Monday, August 1, 2011

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...
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....
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.
So, what's with this deal?
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?
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?
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.
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.
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...
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 ;)


nick yap said...

Hi Sin leong,

Looking at your article, you sound like an amateur. In the end, do you get one unit for yourself? The maintenance fees are charge to us or best western?


Anonymous said...

amateur maybe but at least he sees
it for himself and putting it here.
to me is like i've just been there.

sinleong said...

yup, nicky. this blog is for amateurs. pros go to a forum where they fry properties for profits. i didn't get anything here. i was told for the 1st 3 years, owners need not pay the maintenance fees.

Haruki said...

I have also seen the signs - they are everywhere. Thanks sinleong for this comprehensive review.

Taiko said...

Thanks for the great write up...!

Anonymous said...

Good stuff...saved me the hassle to chi out. Then again, the road side banner seems to CHEAP

Anonymous said...

Sing leong, thanks for sharing the information...rizal