Currency Fluctuations & MM2H FD Amounts

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For some this may be good news, for others it will not. Last night sterling dropped to below 5.2RM to £1. As of 8:30 this morning it was trading at 5.2129. This is clearly the lowest exchange rate in at least 5 years.

Anyone got any guesses how low it will go? Particularly when the UK approaches 0% - 1% interest rates? I still have a feeling that it will hit 4.8.

I know that this is becoming 'Old hat' but I want to revisit my previous posts under the 'Ringgit' and look at the impact of sterlings devaluation for people looking to join the MM2H program from the UK

As things currently stand
Based on 5.2rm to £1, 10,000rm per month would equate to £1923.08 per month
That is some monthly pension/income that people will have to have!

FIXED DEPOSIT
150,000 RM 12 months ago would equate to £21,276.59
300,000 RM 12 months ago would equate to £42,553.19

As things currently stand
150,000 RM would equate to £28,846.15, an increase of £7569.56
300,000 RM would equate to £57,692.31 an increase of £15,139.11 !!

On the plus side, MM2H participants that are already here will have made money on their fixed deposits etc should they decide to go back to the UK

Paul

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hi, Corporateangel,

Hope you don't mind but I've formed a new topic for this post of yours. The UK has the 3rd highest number of MM2H applicants and the current fall in sterling alters the costs of MM2H considerably, as you have indicated.

The 26% increase, in sterling terms, for the RM300,000 FD makes it nearer Stg 60,000 so it's now quite a chunk.

When the Silver Haired programme was renamed and relaunched as MM2H in 2000, sterling was at an average of RM6. When MM2H was revamped and handed over to MoTour in April 2006 the exchange rate was 6.41. Basically it's 25% more expensive for sterling holders.

For US$ holders the increase is just under 10% which doesn't seem so bad. The rate has moved from the fixed RM3.8 (= US$1) to the current RM3.45.

However, as you point out, the monthly pension/income of RM10,000 = Stg 1,990 and that's a considerable sum for most people.

I've always felt that this extra (income/pension/supporting funds) financial requirement was wrong. And it was set too high given a Malaysian national average income per household of about RM2,500. If you're going to do it (which they have) at least set it at a reasonable 2x the national average income rather than a crazy 4x.

BTW, the highest for sterling that I could find was RM7.511 on 01/01/2005, but I wasn't looking so closely.

regards, Scott

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'Money' explained:

http://www.youtube.com/watch?v=9cIeQp2zzhY

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Hi

I'll be posting some updates on this topic soon, I moved house on News Years Eve and am living out of boxes..

P.S Thanks for making a dedicated thread Scott.

Hope everyone has a much better 2009 than 2008

Kind regards

Paul

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BTW, the highest for sterling that I could find was RM7.511 on 01/01/2005, but I wasn't looking so closely. regards, Scott 

The best I ever managed to get was RM7.211 and indeed that was early in 2005. As always big bills need to be paid in Jan so I will be converting a 'fair wad' at a lowly RM5 to the pound (if I am lucky)!  That sucks and it hurts as well!

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hi,

RM7.211, those were the days. If only I'd bought beachfront property in Penang in 1978. Of course, I didn't have any insight then, let alone any money, and was backpacking based at the Hotel YMCA in Singapore.

It's been a quiet New Year. I think that, in reality, 2009 really starts next Monday.

regards, Scott

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With RM to £ standing at about 5 or just under, I thought a comparison against the 5.2 previous exchange rate shown above would help to highlight how much more its costs for Brits to join the MM2H program month on month (providing sterling keeps depreciating)

As things currently stand
Based on 5rm to £1, 10,000rm per month for the purpose of a monthly income would equate to £2000 per month (an increase of about £80 pm against the previous calculation using 5.2rm to £1).

FIXED DEPOSIT
150,000 RM 12 months ago would equate to £21,276.59
300,000 RM 12 months ago would equate to £42,553.19

As things currently stand
150,000 RM would equate to £30,000, thats an increase of not far off £9,000
300,000 RM would equate to £60,000 an increase of about £17,500

When the MM2H program stated that it wanted to encourage the affluent retirees to Malaysia they weren't kidding. I saw that the Tourisim Ministry stated that they wanted to encourage more participants onto the MM2H program to help offset the 'Probable' economic downturn in Malaysia, but with house prices dropping in the UK and equity being eroded, soon the MM2H program will be out of reach to 90% of potential candidates, anyone got any comments?

