H20 Ara Damansara.


Are You The Fool At The Table?

Are You The Fool At The Table?

My friend Ben Horowitz and I debate the tech bubble in The Economist. This post is the “rebuttal” statement to Ben’s opening comments.
An edited version of this post originally appeared as part 2 of 3.  Part 1 is here.

You’ve got to know when to hold ‘em
Know when to fold them
Know when to walk away
Know when to run
Kenny Rogers – The Gambler

My esteemed colleague Ben Horowitz essentially makes four arguments: 1) look at how relatively cheap Apple, Google and Amazon stock is compared to their growth; 2) Major technology cycles tend to be around 25 years long with the bulk of the purchases occurring in the last five-to-ten years. The major adoption wave for the Internet technology platform will hit in the next 8 years; 3) the economics of building Internet businesses has changed; 4) the markets are much bigger.

Therefore Ben concludes that boom is coming…and do you want to miss it because it has the possibility of becoming a bubble?

If this were a magic act, we’d suggest that Ben’s arguments are misdirection. To answer the question before the house, “Are we in a tech bubble?” Ben offers that as Apple, Google and Amazon survived the dot.com crash, we can ignore the fate of the thousands of failed public and private dot.com companies when the bubble burst in March of 2000. I believe the issue isn’t whether we’re on a 25-year tech cycle or that the next 8 years are really going to be great. The issue is whether the next 100+ tech IPO’s carried by this bubble will be worth their offering price in 8 years.

One of the least understood parts of a bubble is that there are five types of participants: Smart Money, the Shills, the Marks, the True Believers and the Promoters. Understanding the motivations of these different groups help make sense out of the bubble chart below.

Smart Money are prescient angel investors and Venture Capitalists who started investing in social networks, consumer and mobile applications and the cloud 3, 4 or 5 years ago. They helped build these struggling ventures into the Facebooks’, Twitters’, and Zyngas’ before anyone else appreciated these companies could have hundreds of millions of users with off-the-chart revenue and profits.

In a bubble the smart money doubles down on their investment in the awareness phase, but when it starts becoming a mania – the smart money cashes out. (Really smart money recognizes it’s a bubble and bets against it.) They manage this all with knowledge of the game they’re playing, but they don’t hype it, talk about it or fan the flames. They know others will.

The Shills are the middlemen in a bubble. They profit from the boom times. They’re the mortgage brokers and real estate agents in the housing bubble, the investment bankers and technology press in the dot.com bubble.  Since it’s in their interest to keep the bubble going, they’ll tell you that housing always goes up, that these bonds are guaranteed by a big bank, and that this tech stock is worth its opening price. All the stories peddled by Shills have at their heart why “it’s a new age” and why “all the old ways of measuring value are obsolete.” And why “you’ll be an idiot if you don’t jump in and reap the rewards and cash out.”

The Marks are your neighbors or parents or grandparents. They’re not domain experts. They know nothing about real estate, financial markets or tech stocks, but they don’t want to miss the  “investment opportunity of a lifetime”.  They hear reassurance from the Shills and take their advice at face value, never asking or questioning the Shills financial incentives to sell you this house/mortgage/tech stock.  They see others making extraordinary amounts of money at the start of the mania (just buy a condo or two and you can sell them in six months.) What no one tells the Marks is that as they’re buying, the smart money and institutional investors are quietly pulling out and selling their assets.

The True Believers don’t financially participate in the bubble like the Marks (lack of assets, timidity, or time) but they could if they would. They have no rational evidence to believe, but for them it’s a “faith-based” belief. By their numbers they give comfort to the Mark’s around them.

The Promoters are the ones who keep the bubbles inflated even when they know that the asset exceeds its fundamental value by a large margin. While Shills have no credibility, Promoters have “brand-name” credibility that makes the Marks trust them. What makes the role of the Promoter egregious is that they are a small subset of the Smart Money. They loudly tell the Marks and Shills that everything is just fine, enticing them to buy into the bubble, even as the Promoters are liquidating their own positions.

