Property sales slip on economy worries, polls talk

From the Malaysian Insider

By Lee Wei Lian

October 24, 2011

KUALA LUMPUR, Oct 24 — Property sales have fallen off their 2010 peak while investors and home buyers move to the sidelines as worries of a global economic slowdown, government cooling measures and uncertainty due to the upcoming general election start to bite.

The consensus among analysts and industry veterans appears to be that sales have slowed as the market enters a cooling phase and will continue to slow as buyers take a “wait-and-see” approach, although a hard crash landing of the property market is not expected unless the economy plunges first.

File picture of high-end houses in Kuala Lumpur. The housing slowdown is most severe in the luxury high-end segment.

The slowdown is most severe in the luxury high-end segment which has seen prices drop by as much as 25 per cent due to oversupply and unattractive rental yields, prompting more developers to start paying attention to the more affordable mid-market segment which is expected to be less affected by a softening of demand.

Real estate agents SavillsRahim & Co’s James Goh, who is handling a tender of 61 luxury homes here, said however that he does not foresee prices in the high-end segment to go lower after falling by as much as 20-25 per cent since 2008.

“Interest in the tender has been quite strong with a mix of locals and foreigners even, though the luxury apartment segment has been quite slow at the moment,” he told The Malaysian Insider.

OSK Research said in a report last week that Sunway, one of the nation’s biggest developers, expects the property market to soften over the next six months while Paramount Property Development managing director Datuk Ricque Liew told The Malaysian Insider that there has been a “marked change” in terms of sales from last year to this year especially in the high-end segment.

Property analysts contacted by The Malaysian Insider meanwhile expect sales to slow from a high of 21 per cent growth last year to between zero and five per cent growth next year or even contract if the economy takes a turn for the worse.

‘We’re entering a cooling phase but no hard landing is expected,” said RAM Ratings chief economist Yeah Kim Leng. “The housing correction will not be that sharp unless here is a downturn with a lot of layoffs and business failures.”

The Malaysian economy is not expected to enter a recession however with most research houses predicting a growth of between 3-5 per cent for 2012.

Patrick Chay, founder of PropertyTalk & Lifestyle Malaysia, a social media platform for property investors with 448 members, said the mood among members has turned conservative with gloomy economic news and the looming general election, which must be held by the first half of 2013, weighing on decisions on whether to buy.

“There is uncertainty over the next general election as if there is a change of government, there could be new property investment regulations to deal with,” he noted.

Paramount’s Liew said developments in the high-end segment in areas like KLCC and Mont Kiara were the most affected by rulings such as the 70 per cent cap on loan-to-value mortgages for third properties and the inability to attract tenants for rental yield as some properties sit empty for as long as 15 months or more.

“The 70 per cent loan-to-value ratio for third houses has hit the high-end market as people who buy those units tend to have more than two properties already,” he said.

Liew added that a slowdown would potentially be good for the market as it would stabilise land prices.

“For those who do not build speculative properties, we’re not worried,” he said. “We build based on real selling prices not inflated prices.”

Property consultant and valuer Elvin Fernandez of the Khong & Jaafar group of companies said properties had historically been priced at 4-5 times household income but had shot up to as much as 10 times income, while rental yields for the benchmark double-storey terrace houses, especially at hot spots, had slumped below the three per cent threshold.

“The mood and sentiment has changed,” he said. “A lot of sales have slowed down and developers are not selling as briskly as before.”

He noted however that while property prices should return to their normal value of 4-5 times household income over the long term, they seldom drop drastically during a correction but instead stay flat.

The Valuation and Property Services Department (JPPH) of the Ministry of Finance, in its first half report for 2011, said that against the first half of last year, the volume and value of transactions recorded double-digit growth of 18.1 per cent and 29.7 per cent respectively but grew at a lower rate of 10.2 per cent and 12.6 per cent respectively when compared against the second half of last year.

Former JPPH deputy director-general Datuk Mani Usilappan said however that there is generally a lag in terms of data collected in the first-half report which is more reflective of transactions done toward the end of last year.

“I am not confident that there will be a correction,” he said. “What will probably happen is a slowing down of the take-up rate.”

