Thursday, November 25, 2010

MAS Building Makeover

PNB, who is the owner of the MAS building in Jalan Sultan Ismail has confirmed that the building they bought few years back for RM130million will be refurbished. A luxurious tower will be constructed to replace the podium behind the building. This tower will house a hotel and a serviced apartment.

Several designs had been touted for this tower. PNB also initially announced that the design would be revealed in October 2010 but October has since come and go... Judging from how our GLCs (Govt Linked Companies) work, it probably won't be another year before things take off, if it takes off at all...

If this happens, punters who invested in St Mary's Block C and paid RM100psf lesser for tower 1 will be pleased to know that the horrible and bad feng shui jagged roof of the MAS building podium block will be gone forever.

Asia set for drip-feed of property regulation

November 25, 2010
SINGAPORE, Nov 25 — Asia’s property markets are set for a continuous drip feed of tighter regulations in coming months as authorities try to take the froth out of surging home prices without triggering a crash.
Last week Hong Kong announced its fifth set of measures this year as it struggles to curb speculation in its property markets. China, Singapore, Taiwan, Thailand and Malaysia have also unveiled more stringent regulations in recent months.
But Asian investors’ appetite for property seems far from sated with prices continuing to climb. That will likely prompt governments to raise mortgage requirements again, increase land supply and — in the case of China — impose property taxes.
“My baseline scenario is we will need more measures — the current set worked but their impact is transitory,” said Tim Condon, head of research at ING Financial Markets in Singapore.
Authorities’ ability to curb speculation is hindered this time round by the abundant liquidity in the market and central banks’ reluctance to raise interest rates too fast amid a patchy global economic recovery.
Many investors, particularly at the luxury end, are coming to the market flush with cash, meaning measures such as putting a cap on mortgages relative to the value of a property aren’t as effective as usual.
Hong Kong luxury home prices are now above the peak they reached in 1997 before the Asian financial crisis struck, fuelled in part by rich mainland Chinese buying flats in the city.
Newspapers in Singapore report of stories showing new condo developments selling all of their flats on the first day of asking.
“We’re entering into unchartered waters because just one set of the measures introduced so far this year would have worked in previous times — but what we have right now are markets filled with liquidity and historically lower interest rates,” said Donald Han, vice chairman at Cushman & Wakefield in Singapore.
Residential prices in Hong Kong climbed 25 per cent from mid-2009 to mid-2010 while those in Singapore rose 37 per cent, according to property agency Knight Frank.
Asian policymakers know the dangers of property bubbles all too well. The 1997 financial crisis began in Thailand’s real estate markets and led to a crash in property prices across the region, while the US subprime mortgage meltdown and ensuing financial market chaos dragged much of Asia into recession.
In the aftermath of the 1997/98 crisis Asian authorities led the way in designing “macro-prudential measures” to curb credit growth for housing long before the term became the buzzword of regulators in the west.
These included the use of loan-to-value ratios to cut the size of mortgages people could borrow compared to the value of their house, and limits on foreign currency borrowing.
But despite this experience observers say authorities are still struggling to keep up with pace of the price rises this time round.
“They’d like to think they have learnt the lessons of previous crises but the way the price rises have gone over the last 18 months or so show that even in a command economy such as China you can’t always control prices as much as you’d like to,” said David Green-Morgan, head of Asia Pacific research at DTZ in Sydney.
“In hindsight, the authorities should have started releasing more land for construction in 2008 but that was during the global financial crisis when it wouldn’t have been an obvious policy choice,” he added.
Using regulation to control property prices is notoriously tricky because of the spillover effects such moves can have on the rest of the economy.
Federal Reserve Chairman Ben Bernanke argued against measures to rein in the US property market in the years preceding the 2008-09 financial crisis, saying it could have a negative impact on the rest of the economy.
It is not hard to see why many economists now argue that was the wrong approach, but Asian authorities are still likely to tread carefully.
“If China is aiming for around 10 per cent annual GDP growth, a big part of that depends on a healthy property market,” said Han at Cushman & Wakefield.
“So rather than taking a sledge-hammer to the market governments will be issuing new measures on a bi-monthly or quarterly basis to weed out excessive speculation,” he said.
So what measures should investors expect and where?
Singapore, Hong Kong, Taipei and various cities across China are highlighted as the areas still most vulnerable to a build up of pricing pressures.
Hong Kong has already gone in hard and is now expected to give its latest measures some time to take effect before going back for more sometime next year.
Singapore has hinted that it’s likely to implement further measures, and is likely to release more land into the market as well as introduce more measures that curb speculation such as higher rates of stamp duty for people who sell properties soon after purchasing them.
“Those who are buying multiple properties, those who are buying for investment, are the investors who are on a higher risk of facing more regulatory measures,” said Cushman & Wakefield’s Han.
China faces an even tougher policy balancing act due to the huge regional disparities across its property markets.
An analysis by Standard Chartered shows that cities such as Shanghai, Shenzhen and Chengdu are still facing huge upward pressure on prices while some “second tier” towns such as Dalian and Tianjin could see home prices fall as a host of new supply comes on to their markets.
This means authorities are expected to roll-out property taxes they’ve been recently piloting in cities where the markets are still frothy, while refraining from any fresh measures elsewhere. That, though, is likely to be easier said than done when authorities are still struggling to keep up with what’s actually happening in the markets they’re trying to control.
“Introducing such a tax is strewn with technical and political difficulties,” said Standard Chartered’s head of China research Stephen Green in a recent research note. A recent property tax proposal by Shanghai was reportedly turned down by the State Council because Shanghai had not done an adequate survey of all the apartments involved, a task that would take months, if not years, he added.
Authorities are still expected to press ahead with these taxes but at a fairly low level, setting progressive rates of between 0.3 to 0.6 per cent of market value per year.
But the bottom line though is that while most Asian property markets have managed exchange rate regimes and relatively low interest rates, authorities will struggle to control the market via regulation alone.
“Until and unless you fix the undervaluation of currencies the pressure is always going to be there — in that sense, these property measures will only deal with the symptom and not the cause,” said ING’s Condon. — Reuters

