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The feedback received was consistent. People told me that they worry about the situation, some even wrote in to share their concern.
A reader by the name of Yap wrote me an email about his observation after reading my article.
“I always doubt how a family with a median household income can survive in KL. Based on my calculation, there is no way a family with two children can survive in KL with RM6,275 without accumulating bad debt or spending 4.5 hours to travel on the road. Housing is one of the factors, but not the only one,” he wrote in his email.
Belanjawanku, an expenditure guide launched by the Employees Provident Fund (EPF) in early March states that a married couple with two children spend about RM6,620 per month on food, transport, housing, childcare, utilities, healthcare, etc.
However, the median household income for Malaysians in 2016 was RM5,228. While the median income of M40 group (Middle 40%) was RM6,275, which means five out of 10 households in this category received RM6,275 per month or less. This is far below the RM6,620 required for a family with two children to stay in the Klang Valley.
Another alarming fact is... Belanjawanku compiles only core living expenses without including long-term financial planning tools such as education funds or investments. The actual budget constraint can be more severe if we take them into account.
The living cost in major cities is inevitably higher than in small towns or suburb areas.
As such, when we discuss housing affordability in the cities such as Kuala Lumpur and the Klang Valley, we shouldn’t impose the same benchmark of RM300,000 as everything else is more expensive in the city. Affordable housing should benchmark against the cost of living of the area.
Based on the research for Belanjawanku, even if housing was provided for free, a household of four would still need RM5,750 to sustain their lifestyle.
The transportation cost alone is RM1,040 for a family, higher than the RM870 allocated for housing.
Therefore, if a family is looking to lower their cost of living, moving to suburb areas would allow them to have a more affordable budget.
According to a news report which quoted information from brickz.my, the housing prices in KL are five times higher than in Seremban, with median housing price of RM1mil (RM940 psf) in the KL city centre, versus RM200,000 (RM210 psf) in Seremban.
Suburbs which are nearer to KL such as Klang and Shah Alam also offer attractive housing prices with a median price of RM340,000.
For families who stay in the city centre and plan to reduce their cost of living, they can consider moving to suburbs to enjoy a better quality of life, and leverage on the improved public transportation which offer hassle-free travelling from suburbs to city centre.
Although high living cost is a concern for many Malaysians, KL is ironically found to be the cheapest city to live out of the 11 major cities in Asia, according to the 2018 Wealth Report Asia.
We are “cheaper” or ranked lower than our neighbouring cities, including Bangkok, Manila and Jakarta. KL, Manila, and Jakarta are also the most price competitive cities when it comes to the residential properties segment.
Why are we still facing the challenge of high living costs despite being the “cheapest” city in the region? The underlying factor is because of the low household income earned by most Malaysians, as the previous government failed to transit us to a higher income nation.
In his email, Yap mentioned that “I always imagine what Malaysia can be if there were no leakages. Hundreds of billions could be spent to stimulate various industries. Our GDP per capita could be close to if not similar to Singapore’s”.
That is the vision and sentiment shared by a majority of Malaysians. With the new government that promises to be more transparent and efficient, we hope that one day, we can afford to live comfortably in any city we wish to, with a higher household income.
Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email bkp@bukitkiara.com
This alternative source of funding has helped many entrepreneurs achieve their dreams.
Ng (right) handing over a mock cheque to Jamaliatul Shahriah bt Jamaluddin, the project creator for YAKEEN Honey Booster after a successful round of funding on the platform.
CROWDFUNDING has gained a strong following as an alternative funding option over the past few years. Small businesses that have not been able to secure conventional financing are looking more and more towards the practice as a source of financing.
However, the level of awareness and interest in crowdfunding in Malaysia is still at its infancy stage, noted Fundaztic.com chief executive officer Kristine Ng.
“Maybe about one in 20 people have heard of the concept and understand exactly how it works. There are currently just a handful of noted platforms in the market. Some local companies try to raise funds on international platforms such as Indiegogo.com.
“There is still a lot more which local players need to do to gain the credibility and recognition to grow further. And having the support from the local community would be a great boost for us,” she said.
Fundaztic, which rolled out in June this year, is among the handful of local crowdfunding players in the market. The platform was founded by a group of ex-bankers and a lawyer who have been following the development of financial technology (FinTech).
The potential of crowdfunding as an alternative funding platform is huge, said Ng, because access to funds has always been an issue, especially for new businesses and new business sectors that are viable but yet to have proven track-records.
Furthermore, Malaysians tend to be generally cautious when it comes to adopting new technology. Additionally, having to overcome the hurdle of building confidence in the credibility of the platforms would take a lot of time and effort for crowdfunding to be a significant part of the funding scene here.
Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.
But crowdfunding has taken the world by storm in the western countries and established strong platforms such as Kickstarter.com and Indiegogo.com that have helped many entrepreneurs bring their dreams and aspirations to life. Reports have even noted the possibility that the crowdfunding industry could account for more funding than venture capital (VC) in 2016.
A recent report by Massolution said global crowdfunding is set to raise US$34.4bil for 2015. In comparison, the VC industry invests an average of US$30bil each year.
“We truly believe that crowdfunding is a proven platform for like-minded people to support each other, and epitomises the meaning of ‘people power’ in an extremely positive manner,” Ng said. Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.
“We are happy that two of the projects are over-funded and have helped the project creators, who are both women and homegrown entrepreneurs, to grow their business in a risk free manner.
“This is the strongest benefit of crowdfunding. Entrepreneurs can leverage on the platform to gauge the level of public acceptance and support towards their products before having to splash out the funds on their own to commercialise a product or to stock up on inventory,” said Ng.
Funding on Fundaztic is through the concept of cornerstone funding whereby projects that are not able to meet its funding goal but have managed to generate at least 80% of the required funding, can get a maximum of 20% of the required funds from Fundaztic itself.
“Because we truly want all projects to be successful, we would be more than willing to hand-hold in the curation of the project so that the message will sink in well with the local community and thus, enjoy a higher degree of success,” Ng concluded. - The Starbiz
Entrepreneurs Slow to Market Via Equity Crowdfunding Platforms
Brian Gallagher, CEO of United Way Worldwide, talks about the rise of Giving Tuesday and the latest trend in charitable
Equity crowdfunding platforms are providing a new and innovative way to raise money from angel investors that centralizes, streamlines, simplifies and shortens the fundraising process. Equity crowdfunding pools money from a group of investors via internet platforms, using social media and other types of marketing.
You might be surprised to learn that entrepreneurs, who are known for innovating in their products and services, are not innovating when it comes to the way they raise money. And angel investors, who put money into innovations, are not innovating in the way they invest. Few entrepreneurs are marketing their securities offerings to angels online via crowdfunding.
That’s unfortunate, since angel investors provide about half as much financing as venture capitalists: $24 billion compared to $48 billion, according to the Center for Venture Research and MoneyTree, respectively. Angels, defined here as accredited investors who earn $200,000 annually (or $300,000 as a couple), or have a net worth, excluding their homes, in excess of $1 million, are more likely than VCs to focus on seed and early-stage companies. The State of Private Companies Publicly Raising Financing
This new public-facing financing method became possible on September 23, 2013, when the SEC put into effect the rules and regulations that allow private companies to advertise their securities offerings to angel investors. Previously, public solicitation was prohibited. Entrepreneurs now can market their securities offerings through websites such as AngelList, CircleUp, Crowdfunder and Portfolia.
Yet surprisingly few companies choose to seek funding publicly. Last year, 382,000 companies sought to raise money from angels in the real world. Fewer than 100 companies were added to those already trying to do so in the online world between January 1 and June 30, 2015, according to Crowdnetic, which aggregates data from 18 equity crowdfunding platforms.
Women Entrepreneurs and Equity Crowdfunding: A Gap and Great Potential
Raising money via equity crowdfunding platforms has the potential to level the playing field for anyone raising money, but its impact may be greatest on underrepresented groups—such as women—who lag even further in taking advantage of this new approach. Women entrepreneurs are twice as likely to seek money offline from angels (36%) than publicly online (18%), according to the Center for Venture Research and Crowdnetic.
The average amount raised via crowdfunding is rising for companies in general ($412,000 as of the end of 2014 to $432,000 as of June 30, 2015) and falling for women-led companies ($331,000 as of the end of 2014 to $323,000 as of June 30, 2015).
This gap highlights tremendous potential. “The Kauffman Foundation reports that women build capital-efficient companies, generating 12% more revenue on one third less capital,” according to Kay Koplovitz, chairman and co-founder of Springboard Enterprises, an accelerator for women-led businesses in technology, media and life sciences. “[Think] how much more productive they could be if they raised capital on a par with men!”
Types of Securities Used
You may wonder what types of securities other entrepreneurs use when raising money. A majority (58%) issue stock as their method of financing. Nearly one third of entrepreneurs choose convertible note, which allows them not to set an equity valuation at the time of the investment or to simply pay back the money within a set period of time prior to taking in permanent equity capital.
There are other financing structure options, such as revenue sharing or royalty agreements, but these are far less likely to be used. Depending on your long-term goal for the company, a securities lawyer can advise you on which is the right form for you..