Investment banks who sold CDO’s (synthetic collateralized debt obligations,) in the financial meltdown and the mortgage lenders in the housing bubble are just two examples. Some investment banks actually bet that the very investments they were selling their customers would fail. There’s a special place in hell waiting for these guys (only because our political and financial regulatory system won’t deal with them while they’re on earth.)

To support his position Ben used a quote from Warren Buffett I wish I had found, “The only way you get a bubble is when a very high percentage of the population buys into some originally sound premise…that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action…

The “facts” that Ben raises, “the size and scale of these new markets have never been seen before; some of these applications and companies will reach billions of customers, generate unprecedented revenues and profits,” are likely true. But they don’t support his justification of the bubble valuations we are seeing for companies filing for IPO’s (Pandora Media just priced its IPO at $2.6 billion dollars while admitting it will have operating losses through the end of fiscal 2012.)  But to support his position for future valuations Ben lists the low price/earnings ratios of Apple, Amazon, Google, Salesforce.com.  He argues that if we are in a bubble these companies ought to have their prices inflated as well.

It turns out that’s not how a bubble works. Bubbles attract Marks and Shills to new shiny toys, not existing ones…, Apple, Amazon, et al are not the current objects of desire of this bubble. The question is, are we in a new tech bubble? Do the new wave of social/web/mobile/cloud companies going public have valuations which exceeds their fundamental value by a large margin? (today and in the foreseeable future.)

In other words, “would you want your mother to buy these stocks to hold them – or flip them?”

Every bubble is a big-stakes game – played for keeps. In it the usual cast of characters appear; the Smart Money, the Shills, the Marks and the Promoters.















Upgrade plans for a bigger KL Sentral



Upgrade plans for a bigger KL Sentral


MRCB group managing director Datuk Mohamad Salim Fateh Din (left) explaining the progress of KL Sentral’s ongoing development to Najib. With them is Imran.

KUALA LUMPUR: The heavily-utilised KL Sentral transport hub is to be upgraded to serve more passengers, with an elevated “deck” connecting to the National Museum and Lake Gardens among the attractions planned.

The deck, likely to span over Jalan Damansara, is expected to include bicycle tracks.

KL Sentral currently serves about 160,000 people, way above its capacity of 100,000.

MRCB group chief operating officer Mohd Imran Mohamad Salim, who disclosed details of the expansion to the media yesterday, said the project was necessary with the advent of the Mass Rapid Transit (MRT) scheduled for completion (first phase) by 2017.

He said the target was to increase the hub’s capacity to serve up to 250,000 passengers.

The deck is to be named Warisan Sentral, subject to government approval. He said the third-prong would be a disbursement scheme for development and other forms of beautification of the area.

“It will be done in phases and if the Government agrees … (a completion by) 2017 would be nice,” he told reporters after accompanying Prime Minister Datuk Seri Najib Tun Razak who toured the two-month-old Nu Sentral mall which links KL Sentral to KL Monorail.

On the proposed Penang-based public transport hub known as Penang Sentral to integrate the ferry, train and local bus services on the mainland, Imran said the project was expected to begin by November.

Earlier, Najib officially launched the MRCB Tabung Generasi Global, which is aimed at enhancing primary school education by enriching the learning environment.

Najib also deposited a RM500,000 cheque from MRCB into the fund as part of the company’s sponsorship.

Meanwhile, Land Public Transport Commission (SPAD) chief executive Mohamad Nur Ismal Kamal said commercial areas such as the Nu Sentral mall would flourish when the MRT service begins.

He named Pusat Bandar Daman­sara as a possible mini transport hub in the future.

Do you have to charge GST on your rental income?



Do you have to charge GST on your rental income?

Crowe Horwath
Property Tax Vistas

ON Monday, April 7, 2014, the Government passed the GST (Goods and Services Tax) Bill.

