative easing

With the US Federal Reserve set to reduce its bond buying activities as of January 2014, there has been growing speculation as to how great an impact the tapering will have on emerging markets, including Malaysia. While some economies dependent on short-term capital inflows, such as Turkey or Brazil, are likely to face challenges, Malaysia is increasingly seen as more capable of coping with the reversal of the US bond policy.

In mid-December, Bank Negara Malaysia (BNM) governor, Zeti Akhtar Aziz, said that the central bank was well positioned to manage and intermediate any volatility resulting from the tapering of quantitative easing, and had been preparing for the gradual reduction in the US bond buying scheme.

“Progressive liberalisation has resulted in two-way flows that will help towards stabilising the markets, and BNM will be there to ensure orderly market conditions,” Zeti said.

While there will likely be some negative economic effects, there are also potential advantages to be had from the ending of US quantitative easing, the BNM head said.

“We have to take the tapering as an eventuality and it is a sign that the US economy has improved and this would be positive for the rest of the world,” she said. “However, as recipients of funds, we would see more volatility in our financial markets.”

Zeti noted she expects local institutional investors such as pension funds and insurance companies to step up and play an increasing role in the markets as overseas funds are withdrawn.

Another individual to remain confident in the economy’s outlook in the face of quantitative easing is Edward Iskandar Toh, chief investment officer of fixed income for Areca Capital, a Malaysia-based fund management company. In an interview with the local media January 13, Toh explained that the domestic market had been factoring in the advent of tapering for the past six months.

Growth set to outweigh tapering downside

Even with the Federal Reserve’s tapering as a cloud on the horizon, the Malaysian economy is expected to sustain momentum in 2014, with analysts predicting expansion of 5% or more. According to a report issued by Standard Chartered Bank on January 9, improved foreign trade and continued strong domestic demand will underpin growth, suggesting the economy would be able to ride out the impact of the Fed’s tapering.

Indications that Malaysia could likely experience a soft landing when the Fed eases its stimulus programme came in early January, with the release of the latest current account figures. November saw the highest trade surplus in almost two years, rising from October’s $2.51bn to $2.96bn.

Following the release of the trade data on January 8, Rahul Bajoria, an analyst with Barclays, said the ongoing growth in trade “boded well for overall economic performance”. Should the economy continue to expand, it could attract both longer-term foreign direct investment as well as more mobile overseas capital.

A further show of confidence came from ratings agency Moody’s, which in mid-November upgraded its outlook for Malaysia’s government bonds from stable to positive, while reaffirming both bond and issuer ratings at A3. One of the factors influencing Moody’s decision to revise its outlook was what the agency described as Malaysia’s “continued macroeconomic stability in the face of external headwinds”.

Some impact inevitable

Though Zeti and others are confident that the Malaysian economy can successfully weather the ending of quantitative easing, the tapering process is likely to cause ripples, as has already been seen in mid-2013, when speculation first began regarding the Fed’s plans to cut its stimulus programme. Over the course of 2013, the ringgit lost nearly 7% of its value, its worst performance since the Asian economic crisis of 1997, while the cost of government borrowing also edged up as the focus of investor interest shifted towards the US.

However, in comparative terms, Malaysia has fared quite well – the value of Indonesia’s rupiah, for example, fell by around 20% in 2013. The worst of the impact has probably occurred, and a rejuvenated US economy could boost demand for Malaysian exports, part of the upside referenced by BNM governor Zeti. With its own economy set to expand solidly, and some of its main external trading partners on the road to recovery, Malaysia will likely experience ripples, rather than waves, as the Federal Reserve shifts down its bond-buying programme.

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Oxford Business Group | Budget shake-up for Malaysian real estate

The Malaysian government has taken steps to cool speculation in the property market by imposing a capital gains levy on real estate sales, tightening up regulations governing developers and raising the price bar for foreign investors, moves that have won mixed reviews from analysts.