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 Hi All,
the $Aus is up to MYR2.5 today. It has been as low as MYR2.3 over the last few months and was at MYR3.1 in October.
 With currency swings like that purchasing property is a real headache. You almost have to convert your money from your home currency before you sign up to buy or risk your purchase price going up (or down) in your home currency before settlement on your property.
While this might attract those who think they can predict short term currency movements the reality is that for the most of us we have no real inkling where they are going. Even in the last two weeks the movement in the $A against the MYR has been 10%. In the context of a major property purchase that is a massive risk.
Which leads me to an alternative suggestion on which I would welcome comment.
In the world of share market investment there is a well known investment strategy of what is known as dollar cost averaging. What it means in simple terms is that instead of investing $100K in one or a number of shares at one time you average your investment over a period of months if not years by investing at say $10K per month. The theory goes that it is not possible for the avearge investor to pick the bottom or top of a market but by entering the market over a prolonged period your "average" cost per share should avoid short term fluctuations.
Okay, how does this apply to property.
Step 1. Buy your property
Step 2. Finance your property with a long term loan in MYR from a Malaysian bank that allows capital reduction without penalty.
Step 3. Put your home curency into a bank account in your home country at the highest (safe) rate of interest. Alternatively you can open up a foreign currency account at a Malaysian bank denominated in your home currency.
Step 3. Pay off the Malaysian loan over a period of years (say three) by converting your home currency on a monthly basis to fund the repayment.

By doing this you will avoid short term currency swings. If at any time in the process you think the currency has reached a level at which you are "happy" you might elect to pay out the MYR loan in full. In my case my thinking is that at MYR3 to the $A I would be happy to make the "big switch."

One big problem with currency exposures is the relative movements of currencies. You can get into massive problems. (Ask any Australian who took out Swiss franc denominated loans in the eighties.)
In the case of property you do however have one very big advantage and that is because you have an asset that is located in the same country as your debt . This is known as a natural hedge.

I will finish my making the usual disclaimer that the above may not be appropriate for everyone and each should consider their own personal circumstances not to mention the taking of "professional advice".

Intersted in comments or improvements.

Donohue

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Hi Donohue,

Interesting proposition! However, without having done any calculations on this, it would appear to me that unless the financing interest rate is extremely low, any benefits you may gain from this excercise is eaten up by interest payments. Please correct me if I'm wrong?   

Personally I'm planning to buy a property in JB within the next 12 months and I have decided that as long as I get RM2.50+ to the $AU I'll be happy to make the transaction. To guard against any negative exchange rate fluctuations I will be transferring the funds from AU to MY at the time of signing the S&P. I may miss out if the rate goes up, but what the heck, at least I won't have any nasty surprises.     

Cheers
Poul

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Hi Poul
Don't forget you have the interest being earned on your home currency account. Accordingly all you have is the interest differential which is usually about 2-3%. I have noticed $A accounts offered by Malaysian banks are actually paying 8% so you could even make a profit.
When you consider that the currency swings in the last three months alone have been in excess of 20% the interest differential pales into insignificance.
Good point though

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8% on Oz dollar?  Could you point me in the direction of which banks. Ta

Cheers

Brian

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 Saw the ads in the local papers over here just before Christmas.  I can't remember the bank.
 I just did a quick search and came up with Standard Chartered offering 7% on $NZ accounts.

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hi,

I think that the interest on A$ & NZ$ has gone down drastically the past couple of weeks, if not the past few days. Central banks are cutting rates by 50 points, 100 points or 150 points.

And foreign exchange rates are equally volatile. My place in Portugal sold for 202,000 euros. That was about Stg 187,000 on the sale day as against Stg 156,000 when it first went onto the market. All in the space of 10 months, and up and down daily.

I'm looking into a dual currency account which may be a way of dollar-cost averaging conversions depending on bank charges.

Time for the panadol.

regards, Scott