Monday, November 22, 2010

Small is Beautiful

In Bangkok, land prices have been sky-rocketing unproportional to the income of the residents here. This is a big city, that witness hundreds of thousands of migrant workers descending here to eke out a living each year. The Thai economy is pretty much centralized in Bangkok. Hence, the population has balooned to around 10 million, almost one fifth of the total population.

How does one then price their properties within the reach of the ordinary Thai white collar wage earner? An average 25yo undergraduate with 3 years work experience earn between RM1500 to RM2000/month. They earn much more if they speak English but not many do. So realistically, developers price their products to within RM100k to RM150k to suit the budget. At the same time, they need to place their projects within prized locations along major bus or commuter train routes. By doing so, they reduce the size as much as they can until they perfected the art of building small studio units.

In KL, we are now just about getting used to 500sf or even 400sf studio units. In Bangkok, they get down to as low as 250sf!

Developer LPN does a great job at this. LPN specializes in small affordable units that are located within 1km to 2km radius of the Bangkok MRT or BTS stations. They have a great reputation at providing excellent maintenance despite the cost of their products. However, they also churn out pigeon holes, barrack style apartments numbering thousands in each project. Yet, their product sell like hot cakes, snapped up within hours of being launched. Many purchasers are migrant workers from upcountry tired of renting or executives with families in the suburbs but work in the city and no doubt a great number of cash rich Thai speculators.

However, these properties generally don't appreciate much, although the past couple of years a typical 320sf unit (unit plan below) launched at RM120k is now in the sub-sale at around RM200k. Rental for a fully furnished unit is between RM1000 to RM1200 for good locations.

Despite the long school corridor style, LPN has done a great job with the unit layout and design which incorporates Asian life-style. Unlike the studio apartments peddled by developers in Malaysia, Thai developers like LPN design the kitchen for Asian cooking i.e. it faces outwards to the window.