On October 25 Prime Minister Najib Tun Razak tabled the draft budget for 2014, which has a strong emphasis on raising state revenue and cutting spending. According to the plan, subsidies will be restructured in the coming years and public debt – currently at 53% of GDP – will be lowered.

Among the revenue-generating proposals are a number of new taxes, including a real property gains tax (RPGT), which is also intended to ease property speculation and reduce inflation in housing. Under the new provisions, set to come into effect on January 1, a tax of 30% is to be imposed on gains from real estate sales on properties owned for three years or less, with the rate sliding to 20% if the property is sold in the fourth year of ownership and 15% in the fifth. Any sales after the fifth year will not be charged a capital gains levy. Previously, the capital gains tax on property sales had been set at 10% when introduced in 2010 and later increased to 15%, and applied to sales within two years of purchase.

For foreign property buyers, a different tax scale will be applied, with non-citizens required to pay a tax of 30% on the capital gains for a property sold at any time over the first five years of ownership, after which the rate falls to 5%.

Another move, one seen as even more likely to cool speculation, was the banning of developer interest bearing schemes (DIBS). As their name suggests, developers that offer DIBS agree to pay any interest on home loans during the construction period, making the purchase more attractive to potential buyers. The new provisions also prevent commercial lenders from involving themselves in DIBS-related projects. This measure will probably result in a slowing of off-plan sales by developers, while also reducing the property lending component of some of Malaysia’s larger banks.

While many in the sector have said banning DIBS was a positive move, one that would directly target speculation, others believed it would make it more difficult for first-home buyers to enter the market. One critic of the reform was Michael KC Yam, the president of the Real Estate and Housing Developers Association. Yam told the local media on October 25 that DIBS had been of benefit to many.

“We think that innovative home financing packages such as the DIBS offered by developers of high premium properties should be encouraged to facilitate financing and promote home ownership,” he said.

The RPGT also had its supporters and opponents, with Foo Gee Jen, managing director at property consultancy CH Williams Talhar and Wong, describing the increased levy as a measure that would boost stability in the market.

“The increase in RPGT is a wake-up call for flippers,” he told the local media on November 6. “Investors will have to go back to investing in property fundamentals, such as location and yield.”

However, some analysts have queried whether speculation is as rife in the sector as has been suggested, saying that the higher tax rate on capital gains will do little to reduce price increases for residential properties, one of the stated aims of the bolstered levy.

Foreigners eased out of the low end of the market

The budget also lifts the minimum value of a property that foreign investors can buy from the current RM500,000 ($161,000) to RM1,000,000 ($322,000), a move that may cool some of the speculation by overseas players.

Given the still relatively low price and solid value of Malaysian property, even the increased threshold may not curb foreign interest, though Chang Kim Loong, the honorary secretary-general of the National House Buyers Association, believed the higher ceiling will ease pricing pressures for Malaysian buyers.

“Foreigners must be prevented from snapping up property meant for the lower- and middle-income and thus artificially inflating property prices and creating a domino effect which can result in higher property prices across the industry,” he said in a statement issued the day after the budget was handed down.

Boost for low-cost residential segment

The budget also lays out a plan to add 223,000 new residential units to the national accommodation stocks in 2014, with both the government and the private sector expected to play a role.

The state will directly provide funding for the construction of low-cost housing, while at the same time offering a subsidy of $6000 per unit to private developers that build homes directed at low- and middle-income buyers.

It will be well into the new year before the full impact of the 2014 budget articles dealing with real estate will become apparent. To some degree at least, the buoyancy of the property market will depend on the strength of the Malaysian economy. The government has predicted growth of 5-5.5% in 2014, though ratings agencies and analysts are predicting GDP expansion may fall somewhat short of this target, at 4-4.5%. It could be that a relatively sluggish economy, rather than any increased tax, could slow activity in the property market.