With it, the Government has finally drawn the line in the sand after two earlier attempts at introducing this new tax. There is therefore no turning back now.

As for the man on the street, what are you doing to prepare yourself for the implementation of GST? This depends on which of the two groups of persons you fall under the ones who pay GST on the goods and services that they buy or the group which is also allowed to charge GST on the goods and services that they sell.

Leasing out a property for rental is a service for GST purposes and may be chargeable to GST.

However, if you are a buyer of property for your own use, then you only need to pay GST when you buy non-residential properties as there is no rental income to declare.

What if you are a property owner with at least one property for rent?

If so, you may need to start thinking about whether you have to charge GST on your rental income and pay it to the Government.

Most individuals who are casual property owners may not be required to charge GST. Why?

This is because you only need to charge GST if you are in business.

If you are not in business, you do not have to. Even if you are in business, you do not have to charge GST if you are receiving rental from residential properties which are exempted from GST.

In addition, you need to have more than RM500,000 in your annual turnover, that is, RM500,000 of rental income from non-residential properties.

Other conditions that need to be met are that you need to be “making taxable supplies in Malaysia”, which is another way of saying that you are receiving rental income from properties in Malaysia.

However, this condition can only be met if your principal business activity of earning more than RM500,000 in annual turnover is from the rental of non-residential properties.

So, are you involved in business and need to be registered for the purpose of GST? This is a perplexing question.

To be technical, the GST Bill says that a business “includes any trade, commerce, profession, vocation… whether or not it is for a pecuniary profit”. The GST Bill also deems certain activities to be a “business”. For all other cases, we have to apply the “business test”.

Do you have to charge GST on your rental income?


Applying the “business test”

So, what is the “business test”? The “business test” became famous in the court case of Lord Fisher when the judge reiterated the six principles of determining a business laid down in the Scottish case of Morrison’s Academy Boarding Association.

Lord Fisher lived in the United Kingdom and had a hobby of shooting wild birds on his 3,000-acre (1,214 hectares) estate.

He would invite his friends and relatives to join the shoot but they were not charged. Instead, they had to make contributions towards the cost of the shoot.

Lord Fisher himself contributed towards the cost from his own pocket.

The question for the court was whether he had to charge VAT (Value-Added Tax) which is similar to GST on the contributions.

The conclusion was that he would have to charge if he is carrying on a business.

The court held in favour of Lord Fisher because “the sharing of the costs of a sporting or other pleasure activity did not by itself turn such an activity into a business”.

So, there lies a grey area when a person is on the borderline of whether he is in business.

Hobbies are generally not treated as a business.

So are those activities that are not substantial or serious enough to constitute a business.

As such, there is difficulty in deciding whether a person is in business for certain cases.

Basically, there are the six tests of a business laid out in the Lord Fisher case. Please refer to the table.

Do you have to charge GST on your rental income?


These include the following considerations:-

1) Is the activity a serious undertaking, work earnestly pursued or a serious occupation not necessarily confined to commercial or profit making undertakings?

2) Is the activity actively pursued with reasonable or recognisable continuity?

3) Does the activity have a certain measure of substance as measured by the quarterly or annual value of taxable supplies made (supplies generally mean sales of goods or services)?

4) Is the activity conducted in a regular manner and on sound and recognised business principles (business like nature)?

5) Is the activity concerned with the making of supplies for a consideration (consideration generally means price)?

6) Is the activity concerned with the making of supplies of a kind commonly made by commercial organisations?


Generally, individuals may not pass this test and therefore do not have to charge GST unless they own and manage properties like a serious business.

Companies on the other hand, may be presumed to be in business.

They therefore, have to charge GST on the rental income, if they meet the conditions.

This evaluation has to be done for each and every potential “taxable person” including every company in a group of companies.

Moving on, if your company has to charge GST, are you or your company ready? We term this as “GST implementation”. This involves a wide variety of matters such as transactions, paperwork, processes, systems, touchpoints and strategy. The larger and more complex the organisation, the more important it will be in tackling this issue.