This well thought out design are also now being adopted by higher end condo projects, with developers like Sansiri, Preuksa and AP joining the fray. One of Thailand's best developers, Preuksa has launched a very good concept development in Suan Phlu, equivalent to our Ampang Hilir in KL with a starting price of 250sf studios at RM180k. Notice the small kitchen with a sliding door and balcony similar to LPN's design.

Of course, Preuksa being a higher end player has larger units, priced at a higher premium at RM300k for a 350sf 1-bedroom unit up to RM600k for a 2 bedroom unit. Preuksa also offers laminated wood flooring and quality hotel-grade bathroom fittings for all their units, including the el-cheapo studios.

Another high end developer, AP Land has another innovative concept which they call the "sky kitchen". It is basically putting the kitchen at the window instead of at the back near the door like most studio layouts we are used to. With prices starting from RM300k, AP Land's designs are 1-bedroom units, not studios. Usually in a 1-bedroom unit, the bathroom and toilet is situated inside the bedroom or outside. Both ways are inconvenient as you either have to step outside or guests have to step inside your room to use the facility. So, they have designed the toilet and the bathroom to be separated by a door, accessible from both the room and the living room. In this way, you can be having a shower and your guests can be using the toilet at the same time... no funny thoughts...

While we are still enjoying large 500sf to 600sf studio or 1-bedroom units in KL, I still can't find any innovativeness by our developers to make that a truly living concept like what the Thais have done. Small can be beautiful.

Sunday, November 21, 2010

Innovative Thailand

I've been visiting a few property showrooms in Bangkok and quite amazed at their adoption of technology to sell properties. A few years ago when I started working in Thailand, while interviewing for staffs, our out-sourced recruiter who is British remarked to the job applicants how much the Thais can learn from working for a Malaysian technology company. I think it used to be true 7 years ago but the situation must have reversed now. Not to say that the technology is not available in Malaysia, certainly things like touch screen LCD monitors and software booking systems are common stuffs, it is the readiness of the Thai people to use the technology that impresses me.

Take for example, this show room above. Besides employing many people who greets you at the door, pour coffee and show you around, they have 3 LCD screens which among others tells you which units are sold and which are available for sale. Now, compare this with the red stickers in Malaysia while peddling RM1.5million condos in KLCC...

When you touch on the available units, the unit layout pops-out. Further information reveals the unit prices, floor plan, video screening of the facilities available....

... and the actual view of the units.

Besides the beautiful smile of the sales agent and her sweet presentation, my experience at this showroom has been greatly enhanced.
Hopefully, Malaysian developers and property agents will catch up. But so that I won't look like a fool in case you are reading this article in the year 2025, this is 22nd November 2010 in Bangkok, Thailand.

Thursday, November 11, 2010

Bad Timing - Suasana Bukit Ceylon

The UMLand-MMC JV's Suasana Bukit Ceylon is finally launched. Unfortunately, the timing is rather bad with the recent Bank Negara policy to restrict 3rd property loan to a maximum 70%. Certainly, this has affected the pool of investors despite the project's offer of a 10:90 0% interests during construction period. The project has been delayed from the start due to hillslope problems but as in any such cases in Malaysia, sooner or later it gets approved no matter what the risk is. The developer has decided to launch half of the over 300 units. The balance of the units will be marketed overseas.

The project occupies one of the last pieces of vacant land in leafy but central Bukit Ceylon. However, it is sitting in a rather less glamorous end, further away from all the action in Changkat but this part is quieter, albeit for now. In future, another condo project will be built fronting Suasana which apparently will be called St. John's Wood. The back side of Suasana is actually built on top of the Bukit Ceylon hill itself. With one side facing a church, units facing this side will have unrivalled and forever unblocked views of both KLCC and KL Tower. It is also facing the much favoured morning sun. Without doubt, if one is to enter this project, the only piece worth buying are units on this side (units in Orange and Yellow below).

Type D (pic below) is a 1450sf 3 bedroom unit with nice and bright layout. I particularly like the long balcony overlooking the 2 iconic views of KL. Unfortunately, the kitchen design the Western type, unlike Verticas Residency's Asian style 2 part kitchen which is more home-friendly.