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Malaysia’s EU trade negotiations in spotlight

With the end of an agreement granting Malaysia preferential access to the EU market looming, all eyes are on ongoing negotiations between Kuala Lumpur and Brussels aimed at securing a replacement free trade pact.

Malaysia currently benefits from the EU’s generalised system of preferences (GSP) scheme, which provides developing countries with generous tariff reductions on exports. However, the World Bank’s decision to award the South-east Asian state upper-middle-income-nation status will end its eligibility for the lower levies from January 2014.

While EU representatives are confident that a new free trade agreement (FTA) will deepen economic integration between its member states and Malaysia, local business representatives have questioned whether they can remain competitive once the lower tariffs are withdrawn.

Strong bilateral trade

The EU is a major importer of Malaysia’s goods. Figures show its members purchased 13%, or 2.22m tonnes, of the country’s palm oil exports in 2012, and spend more than $1.3bn each year on Malaysian timber. On October 22, the Malaysia External Trade Development Corporation (MATRADE) said it expected total bilateral trade to reach RM120bn ($38.2bn) in 2013. Results so far this year suggest this is an attainable goal, with exports to the EU for the first eight months amounting to RM41bn ($13bn), while imports stood at RM45bn ($14bn).

Susila Devi, the senior director of MATRADE’s Strategic Planning Division, told reporters that Europe offered Malaysia a broad range of business and investment opportunities across the industries. “It also includes information communication technology, chemicals, automotives, renewable energy, logistics, agro food processing, pharmaceuticals and financial services,” she commented.

FTA negotiations

Business leaders, however, have highlighted the significant impact that the end of GSP status is set to have on trade and investment.

The GSP scheme provides duty reductions of up to 66% on sales to the EU. Malaysia’s exports to Europe under the initiative were valued at RM13.5bn ($4.3bn) in 2011, or 17% of its overseas shipments, according to a report published by the EdgeMalaysia in April.

Tan Sri Lee Oi Hian, CEO of Kuala Lumpur Kepong, a Malaysia conglomerate with interests in the palm oil industry, warned in March that without the GSP, the tax rate on some Malaysian oleochemicals heading for the EU would be between 4% and 6%. “We will just not be competitive,” he said at a Global Malaysia Series workshop.

Lee, together with other business leaders, said the impending withdrawal of the GSP scheme heightened the need for the government to secure an FTA with Europe. The loss of the GSP could be “another nail in the coffin” for the local palm oil industry, he said.

The EU and Malaysia first entered into discussions on a FTA in late 2010, with the next round of negotiations scheduled for the fourth quarter of this year. The ambassador and head of the EU delegation to Malaysia, Luc Vandebon, told Bernama in June that if the next round of talks is held before the end of 2013, then “it should be possible to conclude negotiations in late 2014/early 2015”.

The EU delegation’s former ambassador to Malaysia, Vincent Piket, said last year that an FTA would boost the country’s GDP by 8% by 2020.

“The conclusion of the FTA would be a landmark step in the fostering of bilateral trade between the two partners and deepen economic integration,” he said.

Looking long term

FTA supporters say a deal will, over time, increase market access for goods and services, facilitate trade and investment flows, enable mutual recognition of standards and qualifications, and increase joint capacity-building programmes.

However, not all Malaysians feel that an EU trade pact, at least in its current proposed form, is the best path for securing long-term economic growth.

In a report published in late 2012 by the IFRI Centre for Asian Studies, part of a French think tank, author Tham Siew Yean noted that the proposed FTA was in conflict with key interests of Malaysia. Tham raised particular concerns about the impact of intellectual property rules on the pharmaceutical sector.

“A small trading economy such as Malaysia’s is keen to lock in its market access to other countries. … [But] Malaysia’s focus has always been in the ASEAN as well as the wider East Asian market. In this scenario, ASEAN agreements, including Malaysia’s commitments in extra-ASEAN-wide agreements, will hold more weight than an agreement with the EU,” he wrote.

