Bangsar Trade Center Up's Offer

So, now it's 19.5% guaranteed returns!!

And now it's called Pre-Sale... previously, it was called "Pre-launch"...


The Pre-Sale offer seems better than the Pre-Launch offer, despite the higher price. However, don't lose the hidden message. 19.5% on RM288k translates to RM56,000. Previous pre-launch price was RM220k with 6.5% returns over 2 years, which is RM29k. So, assuming this 19.5% is guaranteed over 1 year (I'm not sure cos I am not going to bother to ask), the extra yield is about RM27k. So, add this RM27k to the old selling price, you get RM255k. So, one can say the "pre-launch" buyers have gained about RM30k so far.

But this is unlikely to be so. In most pre-launches, the cheapest unit is usually snapped up early. So, the RM288k starting price for this "pre-sale" stage is probably the cheapest available unit left.

I have been posting a lot on this topic lately... but I am not picking on Bangsar Trade. I am sure what they are doing is absolutely legitimate and maybe there is even money to be made. But I do find their marketing technique very interesting, that's why I comment...

Bangsar Trade Center Trivia

How can a property in BANGSAR make it with
prices starting from RM220k,
which is Freehold,
located next to the LRT,
with 90% loan financed by the developer with DIBS,
fully-furnished
and a guaranteed 6.5% returns over 3 years ?
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The answer is....
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It's NOT in Bangsar.... hahahahahaha!

Buying Asian property risky but not in KL, says report

As reported in The Malaysian Insider

By Lee Wei Lian

August 02, 2011

KUALA LUMPUR, Aug 2 — Kuala Lumpur’s residential market has been rated as a regional standout as key Asian capital cities face challenges from government-imposed cooling measures, said property investment consultancy Pacific Star in its mid-year report.

The report said that governments in China, Hong Kong and Singapore have been bent on curbing inflation and cooling the residential market through a combination of tightening measures, higher interest rates and management of supply and demand but this was not always the case in Malaysia.

“Although fundamentals for Asian residential real estate remain intact, residential investment at this juncture carries a disproportionate amount of policy risk,” said Pacific Star. “We view that the Kuala Lumpur market will stand out given that policy risk is relatively low and economic conditions are generally healthy.”

The report noted that the sharp rise in the equity market in Malaysia this year has also helped to support residential demand.

“In particular, the pace of rate hikes in Malaysia has been more measured and will support residential purchases,” said Pacific Star.

While the report will be welcome news to property investors, aspiring homeowners are unlikely to be happy that the Malaysian government appears to be lagging behind its regional counterparts in tackling residential property prices which have largely outpaced income growth.

The price of residential properties in and around the Klang Valley had increased by up to 30 per cent last year thanks to a combination of low interest rates and ample liquidity.

While Malaysia does not have a housing affordability index, a rough calculation shows the average price of a KL residential property is now about RM485,000, or roughly nine times that of the average urban household annual income of RM54,000 and a possible sign that the market is experiencing a bubble.

The Demographia International Housing Affordability Survey rates markets whose property prices are 5.1 times median income or more, as “severely unaffordable”.

The National House Buyers Association (HBA) had warned in May that an entire generation of young adults risk being locked out of the property market due to runaway house prices.

Malaysia’s central bank, Bank Negara has raised its key overnight policy rate (OPR) four times since the start of 2010, to the current level of three per cent which is still below the pre-crisis level of 3.5 per cent and the statutory reserve requirement rate of three per cent is also below the pre-crisis level of four per cent.

“Although Bank Negara Malaysia has initiated monetary tightening, inflation is expected to stay above 3.0 per cent, which implies a negative real policy rate,” said Pacific Star.