A week into the launch, all but 1 Type D facing KL Tower has been taken up. Also, due to the fetish of Malaysian investors for small 1-bedroom units, all the 730sf 1-bedroom units have been snapped up. The layout can't be any worse for a 1-bedroom unit. While the bedroom gets the optimum light and windows, the only natural light the rest of the unit gets is from the tiny window over the air-cond. Also, the bathroom has no windows and it is not attached to the bedroom. Maybe this is a good thing as guests do not need to walk into your bedroom to pee but then again, I wouldn't bring any guests home to this dinghy looking place.

The pricing however is rather attractive. The prime Type-D unit I mentioned above is priced at a cool RM740psf i.e. around RM1million. The smaller Type-C is going for RM580k which is slightly under RM800psf. This leaves some room for appreciation but as the new Bank Negara ruling is expected to correct market prices, the appreciation may not be much. The developer claim that the higher floors will be marketed overseas at an ambitious 30% premium.

Sunday, November 7, 2010

Reuters Report - Malaysia sets new rules to cool property market

Malaysia sets new rules to cool property market
Reuters - Thursday, November 4
*Central bank implements new loan-to-value ratio of 70 pct
*Analysts see short-term impact on property sales
*Household debt still a concern
By Royce Cheah
KUALA LUMPUR, Nov 3 - Malaysia on Wednesday moved to cool its real estate market by imposing a new loan-to-value ratio on homeowners buying their third residential property, but analysts saw the move having only limited success. The central bank said in a statement that the new loan-to value ratio of 70 percent would not be imposed on first and second residential property purchases.
"The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public," it said.
Loan-to-value is the percentage of a property's value that is mortgaged.
The step follows measures by other Asian governments who have tried to clamp down on property speculation to soothe worries over asset bubbles and housing affordability.
But the central bank played down fears of a property bubble, noting that the aggregate growth trends for property prices remain largely manageable. Governor Zeti Akhtar Aziz, had said previously the bank would not wait for a bubble before taking action. [ID:nSGE69R0FG].
Analysts said the new measure reflects the rising concern over questionable mortgage lending practices and household debt in Malaysia, which at 77 percent of GDP, is the highest in Asa.
House prices in Malaysia rose 32 percent between 2000 and 2009, but some areas of the country have seen a big jump in prices this year.
"I think the intention is not to overkill the property sector. It is a very targeted measure aimed at speculation," said CIMB economist, Lee Heng Guie.
Citi analyst Kit Wei Zheng said macroporudential measures such as the new LTV ratio effectively served as a subsitute for further rate hikes to curb financial imbalances.
The central bank held interest rates steady at its last meeting after raising them three times to 2.75 percent and is not expected to announce any changes this month.
"In any case, the high level of household debt ties the ability of the central bank to raise rates too aggressively, lest it crimp consumption spending," Zheng said.
Emerging economies are struggling to cope with the impact of the foreign capital flooding into their markets. With the U.S. Federal Reserve expected to announce further quantitative easing later on Wednesday, the flows are unlikely to slacken in the near future.

Wednesday, November 3, 2010

Loans for 3rd Homes capped at 70%

Effective yesterday 3rd of November 2010, our Bank Negara has thrown us this stinker:
Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households
Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility taken out by a borrower. Financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies. The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public. At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels. This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices. In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature. The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations.
This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers. This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.
Bank Negara Malaysia3 November 2010
© Bank Negara Malaysia, 2010. All rights reserved.
It's another one of those badly thought out policies. I can understand if the government wants to control low cost, medium cost or even lower band high cost properties, because the objective is provide affordable housing to the masses. However, I do not think people who purchase RM2.5million semi-D or RM1.5million condos as the poor masses. This will obviously have a huge impact on property prices, especially in the higher pricing band by reducing the demand in the sub-sale market.
The policy would work well if it was targeted towards homes valued at RM500k or below. However, by enveloping all property ranges, it would do more harm than good to the national economy.
Which foreign investor would now be keen to invest in Malaysia if the capital appreciation of properties is going to be flat?
As for new launches, how many Malaysians can afford to spend a few million on luxury properties?