Mani, who is now a real estate consultant, added that if the government wants to curb inflation, it should have raised the real property gains tax (RPGT) to at least 15-20 per cent instead of the 10 per cent as announced in the recent budget.

KL faces property glut as economy bites

From the Malaysian Insider

UPDATED @ 07:21:16 PM 31-10-2011

By Lee Wei Lian

October 31, 2011

KUALA LUMPUR, Oct 31 — Kuala Lumpur is facing an impending surge of new office and retail space that could further depress rental yields already under pressure from the current oversupply, said CB Richard Ellis (CBRE) Malaysia today.

The international real estate service firm said the residential market is also beginning to ease as capital appreciation has reached its peak, and rent in some high-end areas of the city have come down by almost 50 per cent.

A combination of a squeeze on rental yields and stagnant capital values could put pressure on over-leveraged investors.

Christoper Boyd, executive chairman of CBRE, said rent for some luxury condominiums in oversupplied markets such as KLCC and Mont Kiara have almost halved, while the office space sector is also looking at an oversupply situation over the next 18 months with the rental market becoming more competitive.

CBRE managing director Allan Soo said KL is set to overtake Singapore in terms of retail space per capita as new malls near completion.

He noted that the Klang Valley currently has 7.1 sq ft of retail space per person, which is equivalent to Singapore, but is set to overtake the city state when approximately 10 million sq ft of planned retail space comes online by 2014.

Soo pointed out, however, that while Singapore’s retail market was strong, KL was a tenant’s market with some malls resorting to paying clients to take up space.

“Here we have to beg tenants,” said Soo.

Figures provided by Soo show that KL’s total retail space is set to grow from 43.7 million sq ft currently spread out among 149 malls and hypermarkets to 53 million sq ft by 2014.

“Our analysis shows that only 43 or one third of the retail centres and hypermarkets are performing,” he said. “You must build grade A, building grade B me too malls won’t work.”

Boyd said that over four million sq ft of office space had come online this year which was far in excess of normal demand.

He said that more than six million sq ft of office space meanwhile is expected next year while 25 million is expected by 2015 excluding the mega-projects of KL Metropolis, PNB’s 100 storey Warisan Merdeka and the Kuala Lumpur International Financial District.

“We’re looking at the supply outstripping demand with a likely impact on rental values,” said Boyd.

The CBRE executive chairman also said that the residential market could see some potential buyers drop out due to issues of affordability.

The Malaysian Insider had earlier reported that investors and home buyers have moved to the sidelines as worries of a global economic slowdown, government cooling measures and uncertainty due to the upcoming general election start to bite.

The consensus among analysts and industry veterans appears to be that sales have slowed as the market enters a cooling phase and will continue to slow as buyers take a “wait-and-see” approach, although a hard crash landing of the property market is not expected unless the economy plunges first.

Property analysts contacted by The Malaysian Insider expect sales to slow from a high of 21 per cent growth last year to between zero and five per cent growth next year or even contract if the economy takes a turn for the worse.K

BOYCOTT

Nantha Kumar's article strikes the cord. Although he is talking about affordable housing for the masses, I can relate to this article by the cost of investing in properties in Malaysia, especially Klang Valley these days.

We all want to buy properties and be able to sell at a higher price. This is reality of any investment. However, it is really getting out of hand. I was having lunch in Yut Kee last week and overheard a conversation from two ladies sharing my table. One was talking about the RM450k she paid for her condo in Bangsar South and when it was completed, she sold it for RM650k. The other lady obviously marvelled over this profit and is going to look for similar type of profitable property investment for herself.

That's the problem these days. Everybody wants to jump into the bandwagon of property investment without understanding the pitfalls. As a result, we are creating a bubble. Gone are the days when property investment was a skill of choosing the right location and type of property. Whatever you bought before 2 years ago would have made you money, whether it is a hole in Bukit Bintang or a bungalow in Putrajaya. This is mainly due to speculation, as people buy and then flip.

If we are to study developer launches today, we will find that the launch prices are much higher than existing properties in the vicinity. Of course, one would argue that the new launch includes freebies such as Guaranteed Rental Returns, furnishings, DIBs etc etc. Example is a 2 bedroom pad in Marc Residence KLCC, going around RM1000psf but there is nothing in the KLCC vicinity being launched below RM1300psf. But people tend to forget that with Marc, one gets the keys and start collecting rent in 3 months but in the new launch, it's 3 years! What's in the mind is, pay 10% today and in 3 years, flip it for a profit 1000% what was paid for the downpayment.

Another point forgotten is the rental yield. 10 years ago, you can expect minimum 10% yield on a good location. Then 8 years ago, property prices went up, rental yield still stayed at 10% because rental went up e.g. 10 years ago you can rent a 3br unit in seri Raja Chulan for RM2500. Then 8 years ago, the rent went up to RM3000. But then after, prices surged up but rental stayed stagnant. To make things worse, more brand new units came into the market to satisfy speculative tendencies and competition for tenants become very tough.

Yes, we all want property prices to be higher than what we paid for them when we bought them. But, I am saying this for genuine investors who buy properties for own stay, own business or for long term rental yield. Speculative activities are killing off this trade. To top it up, greedy developers are jacking up prices and cutting up unit sizes. Until the market is corrected, I personally am going on a boycott.

Maddening hike in house prices

Maddening hike in house prices
B Nantha Kumar October 24, 2011

PETALING JAYA: What is the cost of a 480-sq-ft studio apartment, which is half the size of a PPR (People Housing Project) flat?

If your guess is less than RM200,00 then you got it wrong. The real cost of such a place of dwelling is RM230,000 and this does not include car park charges, maintenance fees and other additional bills.

But bear in mind this studio apartment is not in the centre of Kuala Lumpur or even at up-market locations like Taman Tun Dr Ismail, Hartamas or Kenny Hills. Instead, it is in Seri Kembangan, near Balakong, some 15km away from the federal capital.

Parti Sosialis Malaysia (PSM) chairman Dr Mohd Nasir Hashim, who had been critical of the maddening hike in house prices, said that the problem was affecting Malaysians, especially the lower- and middle-income groups which make the bulk of the population.

The problem is further complicated by the government “which appears to favour housing developers”, he said.

“The federal and state governments never monitor house prices, allowing the developers to set exorbitant prices.

“Although house prices are set according to land value, environment and facilities provided, developers still charge high prices, saying that there is an increase in the cost of raw materials… but the hike in price of these materials is not in tandem with the high house prices,” he added.

Nasir, who is also Kota Damansara state assemblyman, said developers were not interested in building low-cost houses due to the thin profit margin.

“Their main aim is profit ,” he said, adding that more than 140 abandoned projects in Selangor were mostly for low-cost houses.

“This is because the government always favours developers… claiming that the prices of houses are dependent on market forces,” said Nasir.

He said the middle- and lower-income groups are forced to purchase their homes out-of -town since they cannot sustain the high cost of living in the urban areas.

“As a result, they will have to spend more on transport… and this is a new financial burden for them,” he added.

Unable to save for rainy day

Those who wish to buy these “luxury” houses in the city will also have to fork out more to repay their housing loans.

According to statistics, a person who buys an expensive home spends nearly 50% of his total income servicing his housing loan.

“Thus he is not able to save for a rainy day or for old age or for a child’s education,” said Nasir.
Nasir said the migration of the middle and lower income groups to the outskirts has also resulted in foreign workers taking up renting space in the cities.

“I can say that there is no political will to solve this problems.”

He suggested that the government, be it federal or state, form a housing commission to monitor house prices and curb excessive profiteering by developers.

“The commission can work as a watchdog so that the people would be able to buy houses at a more reasonable price as opposed to the current open market system,” he added.

He also suggested that the government build more good quality low-cost houses so that those who need homes would get “value for money” homes.

He said the middle-income group in the country shuns low-cost houses because of their poor quality.

“The government should come up with houses that are spacious, and not pigeon-holes with one or two rooms for a family of five or six,” said Nasir.

Remove PPR stigma

“Just look at the PPR projects in Europe.. there these projects were successful because the flats are like condominiums in Malaysia. Moreover, here, we also have a stigma about PPR flats.