Many consultants have their own methodology in assisting organisations to implement this tax.

At Crowe Horwath, we have adopted a 12-step process which covers all the steps in reaching a successful implementation.

For example, one has to examine all the sales of an organisation and ensure that the correct rates of GST are being applied.

If the GST rate used is higher than the correct rate, it will involve disputes with the customers.

On the other hand, if the rate is lower than the correct rate, the organisation has to pay the GST out of its own pocket together with the penalties thereon if this is discovered by the Customs authorities.

As a result, there is now a flurry of activity in the market as organisations rush to get themselves ready for the new tax.

Are you ready? If you are not, it may be time to seek the help of professionals since the Government has made it clear that there is no turning back when it comes to GST.

Please note that the information contained in this article is for general use only and should be seen just as a rough guide.

Readers are advised to seek independent professional tax advice for their GST affairs.

>> Fennie Lim heads the Crowe Horwath KL Tax Division and has been in the tax profession for the last 22 years. She has a wide range of experience in tax compliance, tax advisory and indirect taxes, and has advised many large local and multinational clients on complex tax engagements.

Malaysians get RPGT tax-free once-in-a-lifetime!



Malaysians get RPGT tax-free once-in-a-lifetime!


FOLLOWING on from my last article – Taxation is part of everyone’s life in which I shared how the proposed GST (Goods and Services Tax) may affect property prices come April 1, 2015, some may also be interested in taking a closer look at how the new Real Property Gains Tax (RPGT) rates will impact the property market this year.

It is interesting to note that, unlike most countries, Malaysia is one of the few besides Bahrain, Hong Kong and Singapore which does not impose taxes on capital gains.

The only type of capital gains which will attract taxes in Malaysia is when you make profit from the disposal of immovable property or the shares in a Real Property Company (RPC). If you do, you will be subject to RPGT.

New RPGT rates

As proposed, with effect from Jan 1, 2014, the RPGT rates have been increased from the previous rates of 0% to 15% to the new rates of 0% to 30%, which are summarised as shown in Table 1.

The new rates should not significantly affect long-term investors. Although many may have some concerns on the higher rate of RPGT, it is important to note that RPGT will only be imposed on any gains on the disposal of a property instead of on its selling price.

As such, I believe that some investors may not regard the change in the RPGT rates as one of their foremost concerns in holding back their property investments.

This is especially so for newly launched developments where the developers require three to four years of construction period to complete the developments. Hence, if they were to sell their property in the fifth year, the RPGT rate should only be 5% and “Nil”% if they were to sell in the sixth year.


If an individual investor were to sell his investment within three years from the date of investment, he may still consider exercising his “once-in-a-lifetime” RPGT exemption on any gains arising from the disposal of his residential property.

In most cases, this exemption shall only be used when a significant gain arises from the disposal of the property after a short holding period. In view of the above, it is unlikely that the new RPGT rates will be labelled as the main disincentive for investors to invest in real properties moving forward.

Nevertheless, there is no doubt that the change in the RPGT rate will affect the short-term property speculators who tend to buy and sell their investments within a short holding period.

When will the Government next change the RPGT rates?

Despite all of the above, you may notice that the Government often fine-tunes the RPGT rates after a period of time – i.e. there have been five changes in RPGT rates within a period of six years since April 1, 2007, as summarised in Table 2.

What else is coming? We hope that this new set of RPGT rates is only a short-term measure imposed by our Government.

Better to purchase in own name or under a company?

For investors who take a contrarian view and believe in the “time-to-buy-now” approach, they may be interested to know which is the best way to hold their investments, i.e under their personal name or under the company’s name. This is because different methods of holding the investments will result in different tax consequences at the time of disposal as shown in Table 1 above.

Will there be any fixed formula to address the question of who should hold the investment?

I can only share my view on a general basis. It depends greatly on the individual investor as to whether he has diligently reported all of his income to the MIRB (Malaysian Inland Revenue Board).

