Are property clubs the problems in Malaysia/Asia? YES; Hopefully, the greed that brought speculators together to form such property clubs will cause the end of their existence

Updated: Saturday February 22, 2014 MYT 9:21:12 AM

Are property clubs the problems? YES

BY JAGDEV SINGH SIDHU

WHEN it comes to buying and selling shares on Bursa Malaysia, there are laws that prohibit the use of inside information to execute a trade. Investors will get the book thrown at them if proven they are creating a false market, which is essentially manipulating a particular counter.

The same thing happens when sundry shops or a trader in foodstuff starts hoarding vital supplies in order to sell it at a higher price due to an acute shortage. Profiteering from misery and hardship in this case will see the law come down hard on unscrupulous traders.

So the question is whether investor clubs, when it comes to buying property in bulk at the expense of others, are commiting a “crime” in Malaysia?

Legally it depends on how they operate. If an investor club sees a group of people gang up to buy properties by pooling their money, then that might be construed as an illegal profit-taking activity.

If a simple kutu scheme is illegal under banking rules, then such “deposit-taking” should also be. In fact, so many gold trading schemes have been deemed illegal by the central bank because they are taking deposits without a licence.

But as it stands now, the modus operandi seems to be where an individual acts as a facilitator for a group of people to buy a number of properties from a developer on an individual basis.

Developers will sell their properties to such a group because it not only allows them to sell a project faster, but will also bump up the take-up rate of their properties.

Selling properties is the job of developers and by dealing with such clubs, they are willing to sell in bulk because it minimises their holding risk and allows them to use the proceeds from the sale to such clubs to launch their next phase of development at higher prices.

It then becomes a self-fulfilling prophecy for such clubs which are then able to sell their properties at a higher price because a new phase of development is usually priced higher than the older phases.

Some will say there is nothing wrong with that but, to me, such action can be interpreted as creating a distortion in the market. Without the prompting of such clubs, will such demand exist?

To me, what property investor clubs are doing is morally and ethically wrong. Their actions have contributed to property prices escalating over the past few years and indirectly, distorted the actual price discovery of property.

The Government, after sitting placidly while developers and speculators had the their way with the market in recent years, has decided to act.

The Urban Wellbeing, Hou­sing and Local Government ministry has now made a ruling compelling any developer selling more than 4 units to a single buyer or a group to get the approval from the Controller of Housing.

The thing is that as soon as that policy is made, I will bet people will be looking at ways to circumvent the rule. I wonder just how effective will it be if an investors club gets more members and limits the purchases to a maximum of 3 units per individual?

It is said that speculation is among the main reasons why the price of properties in hot areas in Malaysia has zoomed up to levels not seen before. Wages have not kept pace and as a result, more people are becoming disenfranchised to the prospect of owning a home.

Now realising the Malaysian dream is now a political problem, affordable housing schemes are being crafted by the Government. Are they a panacea to such problems? What about households which are trapped where they don’t qualify to buy affordable houses and are too poor to afford an average house in the Klang Valley?

It is shocking to read that household incomes need to be roughly, on average, RM15,000 a month for a family to buy an average priced house in the Klang Valley. Those household income levels mean Malaysia needs to be a developed nation for its citizens to afford a home in the capital.

The sad fact is that we are miles away from that.

Hopefully, the greed that brought speculators together to form such property clubs will cause the end of their existence. I wonder who are they going to flip their property to when the asking price sees only a trickle of semi-interested buyers?

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: