The EPF housing illusion

By Ahmad Iskandar

Malaysians are a lucky bunch, a friend once said. People in other countries pay a lot to watch stand up comedians but in Malaysia politicians do it for free. However, that is not their only talent. Occasionally, one of them will perform magic tricks as well. Last month, we were entertained with one such trick.

Magicians are known to divert our attention to one hand while the other does the trick. Here, I shall show you how the illusion works and how all of us have been distracted this entire time.

The Federal Territories and Urban Well-being Minister Raja Nong Chik Raja Zainal Abidin at the end of January had announced that the Federal Territories Foundation will assist eligible buyers with a funding scheme to help them purchase public housing in the city. The news was met with much uproar when it was made known that the Employees Provident Fund (EPF) will channel no less than RM 1.5 billion for this scheme.

This reaction is already expected. Naturally, the public is wary of using the EPF monies as loans to individuals who are ineligible for commercial loans in the first place. But this was later denied by the EPF. They clarified that they will be lending the RM 1.5 billion to the government instead through the special purpose vehicle of the Federal Territories Foundation (SPV FT Foundation).

This SPV FT Foundation in turn will use the funds to buy houses and lease them out to eligible buyers. The buyers then will pay a monthly payment of RM300 for a period of up to 25 years and upon settlement would own the house. Sounds simple enough? Think again. Like all magic tricks, all the action happens behind the scenes.

Normally, a social welfare programme will be funded through tax revenues or by issuing bonds. These methods are direct and transparent. They allow the public to monitor the government’s work more closely and enable them to evaluate them further. Note that with the proposed scheme, a lot of agency has been used instead of directly helping the public. As a result, a diversion is created as the public’s attention turns to the EPF. This, ladies and gentlemen, is the first step of the illusion.

Next, we look into the role of SPVs. What are SPVs? Most commonly known as special purpose entities (SPEs), they are made infamous by the Enron Scandal in 2001. Although their purpose is to isolate the firm from financial risk, they are also commonly used to hide debt and ownership. For Enron’s purposes, they used it to cover their losses therefore showing enormous profits. A case of one could say “creative accounting”.

Similarly, one can assume the same of the federal government. It is possible that the trick here is for the government to spend more without it appearing in the federal balance sheet. The track record has shown that they have never spent according to the budget. With an already high level of debt – RM456 billion at the end of 2011, the structuring of this scheme through the SPV will hide any increase in federal debts. This is the second bit of the illusion.

The magician -the federal government- like all magicians, will try to distract our attention by saying “this act shows that the government is concerned of the housing problem faced by the people”. But looking at the impromptu and ad hoc manner that this scheme is introduced reveals their bluff.

If that was the government’s serious concern, it is puzzling that this housing scheme was not mentioned in this year’s federal budget. This inconsistency only points to the third part of the illusion, that this whole scheme was designed for the short-term goal of appeasing the voters specifically those from Lembah Pantai.

With all three parts explained, here comes the finale. The government has assured EPF contributors that the loan will be paid back. In cases of non-payment, DBKL will buy the house and sell it off to pay the loan. In short, if it goes wrong, EPF contributors will not lose out. But they stopped short of saying no one will lose out.

The fact remains that since DBKL guarantees the whole scheme, taxpayers have to bear the losses – if there are any. There are no guarantees that the houses can be sold in the future. Hence, losses are expected and taxpayers will be on the losing end.

All in all, I have spelt out the real intention behind this EPF housing scheme. If it succeeds, the magician hopes to win the hearts of the people of Lembah Pantai, spend enormously on election goodies while at the same time hide the expenditure and distract the attention of taxpayers. In doing so, taxpayers’ money is wasted without anyone noticing. Thus, conclude the greatest illusion of 2012. –The Rocket

This article was written by on Wednesday, February 15, 2012 at 7:36 am. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.

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