Bangsar Trade Center

Last Friday, my early morning route took me from Subang Jaya to Bangsar. On the way out from Subang, I saw a small ad posted on a traffic light advertising a Freehold property in Bangsar, with DIBS (Developer Interest Bearing Scheme), guaranteed 90% loan and guaranteed 6.5% returns for 3 years... and the price starts from RM220k. I seriously didn't pay much interest in this because normally this kind of investment won't get advertised illegally on traffic junctions. It sounded like a scam. By the time I got to Bangsar, almost every traffic lights junction was plastered with these ads. Surely, this is something that needs further investigations...
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So, I decided to call one of the numbers listed on the ads. There is no showroom, so the sales agent invited me to visit their sales office at Kota Damansara. It's not the easiest place to get to from Bangsar on a Friday afternoon but finally I did get there. They appeared to have laid out a small feast in front of the office and I was greeted by a rather pretty Eastern European lady... good strategy....
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As it turns out, the location of this project is at the Kerinchi LRT station. This LRT station is currently built inside Wisma Pantai, which is a very badly managed building. Adjoining this building is Wisma Goshen, a Grade C office block with Grade E lifts and Grade F toilets. There is an abandoned plot at the head of this complex facing Menara Telekom. At this plot, they will build an office block and 2 blocks of hotel. The hotel will be leased by the Best Western group, which is a well known chain.
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So, what's with this deal?
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The price advertised starts from RM220k but this is not quite. The hotel rooms, which they call SOHO is actually priced just over RM1000psf. So, a typical unit about 500sf is actually being peddled around RM520k. The prices vary according to the view - which you either get the wall of the office block barely 20 feet away or the Federal Highway. So, naturally all the nicer units which are not facing a wall have all been snapped up. But lucky me behold, when I got there, some poor guy who has placed a booking for a beautiful unit with the highway view can't get his loan approved (what's with the guaranteed 90% loan???) so the sales agent says I can have it!


What about the RM220k starting price tag then?
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These are for those tiny 100sf boxes they call commercial units located on the 3rd floor of the complex. They have 3 floors of commercial shops. The 1st and 2nd floors are reserved for lease by the developer and the 3rd floor is offered for sale. The layout looks to me like the MBK bazaar in Bangkok. At RM2000psf and a hefty RM1psf maintenance fee, if you want to place your bets here, you better buy those units facing the elevator. But all these units have been snapped up as well... These commercial units, unlike the SOHO comes with only 2 years guaranteed returns at 6.5%. This might say something about the developer's confidence, as the current shops in this complex are not exactly doing too great.

How does one get the 90% loan?
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Especially when most investors now have more than 3 properties and Bank Negara says you can only have 70% loan - the developer will loan you that 20%. I don't understand how the mechanics work but apparently, you'll get 70% loan from the bank of your choice and the developer loan you 20%, so you will have 2 lenders to pay... the bank and the developer. I need not dwell more into this because at this stage, I was getting a bit uneasy about the whole project.
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Why?
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The take up seems to be great. The 1st block almost 90% sold and the 2nd block just opened is almost 50% sold. Then the sticker off a nice unit in the cheaper 1st block pops back out. Well, that's not all... the RM1000psf price tag for this location is way over-priced. If I am to rate this, using Bangsar South and Midvalley as a benchmark, I would say this place is worth no more than RM900psf. Bangsar South and Midvalley are both leasehold. But Bangsar Trade Center (BTC) is freehold, so I'd give it a 10% premium. There are also no small SOHO units in Midvalley and Bangsar South for me to compare, so I'll give BTC a further 20% premium for the smaller size. So, taking an average RM600psf Bangsar South and Midvalley price today, with the 30% premium, we've reached RM780psf. Then, we'll throw in a further RM80psf for the furnishing and therefore, we reached RM860psf for BTC.
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There is a 6.5% GRR over 3 years. Taking a typical 500sf unit, which is priced at RM520k, the developer will be paying you RM101,400 over the 3 years. That translates to RM200psf... therefore, RM860 + RM200 = RM1060psf.... No such thing as a free lunch...
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So, the only way you'll make money here is to pray for a capital appreciation after 3 years. If that doesn't happen, you'll be stuck with an old 3 year old hotel room which you are trying to rent out with old furnitures to replace. That's why, I never believe in Guaranteed Rental Returns ;)