Tuesday, August 03, 2010

Discount or Subsidy?

Don't play with bumi discount fire, warns UMNO Information Chief Ahmad Maslan. Tony Pua is not supposed to talk about it anymore as he can next be accused of sedition or incitement.

Well, if that is how much Ahmad Maslan wants that discount, honestly as far as I am concerned he can have it.

But let us call a spade a spade and nothing else.

Is that discount? Wikipedia says "Discounts and allowances are reductions to a basic price of goods or services." It further adds:

"They can occur anywhere in the distribution channel, modifying either the manufacturer's list price (determined by the manufacturer and often printed on the package), the retail price (set by the retailer and often attached to the product with a sticker), or the list price (which is quoted to a potential buyer, usually in written form).

There are many purposes for discounting, including; to increase short-term sales, to move out-of-date stock, to reward valuable customers, to encourage distribution channel members to perform a function, or to otherwise reward behaviors that benefit the discount issuer. Some discounts and allowances are forms of sales promotion."

Wikipedia goes on to explain in greater detail the various kinds of discounts offered or one might encounter and i have reproduced its content's page here:


It would seem that only the category "1.4 Discounts and allowances dealing with customer characteristics" would apply to the Bumi discount that Maslan refers to. Even then it would seem like none of the sub sections here would refer to the Malaysian version of Bumi discount. Really no one in the whole world, as it would seem, think there should be such a discount as Maslan imagines.

There is something about the characteristics of a discount that maybe ought to be explained. If we were to take the definitions given above, the discount ought to be the difference between the list or approved price the manufacturer offers and the price actually paid by the buyer.

In the case of a developer of properties his calculations of price of individual units don't matter as much as what he hopes to receive from the sale of the entire development. As long as that global figure is achieved the developer cares little about who buys at what price.

So the developer is now forced to sell to the bumis at a discount 30% of the units. Now let us say that the development is made up of 10 units of identical bungalows. Now, it is not only the individual units that the developer has to build, but he has to also provide common amenities like roads, swimming pool, guard house etc. He may have worked out the entire cost of the project, including land to be, say, RM10 million. He may want to make RM10 million in profit. In which case he would need sell the entire project of 10 bungalows for RM20 million. Therefore, he would need to price each unit at RM2 million.

Now, if 30% or 3 units are to be sold to bumis at a discount of 5% it would seem like the developer will have to sell these at RMRM1,900,000 each. If that were to be all, the developer suffers a loss of RM300,000. Now, if this is what has been happening, we should have a long time ago heard from the developers complaints about their sacrifices. But no. They have been silent. In fact they have acquiesced the implementation of this discount policy quite happily just so that they will be able to get all their necessary approvals. But this is not what happens, is it?

The RM300,000 loss is now added on to the price of the remaining 7 units so that they bear that "loss". The non-bumis have to cough up at least RM42,850 using simple calculations. Sure all you mathematicians out there can work out the more precise figures so that the bumi price is actually 5% less than the non-bumi price. I never claimed to be good at maths anyway.

Unlike the discounts that we see in stores where the seller is making a sacrifice for whatever reason. Here the seller, the developer is NOT making any sacrifice. the seller makes his RM10 million. The non-bumi buyers are asked to pay for and on behalf of the bumis their so called "discount"!! Basically this is a direct subsidy by the non-bumi buyers for the bumis who buy.

As I said earlier, I am quite agreeable about paying on behalf of my bumi countrymen. Just don't call it discount. Call it subsistence. Call it subsidy. Just don't call it discount for heaven's sake.


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