Concerns have been raised that with regional competitors also vying for the EU market, Malaysia could be tempted to negotiate a deal with the union from a position of weakness or sign an agreement lacking transparency. Many Malaysians, it would seem, are keen to avoid landing an unbalanced deal that fails to dovetail with the country’s broader vision for growth.

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Malaysia’s palm oil industry faces tough market

The palm oil industry in Malaysia appears set for an uncertain few months, with a number of factors coming into play over the last quarter of the year that could push already low prices down even further, just at the time when production is about to peak.

As of the end of September, Malaysian palm oil prices were down 6% on the beginning of the year. Moving into October, the commodity was trading at $716 a tonne, with predictions it could fall further in the lead-up to the new year.

Malaysia has seen output rise monthly through to August, and while September’s figures have yet to be released, it is expected that volume will again be up. Some estimates put September’s production at close to 2m tonnes, a sharp jump from the 1.74m tonnes of the month before, which itself represented a 3.6% rise over July. This continued increase in output, which is likely to be maintained for the rest of the year – the high season – could further force down global prices as supply overtakes demand.

Also bearing on palm oil prices is the rising tide of soy oil flowing into the market, with the US soy crop set for a better-than-expected harvest and soybean stocks at higher levels than normal for this time of year. This has pushed soybean prices down to near two-year lows as of early October, a trend that will undercut demand for Malaysian palm oil.

Falling oil prices also set to weigh on sales

Another factor weighing down palm oil sales and pressuring prices is the drop in the cost of conventional crude oil. With oil prices falling, there is less appeal for biofuels in the market, and rising output from Libya combined with concerns over demand in the US as part of the fall-out from the shutdown of government, have pushed oil prices down. Benchmark Brent crude was trading at less than $108 a barrel in early October; WTI crude was lower still, dipping below $102, with analysts predicting a further decline in the weeks ahead as price instability posed by a potential US military strike against Syria recedes.

According to Dorab Mistry, head of vegetable oil trading with Indian conglomerate Godrej Industries, palm oil could fall to a four-year low of $617 a tonne in 2014 if crude oil prices go below the $100-a-barrel mark. This would represent a 13% fall on present prices, Mistry told an industry conference in late September.

“The fundamentals of the oilseed and vegetable oils complex are clearly bearish,” he said.

One factor that could boost sales is the drop in the value of the ringgit, which has retreated almost 9% since May. This has made exports more appealing, at least in some markets, though not in those that, like Malaysia, have been hit by the outflow of funds from developing economies. While the weaker ringgit may boost overseas sales, an easing of local currencies against the dollar has taken place in many of Malaysia’s key markets, such as India where the rupee has fallen by 12% since the beginning of the year. This means that any advantage accrued from the devaluation of the ringgit is offset by similar downward moves elsewhere.

Government plans could drain off excess

While palm oil producers may face difficulties in boosting sales abroad, help may be at hand at home. The government has said it is considering lifting the levels of palm oil added to diesel fuel as a way of boosting domestic demand. Malaysia requires a 5% palm oil additive to diesel; the resulting biofuel accounts for a significant portion of palm oil consumption, with nearly 250,000 tonnes of palm oil/diesel blend consumed in 2012, a figure the state aims to double by 2014. Indonesia recently announced it would be raising its palm oil input to biodiesel from 7.5% to 10% next year. Any similar move by Malaysia would help soak up excess production, though the government has yet to set any timeframe for an increase or how far above the current levels the rise would be.

Further state support came in mid-September, when the government decided to keep taxes on palm oil exports unchanged in October, maintaining the 4.5% tariff that has been in place since March. The decision is expected to help boost overseas sales during the peak harvest season and reduce the risk of a large build-up in stockpiles.

It may not be until well into the new year, when local production tapers off, that prices may start to move upwards to any significant degree, though crop losses due to adverse weather or a sudden jump in crude oil prices could give a boost to Malaysia’s palm oil sales. For the present, it seems the best producers can hope for are steady sales and for prices to remain at current levels.

