Sunday, June 29, 2008

Going to be launched in Bukit Ceylon

pics above: Land clearing at Bukit Ceylon for the UMLand-MMC JV project

Update 7th July 08 - UMLand has announced that their Bukit Ceylon project will be launched towards the end of this year. They have not yet concluded the costing as negotiations are still under way with the contractors.
Right at my doorsteps, the long anticipated launch of 2 new properties - along Jalan Ceylon by Wingtai Asia and the corner of Persiaran Raja Chulan and Jalan Ceylon by the UMland-MMC JV.
pic above: The WingTai Asia construction site
Wingtai Asia, the developer of the Meritz opposite KLCC also has some of the region's top notch properties under its brand. They have been setting up their show room ever since last year with anticipation to launch last October but the dates kept on being postponed. A few teasers been released in the press with some indication that it is not going to be anything less than RM1000psf. This will break Bukit Ceylon's record as currently, the best performer which is Seri Bukit Ceylon (by UMLand/Capitaland JV) is only hovering just under RM900psf in the subsale market. I would say RM1k is quite possible if Wingtai Asia is going to put in better quality materials and finishings, compared with UMland's school toilet tiles in Seri Bukit Ceylon.

Location wise, the UMland-MMC JV would do better, being situated at the corner. I believe Wingtai's plot, although bigger will pose a huge traffic problem in the future as Jalan Ceylon is very narrow. With over 1000 units promised by Wingtai Asia on their plot, it will be a squeeze to get out of the building. However, I regret UMland-MMC JV had to clear a huge part of Bukit Ceylon for this project. Not so nice for the environment.

Both these projects are situated on an exclusive part of Bukit Ceylon. The quieter end which is also home to the Sultan of Pahang. It is less than 1km walk to Pudu Raya and the Masjid Jamek Star and Putra LRT stations. Regency Towers which is beside the Wingtai Asia plot almost always enjoys 100% occupancy.

With the recent increase of oil prices and the uncertain economic future, I am also curious how these 2 projects will perform when they are launched. There has been some news in the market that Wingtai Asia may consider build then sell if the economy is not good. They certainly have the cash to do this and it may turn out to be a wise move as within 3 years time, we would almost certainly risen out of any economic slowdown. The trend for property prices in KL have always been higher after recovery from an economic crash.

Meanwhile, I have registered for both launches and waiting for their announcements. Whatever the situation may be, I would like to grab at least 1 unit from either development facing East as I believe these would be hugely popular with the morning sun and KLCC/KL tower view. Even if the economy is going to the dogs for the next couple of years, it would be a very nice place for own stay...

Tuesday, June 17, 2008

Report from Bangkok - Failure rate for condos nears 50%

In 1996, my father predicted the contagion effect when the economic meltdown hit Thai shores. Soon after, Malaysia was hit with the rest of the region, known as the Asian Economic Crisis. The Thais call it the Tom Yum Kung effect. Are we going to see it again?

Usually in these times, high end properties would be the hardest hit and lower cost properties tend to be unscathed. Is it the time to re-visit medium and low cost real estate investments? Below is an article from the Nation, one of the English daily published in Thailand.

Ref source:

Failure rate for condos nears 50%
By Itthi C Tan
The Nation
Published on June 10, 2008

The chance of failure for condominium developers in Bangkok has grown to almost 50 per cent as competition heats up amid a glut of fresh supplies, warned Aquarius chief executive Yongyuth Chaipromprasert.

After conducting a study during the past five months, the building consultant said even inner Sukhumvit, an area once deemed immune to downturns, "no longer guarantees success"."The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail.""The inventory left over from last year should also add to current stock, making the situation even tougher for sellers, especially newcomers," he said.With 15,000 unsold units from last year and 25,000 units from this year, the market will have an additional 40,000 units to clear in 2009.Because of the worrying trend, he expected new supplies to fall to 40,000 units next year. Yesterday TCC Land said it was halving the number of new projects from 5 to about 2.Yongyuth said most of the buyers are in the outer zones where land is cheaper. "If developers can sell units for between Bt1 million and Bt2 million, they should survive. It is the large units which will find difficulty selling with rising inflation and oil prices," he said.Supharat Development managing director Sumet Sukapanpotharam agrees. "Even with the government incentives to boost home sales by suspending the sales and purchase tax, the developers who will benefit are those who have completed projects and can transfer the units within the year." "We are building for urban workers with limited spending power. There's no point selling expensive units when purchasing power has fallen," said Ananda CEO Chanond Ruangkritya.Ananda's Ideo Mix near Sukhumvit 103 is commanding sales as the units sell from Bt1.5 million.Yongyuth said the worst hit would be developers who bought land recently at high prices and were forced to construct at escalated costs.