“One way to get rid of this stigma is to build quality homes with bigger space. The amenities should also be monitored.

“Maintenance of elevators, and providing drainage and garbage service, and 24-hour security must all be improved.

“With all these improvements, more people will buy PPR houses and this would force developers to reduce the prices,” said Nasir.

Based on government statistics, only 20% of households in the country earn an average of RM8,157 while a massive 58% earn less than RM3,000 a month.

The remainder – 22% – are placed in middle-income earner bracket.

In the 2012 Budget, Prime Minister Najib Tun Razak announced that the government had increased the ceiling price for “Skim Rumah Pertamaku” (My First House Scheme) from RM220,000 to RM400,000 for those earning less than RM3,000.

Under the scheme, those earning below RM3,000 were eligible for a 100% loan to purchase their first house. However, latest reports reveal that the government was planning to raise this household income bar to RM6,000 or RM7,000.

But raising the household income threshold will not be a solution.

This is because if a person takes a housing loan of RM400,000, the total monthly repayment would be from RM2,300 to RM2,600 a month. This would eat into his income and result in default payments and ultimately the person would be blacklisted by the financial institutions.

The government needs to come up with ways of enabling the people, mainly the middle- and lower- income segments, to enjoy quality living by providing good housing.

Najib’s property gains tax ‘ill-advised’, says HBA

Najib’s property gains tax ‘ill-advised’, says HBA

By Lee Wei Lian

October 16, 2011

KUALA LUMPUR, Oct 16 — The National House Buyers Association (HBA) claims the prime minister’s revision of the Real Property Gains Tax (RPGT) was “ill-advised” as the new rate announced in Budget 2012 would only drive property prices up further.

HBA Secretary General Chang Kim Loong said this was because the revised rate would have little impact on short-term speculators looking to flip houses for profit and result in an increase in speculative property investments.

He noted the Real Estate Developers Association (Rehda) had praised the increase of RPGT from five to 10 per cent for houses sold within two years of purchase but had also said that the new measure would be meaningless to short-term speculators looking to flip houses for profit.

HBA Secretary General Chang Kim Loong claimed that it appeared the prime minister had listened to the opinion of business groups with vested interests and agendas. — file pic

Chang claimed that while Najib was right to try and ensure that every citizen could afford to have a roof over their head, it appeared that he had also listened to the opinion of business groups with vested interests and agendas.

Balloting for the 1 Malaysia Housing Programme (PR1MA), the government’s affordable home ownership scheme, kicked off yesterday with draws for Kompleks Kejiranan in Putrajaya. A whopping over 7,000 applications were received for the 560 home units made available.

“It is unfortunate that our PM has been ill-advised on the true situation,” said Chang in a statement to the media yesterday. “Thus, on the contrary, the Rakyat can expect to see an increase in speculative property investments which will in turn further drive up the prices.”

Chang pointed out properties are typically not allowed to be sold during the construction stage, which takes two to three years, and therefore, raising the RPGT from five to 10 per cent for properties sold within two years would be meaningless.

Under the revised RPGT, speculators could purchase properties from developers during a launch and flip the properties on completion after two years and would have to pay only the same existing five per cent up to the fifth year, after which all profits are not taxable.

“With additional attractive financing packages, very often these speculators just need to pay the 10 per cent down payment and walk away with a lucrative gain at the end of the construction period,” said Chang adding that over-speculation in the market was setting the stage for a property market “meltdown”.

Chang said that if the Najib administration was keen to curb speculation, it needed to revise RPGT to 30 per cent for properties sold within two years; 20 per cent for sales between years two and three; 15 per cent for sales between years three and four; five per cent for sales between years four and five; and no tax for properties sold after year five.

Property buyers would also be allowed a one-time exemption from RPGT.

Chang said that such a proposal would not affect genuine homeowners and property investors but would prevent speculators looking to make a quick buck and drive up prices beyond general affordability.

“We urge the PM to seriously consider further and more effective measures to stem the drastic effects of excessive property speculation,” said Chang.

“Short-term GDP growth should not be the sole criteria. We need to create a sustainable housing industry and excessive speculation is certainly one sure way to see the bubble burst. More importantly, the social aspects of house ownership should take prime consideration.”

The HBA chief also said that the affordable housing scheme under the 2012 Budget, which saw the ceiling price raised from RM220,000 to RM400,000, could potentially be disastrous for participants.

He noted that to buy a RM400,000 property with a 4.75 per cent interest loan would require a minimum monthly salary of RM6,300 as the monthly repayment of RM2,086 should not exceed one-third of a person’s income.

“For a household that can’t afford to fork out the 10 per cent deposit from their savings, it would be a potential disaster for them to commit to a RM400,000 housing loan,” said Chang.

He said that for the affordable housing scheme to be meaningful authorities must push for the construction of more affordable properties in the middle income band which means properties within the RM220,000 to RM300,000 price range.

Rehda president Datuk Seri Michael Yam had in reaction to the 2012 Budget said the association was glad the government was raising the RPGT for the first two years to 10 per cent, noting property development was a key contributor to the country’s economic wealth and the new rate would help reduce property speculation and promote stable and healthy growth.

Putrajaya introduced a 70 per cent loan-to-value mortgage cap on third properties last year in response to complaints that property prices had spiralled out of control due to rampant speculation.

A housing affordability chart carried in The Edge Financial Daily on August 15 showed that property prices had risen from 5.9 times income in 1989 to 10.9 times income in 2010.

The share of household loans to total bank loans in Malaysia, meanwhile, rose from 35.2 per cent in 2000 to 55.5 per cent in August 2010.

Belvedere Condo Sunway

When I was told recently that we can get a brand new condo in Sunway for under RM300k, I almost couldn't believe it. Until of course, when I found out that it is not quite a condo but a medium cost apartment with a pool.

Also, the location is a bit dodgy.... Sandwiched between the up-market Sunway South Quay and the down-trodden Lagoon Perdana. Belvedere, like Lagoon Perdana was a project by Talam Corp, the developer everybody loves to joke about quality issues. Somewhere along the way, Talam got into financial trouble and abandoned the Belvedere. That's probably the best thing Talam can do to any of their purchasers as later, developer IJM came along to take over the project and is now completing it for vacant possession end of 2011.

This is a 22 floor building with 500 units built around a U-shape. There are also 16 units of shops on the elevated ground floor - which means it is unlikely to attract any external walk-by customers, thus relying on internal business. There are basically 4 types with the majority being Type A. All of them are around 970sf to 1000sf.

The type D probably has the best layout, being corner units. Unfortunately, both corner units faces the sewer and at the time of visit, I can hardly stand the smell let alone live in it. All the other units are really about the same. The put-off is mainly the back bedroom and the kitchen yard which faces an internal void. Therefore, they are dark and dinghy and as we know in the Malaysian high-rise living culture, these voids will become rubbish dumps with black mouldy and oily walls in the years to come - not to mention, noisy aircon compressors humming at night.

So, that leaves us only the Type A end-lots at the top 2 head of the U-shape. One unit faces the South Quay lake which is largely blocked by the Nautica Suites (below). You also get the noisy Kesas Highway view.

At the other end of it, there is the Lagoon Perdana view... which I don't think is very nice... Then there are the 2 in the middle facing the inside of the U with the pool view. But the pool deck is so narrow, you can throw pebbles at the units opposite you. Lack of privacy here. So, Belvedere is not going to be reknowned for its view...

Typically, every unit have a very narrow living room like this one...

The rooms are also tiny.

The master bedroom has an attached bathroom.

While the other 2 room share a small bathroom.

In terms of layout, it is quite functional. 3 bedrooms, 2 bathrooms and the kitchen has a yard. So this is really for a small family or as usual in this area, rented out to students from nearby Sunway College and Taylors.

How does the RM300k price tag justify? It's Leasehold, medium cost rating at best, high density at 500 units and especially with Lagoon Perdana right opposite where one can still get a renovated 3 bedroom unit for under RM200k.

Well, the only difference really, is the facility deck. This is where I get a bit nervous, as Malaysians are generally not very good at maintenance. With 500 units, competition is going to be very aggressive but will probably attract many tenants who wants to get out of Lagoon Perdana. IJM is also a reknowned developer with good ratings and relatively better quality than the predecessor Talam. Now it really depends on how well this building is maintained and the demographics of the tenants.

Bandar Sunway is generally a very good place to live and value is holding out pretty well, despite the Leasehold status. Although the traffic jam here is terrible, Sunway is self-contained. They have an amazing mall, a medical center, schools and some of the best colleges in the country.

Main developer of this township, Sunway Group has also pumped in some serious investment in the South Quay area, basically an old mining lake with multi-million Ringgit condos and bungalows surrounding it. Belvedere is right adjacent to it but then again, so is Lagoon Perdana...

Atria Damansara

This community mall in the heart of Damansara Utama is now making way for a development consisting a mall, office and SOHO units. The SOHO units are now being launched at no less than RM800psf. With sizes ranging from 500sf to 1000sf, prices are going to be a record for this area.

Lately, quite a lot of developers are jumping into the SOHO bandwagon. What happened to good old condominiums and apartments? Are SOHOs really selling that well?

Is it basically to get away with merging residential-ish units into a commercial-titled lot? Then cutting them up into small sizes so that they become "affordable for the masses". Therefore, SOHOs are born.

I'll try to find out more. But meanwhile, let's ponder on this type of development - especially with what's happening at Subang Jaya recently.

2012 Doomsday

So far this year, everyone I have discussed the economy with, including lawyers, bankers and property agents all say we are heading for a huge price correction next year. Especially in the high end property market. Apparently, most banks are now approving less loans for condos over RM1m citing lack of expatriates in the RM6000 and above rental market.

However, today there was one dissenting voice. It is not banks having less confidence in borrowers or their purchases. Banks have now introduced a new KPI putting all defaulters records under the officers who approved them. Therefore, loan officers have become exceedingly cautious.

What do you think?

So, it's called Laman Ceylon...

That piece of development between Six Ceylon and Menara Bukit Ceylon is called Laman Ceylon. About 230 units of serviced apartments (commercial titled) ranging from 620sf to 1600sf. Price is well above RM1000psf (RM700k to RM1.8m).

Real property gains tax up to curb speculation

By Yow Hong Chieh

October 07, 2011

KUALA LUMPUR, Oct 7 — The government will impose a 10 per cent real property gains tax (RPGT) for properties disposed of within two years of purchase in a bid to deflate the property bubble.

RPGT for properties sold after two years and up to five years would remain at the current rate of five per cent, while those sold after five years would not be subject to the tax.

Prime Minister Datuk Seri Najib Razak said in his Budget 2012 speech today that current measures to curb speculation had proven ineffective and needed to be strengthened.

“If not controlled, it will put pressure on the price of real estate. In the long run, it will jeopardise the ability of the low- and middle-income groups to buy houses,” he said in Parliament today.

“I am confident the revised RPGT rates are low and will not affect genuine property owners and will curb speculative activities,” added Najib, who is also finance minister.

RPGT has been set at a five per cent flat rate for properties disposed of within five years of purchase since April 1, 2007.

Prior to that, it was 30 per cent for disposal within the first two years of purchase and progressively lower for properties sold in subsequent years.

Property prices have risen dramatically since 2009, driven by low interest rates, aggressive valuations, increasingly expensive launches, a fear that homes will become even more unaffordable and lack of attractive alternative investments.

In markets such as Penang and Kuala Lumpur where an apparent speculative frenzy has taken hold, the increase in prices has been as much as 30 per cent or more in the past 12 months.

This has lead to concerns that real estate valuations have greatly outpaced income and is pricing many would-be home owners, especially from the middle-income group, out of the market.

A housing affordability chart carried in The Edge Financial Daily on August 15 showed that property prices had risen from 5.9 times income in 1989 to 10.9 times income last year.

The share of household loans to total bank loans in Malaysia, meanwhile, rose from 35.2 per cent in 2000 to 55.5 per cent in August 2010.

Last year, Putrajaya introduced a 70 per cent loan-to-value mortgage cap on third properties in response to complaints that property prices had spiralled out of control due to rampant speculation.

Several other Asian countries have taken steps to cool their real estate markets including China, Hong Kong and Singapore.