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Malaysia 2020 targets elusive at current rates

Despite a low inflation rate and relatively stable sovereign and corporate balance sheets, Malaysia is set to miss the targets set out in its Vision 2020. As part of a long-term analysis of the South-east Asian country, Oxford Business Group recently contributed an article entitled ‘The Malaysian Quandary’ to local media website FMT, looking at the basis for this assessment and calling into question the private sector’s reliance on the government.

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Malaysia’s tourism sector targets niche markets

A tourism leader in the region, Malaysia has seen its position challenged in recent years as nearby rivals have stepped up efforts to attract more visitors.

Official statistics show that just over 25m visitors arrived in 2012, a rise of around 300,000 compared to the prior year. Despite this increase, Malaysia saw its ranking fall on the 2012 UN World Tourism Organisation (UNWTO) list of most-visited countries, published in August. The country dropped one place on the UNWTO ladder to 10th, being overtaken by Russia.

The sector nonetheless remains a major source of foreign currency earnings, second only to the manufacturing industry, as well as the seventh-largest overall contributor to the national economy. The 2013 World Travel and Tourism Council report noted that tourism employs 1.7m people, or 13.6% of all jobs, when taking into account positions indirectly supported by the industry.

While the 1.3% increase in the number of visitors was a modest improvement on the 0.6% rise recorded in 2011, growth in the market has been slow in comparison to Malaysia’s neighbours. Thailand saw arrivals go up 16% last year, and fast-movers Cambodia and Vietnam posted increases of 24% and 14%, respectively, though both are coming off a far lower base.

In terms of arrivals, Malaysia remains number one in the South-east Asian region, but it faces challenges when it comes to capitalising on arrivals volume. Though it attracted just over half as many visitors, Singapore generated similar revenue from its tourism sector, while Thailand received almost 3m fewer visitors than Malaysia in 2012, but earned 50% more from them, according to UNWTO data.

This suggests that Malaysia needs to do more to encourage greater spending by tourists. The country may also need to look further afield when expanding its client base, with around 75% of all arrivals coming from neighbouring states such as Singapore, Indonesia, Thailand, Brunei and the Philippines, with Singaporeans making up well over one-third of all arrivals.

One of Malaysia’s appeals as a tourism destination for fellow members of the ASEAN bloc is its proximity, Tan Kok Liang, a vice-president of the Malaysian Association of Tour and Travel Agents, told the local press on August 6. By not having to endure long-haul flights, ASEAN visitors can easily take short breaks in Malaysia, he said. However, Tan also acknowledged that the predominance of tourists from nearby countries also has a downside.

“Because many of these are still developing countries, tourists’ purchasing power will be lower than those from developed countries,” he said.

One answer to the comparatively low per-capita earnings power of the Malaysian tourism industry is to develop high-spending niche markets. On August 15, Prime Minister Najib Razak told delegates attending an international insurance congress in Kuala Lumpur that such events would become increasingly important for the tourism industry. Najib said inbound business tourist numbers are set to rise from the present level of 1.2m to 2.9m by 2020, with the government’s Malaysia Convention and Exhibition Bureau aiming to have the country recognised as a leading business destination.

Other niche segments that have been targeted under the government’s development programme are medical, spa and wellness tourism, as well as shopping and duty free sales, though regional rivals are also offering similar projects, potentially narrowing the scope for Malaysia to fully capitalise on these markets.

Despite strong government support and a solid improvement in arrivals this year – inbound tourists numbered 6.5m for the first quarter of 2013, compared to 5.5m for the same three months last year – it may be difficult to achieve some of the goals set by the state, which has identified the sector as one of its 12 National Key Economic Areas. Tourism Malaysia, the agency tasked with promoting the country as a travel destination, has targeted 26.8m inbound visitors this year and 28m in 2014, rising to 36m by 2020.