Sunday, June 15, 2008

Happy Fathers' Day

These window decorators really know how to make a father happy...

What a father wants on Fathers' Day,..... neck ties?

You sure?

What a way to sell neck ties...

Saturday, June 14, 2008

Subang Jaya SS15 area

This will be part of what I am going to write about the SS15 area in Subang Jaya. To those who don't know, Subang Jaya is a suburban township 20km west of Kuala Lumpur. One of the "districts" in Subang Jaya is SS15. Being a mix of commercial and residential area, with a large student population this has to be the busiest and most vibrant part of Subang Jaya.

In my opinion, besides hosting branches of all the major banks, SS15 owes it's status mainly to the student population. SS15 is home to most of the colleges in the Subang Jaya area - they've got Taylors, Inti, Metropolitan and also a not so posh private school called Sri KL. Apparently, the student population here is about 20,000 with 80% from outstation. Don't quote me on this figure as I myself heard it from someone else. However, it is quite possible. Inti College has also built a multi storey block on its' campus to house more students. Taylors is moving its' degree students to a new campus in Sunway which is still under construction. When that happens, the existing campus in SS15 will concentrate on pre-university courses.

So, what's in Subang Jaya SS15?

In terms of realty investment opportunities... I'd say there are 3 options:
1. Providing housing for students
2. Commercial shop lots
3. Small offices

Of these 3, I'd say the 3rd one is the least desirable and has the lowest success track record of all in order not to waste time on it so that I can talk more about the 1st 2 options. Small offices in SS15 mainly consists of walk up units of shop lots and the tallest building in the area, Subang Square. The average rental in Subang Square for a 500sf office unit is RM1600. Somehow, I don't see a very good take up rate and often notice the high turn-over of businesses here. Anyway, I'll leave this matter to the Feng Shui forum. However, it is interesting to note that Titijaya is going to build another Subang Square style commercial building barely 100m up the road to be called First Subang. We'll talk about it in the next post as I got some pics of this development...
picture above: Scale model of First Subang at the developer's showroom

picture above: Subang Square

With such a huge student population, obviously it is lucrative business to provide them housing. In fact, I have noticed that many of the students have spilled over to neighbouring areas such as SS12, SS14 and SS17. Most houses in Subang Jaya are double storey link type, size around 1600sf, with built up of roughly 1200sf. I have seen valuations for these homes at just over RM300k. Banks and professional valuers tend to put the same price on houses in SS15. However, due to demand from investors, they would normally fetch a 10% - 15% premium over other areas in Subang Jaya.

So how does the economics work?

If you are renting a house in Subang Jaya to a family, the average rental is about RM1000/month. But if you are planning to rent to students, you will get a lot higher. Most of these houses have 4 bedrooms. The landlords would further renovate and turn the living spaces into bedrooms as well. They can typically squeeze in 8 to 12 rooms into a 1200sf house, each room occupying about 100sf. The market rate for such a room, fully furnished is between RM350 to RM500. If the master bedroom is not compartmentalized, it would fetch a whopping RM1000/month rent. Normally 2 to 4 students would share this room. Say we take an average situation, at RM400 per room in a 10 room house - the total rent would be RM4000/month. At a cost of RM350,000 and further RM50,000 for renovations and furnishings (I know most landlords would stinge and spend much less on furnishings), we are looking at 12% yield... a rarety these days....

picture above: Example of a double storey link house converted into students accomodation. This intermediate house has 12 rooms!

Of course one would expect the students to trash the place and leave the landlord with a whopping maintenance bill. This is not always the truth as I have seen personally many of these student houses are well maintained by the landlords though a bit spartan. Not all students trash their houses and the myth that girls are cleaner and neater is not always true. What I have personally seen is most often the opposite case!

picture above: Posters advertising rooms to let for students. Agents are seldom involved in these transactions

The most important thing in managing a student house is to be involved hands-on. If the house is well maintained, generally the students would tend to look after the place. You also have to be on hand to collect rent or evict tenants who don't pay - while confiscating their deposit! Also with such high demand, it is normally possible to be selective with your tenants. Some landlords actually interview the prospective tenants before hand!! I have also bumped into some students who live further away in SS17 and they told me they do not mind walking 1km to college because the place they've got is very clean and well maintained compared to the dumps neighbouring their colleges. Of course the most sought after area is SS15/6 which is within 100m of the colleges. Other areas in SS15 such as SS15/4, SS15/3 and SS15/2 are further away and approximately the same distance as SS14 and SS12. The only advantage of staying within SS15 is one does not need to cross any of the busy roads separating the districts. In fact, these roads have somewhat turned into expressways!