If he has, he should have no worries about holding the property under his name or his company’s name. This is especially true if he intends to dispose of the property within five years from the date of purchase since there is no difference in the RPGT rates.



However, if the purpose of such investment is for the long term, i.e. he will only dispose of the property after five years of purchase, it may be better for the individual to hold the property under his personal name.

This is because any gain on the disposal of the property after a five-year holding period by individual investors will not be subject to any RPGT.

Even if he changes his mind and decides to dispose of the property within three to five years of purchase, he can still opt to exercise the “once-in-a-lifetime” tax exemption so that he does not have to pay any tax on the disposal of such a property.

However, it is important to note that this tax exemption is only applicable for the disposal of residential property by individual citizens or Permanent Residents (PRs) and is not applicable to any disposal of commercial property or disposals by persons other than citizens or PRs.

On the other hand, if the individual is interested to invest in properties but has somehow not complied diligently with the tax law, he may choose to keep himself away from the radar of the MIRB by being less active in property investment under his personal name.

If the investment is under a company and the company were to dispose of the property within a five-year holding period, there is actually no difference in terms of the RPGT tax liability.

However, the method of holding may help to keep the investors away from the attention of the MIRB. Hence, it is always important to know your rights and plan ahead to minimise your tax liability over the long term.

>> Fennie Lim heads the Crowe Horwath KL Tax Division and has been in the tax profession for the last 22 years. She has a wide range of experience in tax compliance, tax advisory and indirect taxes, and has advised many large local and multinational clients on complex tax engagements.

A guide to property valuations


WHETHER you’re a potential homebuyer or a greenhorn property investor, your impending venture into the property market will very much revolve around valuations. You might have heard the term being thrown about by experienced property market players, but how much do you know about valuations and how the process would influence your purchase? Here’s what you need to know.

What is valuation?

Officially, “market value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties have each acted knowledgeably, prudently and without compulsion. Valuation calculations take into account recent transacted prices from the Government’s Valuations and Property Services Department (JPPH). Additionally, launch prices of new and upcoming projects in the area play a factor. Once a valuation is done, a bank would usually extend a loan of 90% based on the figure.

How valuation affects you

Say you’ve got your eye on an apartment unit, and after negotiating with the seller, the two of you agree on a price of RM500,000. A 90% loan means that you would need to fork out a down payment of RM50,000, aside from other entry costs. Now, here’s where the valuation comes into play – for a housing loan, a report by a real estate valuation firm recognised by the bank you’re dealing with is needed. If a valuation firm only prices the said property at RM450,000, you would only be eligible for a loan of 90% from RM450,000. Basically, this means that if you were to go ahead and purchase it, you would need to bear the price difference and come up with RM95,000; and not the RM50,000 you were initially expecting.

Why the disparity?

If you observed the Malaysian property market, you would know that prices in certain areas have surged upwards quite quickly. Herein
lies the issue – as it takes up to six months for JPPH to collect and analyse transaction data, which valuation firms rely on for their calculations. Basically, this means that valuations would be centred on outdated prices from up to six months earlier, and are likely to be lower than current prices.

Although many firms take the trouble to ensure an accurate and fair valuation by taking into account as many relevant factors as possible, many others only do as much as they need to, resulting in common cases of disparities between valuations and negotiated prices.

What can you do?

Here’s the bit where you have control over. It’s a well-known fact among veteran property players that different banks can provide different valuations on a single piece of property. Some bank sales agents may aggressively push up their valuations of your property, just so they can obtain more transactions. You could take advantage of this and go “shopping” for valuation rates. Remember to mention what the other branches are offering as you might just end up with the valuation that you want.


Oil price risks put inflation back in focus


Published: Sunday June 22, 2014 MYT 6:44:00 PM
Updated: Sunday June 22, 2014 MYT 6:47:04 PM

Oil price risks put inflation back in focus


BRUSSELS: Iraq will be foremost in investors’ minds in the coming week as oil price risk has returned to markets, complicating the task for central banks whose policies are beginning to diverge for the first time since the global financial crisis.