In the shorter term, the slowing of the economy in China – the third-largest source market for Malaysia – could have a negative impact on the sector, both in terms of a reduction in the number of Chinese visitors as well as any knock-on effects on regional economies. Further down the track, the increased competition posed by other south-east Asian nations could also cut into Malaysia’s tourism growth unless it is able to broaden its appeal.

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Malaysia’s real estate prices raise concerns

The property sector in Malaysia has been attracting plenty of attention from foreign investors and could draw in even more. But after a period of strong price growth, new regulations on lending and slower economic expansion may cool the market, leading developers and the government to target projects and investment incentives more carefully.

Malaysia’s real estate market has significant growth potential, according to Singapore-based real estate agent Kenny Tan, the local press reported in July. Tan, a group division director at ERA Realty Network, was reported as saying that Malaysia had particular appeal for Singaporean investors, given high prices on the Singaporean market and Malaysia’s proximity to the city-state – among other competitive advantages.

Iskandar Malaysia, a development region near Johor and adjacent to Singapore across the Strait of Johor, has proved particularly popular with Singaporeans looking for investment properties and second homes. Tan added that property prices in Kuala Lumpur have displayed steadier growth since 2004 than those in Singapore, which have fluctuated.

Tan’s views were echoed in August by Kayseon Yuen, regional president for Malaysia at Hong-Kong-listed Country Garden Holdings, one of China’s biggest property developers. The company’s only solo project outside China is its RM18bn ($5.52bn) Danga Bay project in Iskandar Malaysia. Country Garden entered Malaysia in 2012 in a joint venture with Malaysia Land Properties, with which it is developing high-end townships in Selangor state.

Like many developers in Iskandar Malaysia, Yuen is targeting foreign buyers (who account for 60-70% of home buyers in the development region), particularly from China. He is confident that Malaysia My Second Home, a government programme to promote foreign investment in property, is seeing success in attracting buyers. The right to buy freehold land in Malaysia is particularly attractive for Chinese buyers, as most property in China is leasehold.

Since 2006, Iskandar has attracted RM118.93bn ($36.5bn) in committed investment, making it a leading light for development in Malaysia. But substantial foreign and domestic investment has also come to Kuala Lumpur, the capital, which the government is working to establish as a regional business centre. While it is not yet truly challenging Hong Kong and Singapore as South-east Asia’s business capital, low prices in Kuala Lumpur are helping draw in foreign investors.

However, partly thanks to growing foreign investment, as well as increasing affluence among Malaysians, Kuala Lumpur is not as cheap as it used to be, with prices having more than doubled compared to five years ago, according to local developers. There is concern about occupancy rates at the higher end of the market, and as a result, some developers are moving towards building smaller, more affordable units.

The market has already been cooled to a degree by external factors – firstly a slowdown in the second quarter of the year as investors waited for the results of Malaysia’s general election. While the re-election of the Barisan Nasional government reduced the political risk element that was likely holding back investment, moves by the Bank Negara, the central bank, to tighten property lending conditions are expected to pull back demand. Loans for residential and non-residential properties will now have a maximum tenure of 35 years, down from 45 years.

Significantly, Bank Negara has opted not to raise its benchmark policy rate, which has remained unchanged mid-2011. An increase could have a significant effect on the real estate market, as the majority of mortgages in Malaysia are adjustable rate. A worst-case scenario would see a rise in defaults, leading to a sell-off of distressed property and a decline in prices.

However, that is the pessimistic viewpoint, and Malaysia’s economy is expected to rack up a good pace of growth this year, at around 5.1%, according to the IMF. Even with the world economy still in troubled waters, South-east Asia has been performing well. Squeezing some of the speculation out of the Malaysian real estate market should make it healthier in the long run, even at the cost of price moderation.

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Malaysia’s real estate prices raise concerns

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Malaysia: Auto sector looks to pick up speed

Automotive sales in Malaysia slipped down a gear in the second quarter, with both April and May showing a deceleration in the figures, though experts believe activity in the industry will pick up in the latter half of the year after the government unveils a new policy aimed at reducing vehicle price tags.