Top Locations for Equity Crowdfunding
It’s no surprise that the top location for equity crowdfunding activity and deals is the San Francisco/Silicon Valley area, both for entrepreneurs in general and for women-led companies in particular.
Over the past few decades, this area has developed a strong culture of entrepreneurship. It takes a village to build a growth company and to provide the ancillary support that makes growth possible. San Francisco/Silicon Valley has a long tradition of assisting high-potential entrepreneurs, not just with capital but with expertise and connections to customers, talent and vendors.
New York City is in second place. Worth noting are the high performance of relatively small cities such as Austin and Las Vegas, which rank among the top ten cities for raising money publicly online.
Other Signs That Equity Crowdfunding Is Gaining Credibility
Venture capitalists recognize the potential of crowdfunding and have invested in these platforms to the tune of $250 million in 2014, according to Massolution’s 2015CF Crowdfunding Industry Report. Big-name companies such as Coca-Cola, Nike, General Mills and Chrysler use crowdfunding platforms not to raise money but to gain insights into consumers.
CROWDFUNDING – the practice of funding a project or venture by raising small amounts of money from a large number of people typically using an online platform – has gained popularity due to the massive demand and supply in today’s competitive market.
In one way, it benefits start-ups and entities that require funds to either commence or expand their business portfolio.
Investors have the opportunity to participate in any potential investment that they are comfortable with and which corresponds to their personal investment portfolio via a simple click online. It is a chance to participate early in something potentially very big.
The Securities Commission has approved six equity crowdfunding platforms for issuers to offer share subscriptions to interested investors. This comes with strict compliance and regulations imposed on the platforms providing such equity crowdfunding services. The good news for investors is that these platforms, which represent another type of investment option, are expected to be launched very soon.
Rising property prices have increased the investment cost for real estate investors. Consequently, real estate investment trusts, which offer liquid stakes in real estate complemented by constant dividend yields, have become fashionable. Alternatively, real estate investors may also leverage on the informal real estate investors club that attracts a lower acquisition cost with bulk purchasing arrangements with developers.
We can draw one conclusion from these real estate investment options – that property investment is no longer an individual game but a team sport that thrives on leverage and collective bargaining.
There are even suggestions that political parties raise funds via crowdfunding in a bid to promote transparency and efficiency. This makes it easier to comprehend the call for crowdfunding in a sector like property. So, how does real estate crowdfunding work?
Online platform
The basic concept of crowdfunding is an online platform operated by an approved operator and regulated by a certain ministry that provides services to matchmake the issuer and the investor. The obligation of the operator is to conduct sufficient due diligence on the issuer and its product prior to allowing the issuer to campaign for fund-raising on its online platform.
To promote independence, there should not be any relationship between the operator and the issuer, and the operator should not personally join the fund-raising campaign by the issuer. Besides this, the operator has to approach private financial institutions or trust companies to set up trust accounts for the investment funds to capture, as trustee, those investors who are willing to invest in the issuer.
Similarly, to remain independent, the operator should not be related to the private trustees or financial institutions.
In this investment option, the utmost requirement for the issuer is that they shall be either a developer, a real estate agency or a land owner who owns the property slated for development and who is seeking to raise funds for that purpose. The operator may perform due diligence on the land background and require the issuer to show proof of ownership of the said land and also the proposed development plan. These are to be advertised on its platform as convincing tools to attract investors.
Nonetheless, contrary to conventional real estate investment where you would get the key to the property and may use it as a tangible asset for further financing in the future, any investment into the real estate crowdfunding platform does not give you ownership of an immovable property, unless it is agreed upon and offered by the issuer based on its fund-raising campaign.
The upper hand here is that the expected term for your return on investment (ROI) may be fixed and shorter. Investors may receive the expected ROI upon completion of the development. The investment amount is also within an affordable limit, and information is easily accessible via the Internet. Crowdfunding also promotes transparency in one’s investment and with collective investors, the bargaining power with the issuer is also greater as compared to individual investors.
Real estate crowdfunding might still be a new concept and some might have never heard of it until now, but with real estate investment running the risk of remaining merely a dream for the mid-range salary earner, it might be a good alternative to maximise returns on your hard-earned money without a hefty price tag.
However, as with all forms of investment, there are risks involved here despite the due diligence performed by the operators. Smart investors, nonetheless, always walk the extra mile to conduct their personal due diligence on the accuracy of the information made available on the crowdfunding platform.
The current regulatory framework only permits equity crowdfunding for the real estate business and is not yet a direct crowdfunding avenue into the acquisition of real estate.
By Chris Tan Real legal viewpoint
Chris Tan is the founder and managing partner of Chur Associates.