Oil prices neared nine-month highs late last week, touching $115 a barrel, and the rapid advance of militants in Iraq, the second-largest OPEC producer, is destabilising oil markets.

That has implications for inflation in the United States and Europe, as well as Asia’s export-oriented economies that are large net importers of oil.

Investors will be watching a range of data, from German and Japanese consumer prices to first-quarter U.S. GDP, to see how the Federal Reserve, the European Central Bank (ECB), the Bank of England and the Bank of Japan respond.

“Just as oil prices had become increasingly stable, we reckon the risk for an oil price spike is now the highest since the global crisis,” said Christian Keller, an economist at Barclays. “We think a further price spike of 10 to 15 percent from here is not implausible,” he said.

Until now, falling energy prices have partly been responsible for the euro zone’s low level of consumer price inflation, which the ECB considers to be in its “danger zone”.

A rise in the inflation rate would be welcome but economists and the International Monetary Fund believe the ECB still needs to consider U.S.-style money printing to support the bloc.

Euro zone sentiment readings and preliminary purchasing managers’ surveys for June on Monday may give the ECB a sense of how much more help the euro zone economy needs. The recovery from a two-year recession lost pace in April and manufacturing has lost momentum.

Germany’s inflation reading on Friday will give a taste of the euro zone-wide reading that is due the following week.

“Although higher near-term inflation may reduce the likelihood of more ECB easing in the short term, lower economic growth and core inflation down the line would, in fact, support the case for further policy accommodation at a later date,” Luigi Speranza and Gizem Kara of BNP Paribas said in a note.

EU leaders will discuss economic policy at a summit on Thursday and Friday in Brussels.


In the United States, investors will be looking to the third and final reading of U.S. first-quarter GDP figures on Wednesday to see if there is a revision of the 1 percent contraction already printed and which followed disappointing March trade figures.

Federal Reserve chief Janet Yellen cited reasons for optimism about the world’s biggest economy last week, including household spending and a better jobs market. Economists generally agree that the effects of unusually bad winter weather will fade later this year.

Core U.S. consumer prices have risen 2 percent over the last year. If the inflation rate went much higher, it would put pressure on the Fed to consider moving to raise rates.

For now though, the impact of events in Iraq and an oil-driven increase in inflation seem to be less pressing for the Fed.

Yellen said interest rates could stay “well below longer-run normal values at the end of 2016”.

Some of America’s largest money managers interpreted her comments as signalling that rates will remain low throughout 2016.

A speech by Federal Reserve Bank of Philadelphia President Charles Plosser in New York on Tuesday will also be in focus.

“Following last week’s Fed meeting and amid renewed concern over inflation, U.S. news flow might actually be rather sobering,” said Rob Carnell, ING’s chief international economist.


There is also talk of additional stimulus in Japan in the coming months. Japan’s annual exports declined for the first time in 15 months in May, hurting the world’s third-biggest economy just as consumption is being crimped by an increase in national sales tax.

This week, much of the focus will be on core nationwide inflation for May and Toyko’s core reading for June as well as the government’s growth strategy, which is under discussion and may be formally decided by Friday.

The Bank of Japan’s monetary stimulus helped weaken the yen by a fifth last year. But the currency has stabilised this year versus the dollar, limiting gains in the value of exports.

Among other big industrialised powers, first-quarter British GDP on Friday will show a different picture.

Economists polled by Reuters expect growth to be revised up to 0.8 percent due to a better showing from construction.

That would bring annual growth to 3.1 percent, the strongest since before the start of the global financial crisis.

The Bank of England could become the first major central bank to raise interest rates since the crisis.

“Markets now more or less fully price in a 25 basis point rate hike by year-end, consistent with our view,” Michael Saunders and Ann O’Kelly at Citi said in a note. “We expect growth will remain strong even while rates rise.” – Reuters