On June 18 the Malaysian Automotive Association (MAA) report on May vehicle sales showed a 5.4% drop in roll-outs from dealers’ lots compared to the previous month, which had also seen a decline in sales. The report said there had been a 15% dip in trade year-on-year for May, though 2012 had set the bar high, with record sales of 627,753 units for the full year.

While the April and May figures were down on the corresponding months in 2012, overall sales are up 6.2% for the first five months of the year, with just under 260,000 units sold compared to 244,000 over the same period in 2012. This was thanks to a strong performance in the first quarter, the MAA report said. The association noted that, despite uncertainties in the market, it expected year-end sales to top 640,000 units.

One of the key reasons given by analysts for the easing sales figures is a wait-and-see approach adopted by potential car buyers stemming from a promise made by the government in the lead-up to the recent national elections to reduce vehicle prices by 20-30% over the coming five years. This commitment was repeated by Prime Minister Najib Razak at the end of May, three weeks after the polls closed.

While the government has reiterated its promise to lower vehicle costs, it has not made clear how it will do so. The government has said the price cuts will stem from a revision of the National Automotive Policy (NAP), the blueprint for the direction of the industry first drafted in 2009 and amended last year. The NAP aims to boost competitiveness and liberalise the sector in the lead-up to the ASEAN Economic Community launch in 2015, when most of the region’s tariff borders will be removed.

The revised version of the NAP is due to be released some time in the third quarter, after it is reviewed by the Cabinet, by which time producers and dealers hope there will be more clarity over how the cuts will be achieved. The government is reluctant to reduce its automotive taxes at a time when it is trying to narrow the state deficit to 4% in 2013 from last year’s 4.5%, and down to 3% in 2015.

Trade Minister Mustapa Mohamed said on June 24 it was impossible for the government to cut the automotive excise tax, which brings in RM7bn ($2.18bn) to the Treasury annually.

“Our budget is in deficit,” Mustapa said. “If we sacrifice RM7bn, where are we going to find it? At this point of time, it is not something the government is considering.”

If this position is maintained, it would appear to limit options on how to reduce costs for the consumer, though the NAP may open up new avenues and help stimulate sales when released.

Another reason given for the slowdown has been weaker consumer sentiment, a reflection of concerns the Malaysian economy may be cooling. On June 24 OCBC Bank lowered its forecast for economic growth to 5% for this year, a reduction from its earlier estimate of 5.4%. The bank’s projection was in line with that of other analysts, who have tipped GDP expansion of between 4.5% and 5.5%, down from last year’s 5.6%. If the economy does move towards the lower end of market expectations, this may curb Malaysians’ appetite for new vehicles, at least until the position on new tariffs is made clear.

While there may be some uncertainty hovering over the immediate situation of the sector, a number of foreign manufacturers appear to be taking a positive position on its longer-term prospects. Chinese manufacturer Chery has announced it intends to set up a production plant in Malaysia, targeting both the domestic market and using it as a stepping stone into the region. Japanese rival Mazda has also unveiled plans to spend some $30m to expand its production capacity through acquiring an existing facility and constructing a new factory.

Another seeing improved potential in the Malaysian market is German carmaker BMW, which is targeting a 10% increase in sales in 2013 over last year’s 7000 units. The manufacturer reported in early June that sales for the first four months of the year were up by 5%, with hopes a new release of the Mini Cooper would push them even higher.

Some producers, including local manufacturer Proton, moved to lower the prices on some vehicles, though this can be linked to marketing pressures to increase sales and promotional activity leading into Ramadan, the end of which is traditionally linked with higher consumer spending, Malaysia’s carmakers may overall also adopt a wait and see attitude to pricing until after the NAP is rolled out.

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Malaysia: Auto sector looks to pick up speed

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