Besides the landed houses, there are several apartments within a stone's throw from the colleges which have become popular with students. The 2 most in demand are My Place Apartment which is literally opposite the colleges and Pangsapuri SS15, 80m from the entrance of the Taylors main campus. In my opinion, Pangsapuri is much better maintained than My Place with many facilities falling apart. Strange it may seem considering the near full occupancy and the hefty RM200 monthly maintenance fees charged per unit. Typically, these are low rise apartments up to the 6th floor. They are walk up units, no lifts. Each of these apartments are about 900sf and have 3 bedrooms and 2 bathrooms just like a typical family unit. Some owners make the living room into a bedroom to reap extra profits. Each room would be able to fetch RM500 for the smallest room to RM1200 per month for the master bedroom. So, typically landlords can get about RM2000 to RM2400 per month. Lower floors can get better rates than the higher floors. Apparently the higher floors suffer from low water pressure and of course, those poor little things don't like to lug their heavy college books and weekly sugar supply up those steps. Taylors college have also signed long term 10 year contracts with some owners at RM1600/month. The last transacted unit which was in November 2007 at My Place apartment was RM270,000 (1st floor). and RM250,000 at Pangsapuri SS15. So, typically we are looking at 9% returns or 7% for long term guaranteed returns for 10 years.

Hence, in my opinion, the landed houses are better investments. Also, you need to pay maintenance fees amounting to 10% of your monthly rental if you invest in the apartments. If forking out RM400k plus is too much for you, there are lower entry level single storey houses in SS12 and SS15/2 at around RM250k per pop. Their layouts are somewhat similar to the apartments... minus the maintenance fees.

picture above: Pangsapuri SS15
picture above: My Place Apartment

picture above: Location of My Place Apartment is strategic - directly opposite Inti College and Taylors College

picture above: Some units in My Place Apartment are noisy as they are facing these kitchen exhaust fans from Asia Cafe which runs 24 hours

(The new apartments beside Carrefour Subang Jaya will not feature in this post because they are not in SS15 although many of them advertised as SS15 area in order to fool prospective tenants into believing that they are very near - incidentally, these apartments do not get very high rental yields although popular with students, not because of their vicinity to SS15, but rather due to the lack of students accomodation to cater to demand).
Now you may ask, we are going to stuff up to 12 people in a house. What's the legality of it? More on this...

Sunday, June 1, 2008

New Launch - Swiss Garden Residences

Over the weekend, we saw the launching of Swiss Garden Residences. It is a 2 tower freehold serviced apartment located behind the current Swiss Garden Hotel in Jalan Pudu. Apparently, it will be managed by Swiss Garden and there are limited units available for a lease back program where Swiss Garden will guarantee a 7% return for 5 years. The price of these units are about 10% higher than others and mostly located in Tower A and on lower floors in Tower B.

From the model pictures shown above and below, it can be seen that this project is going to add some prestige to the otherwise drab Pudu area. Some might believe that it is going to carry on the success of the Casa Mutiara serviced apartment located just behind the project.

However, priced at around RM800psf average, this is no Casa Mutiara. The success of Casa Mutiara is due to the lack of choice rentals for a budget below RM2000. From the launch price of Swiss Garden, it does not seem likely that anyone is going to be able to get anything here for less than RM2000/month. The 550sf 1 bedroom units start from RM333k which is just above RM600psf. It is certainly setting a benchmark for the Pudu area. How the neighbouring Plaza Rakyat project and the Pudu jail redevelopment will influence this area remains to be seen. I also feel this project is a bit ambitious and confident to be launched during this trying times.

The interior is not really that interesting except for the sunken shower (above). The ID effort on the show room is certainly impressive which resulted in one very heated discussion between one (not so) prospective buyer and the sales manager. The buyer, an elderly man was peeved off when he was told that all the nice features in the showroom were not inclusive in the purchase price only when asked.

Anyway, without going into the petty, my personal opinion is that there is going to be an oversupply of 1-bedroom units in this area. Swiss Garden's 1-bedroom apartments will have to compete with Casa Mutiara, Times Square and the newly launched Taragon. I have a feeling that UDA is going to put a lot of small units in their Pudu redevelopment too. Swiss Garden Residences only have very limited 2 bedroom units i.e. only 2 units per floor. The unit below is facing KL tower (morning sun) and the other 2-bedroom unit is on the opposite corner (afternoon sun). The unit on the afternoon sun corner will likely be facing a construction site in the future.

On the 2nd day of launch, Tower A is sold out. In Tower B, it appears like the 2-bedroom units facing morning sun has the majority take-up although mostly on lower floors (see the middle blue column). The lower floors are cheaper, which explains. But I wonder if the buyers know that their view will be blocked by the back of Swiss Garden hotel when choosing the lower floors. It is also interesting to see that the 1-bedroom units are not that well taken up, although cheaper (from RM600psf) vs the 2 bedroom units (from RM800psf). And there is no interest at all for the Penthouses.