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.

Empire on Fire

The Empire Subang shopping mall today was ripped apart by a huge explosion at about 4am on Wednesday 28th Sept. Four people were injured. Luckily, no fatalities.

The Empire which has a hotel, office complex, gym and soho units was a hot project in this area, lifting property values sorrounding it. 797 sf Soho units reached a high price of RM500k from an initial launch of just over RM200k within 3 years. The blast will certainly affect property values here. We hope the owner will work towards recovering it as soon as possible.

Updated 9pm: The whole building has been evacuated and nobody has been allowed to enter. The cause is still not confirmed but according to the authorities, it is almost certain caused by gas leakage. The mall management, Mammoth has issued a statement that the building is structurally sound. However, critics say how they can be so certain without anyone being allowed in to inspect the building. Surely we should now be really concerned about the quality of work of some of Malaysia's less reputable developers. I shouldn't comment more without knowing the facts. However, we should be more discerning about the quality of our properties from now on.

Updated 29/9: So, it's confirmed now. Caused by a gas leak. This obviously reflects badly on the developer, no matter whether it is a construction defect or human negligience. In any case, this sort of thing is not supposed to happen. Humans are humans, humans are negligient. That's why construction is supposed to be fool proof. Fire insurance will expect to go up for this property. Luckily, no fatalities.

Lessons learnt: Try not to buy an apartment sharing the same building with a commercial retail mall - if you do, insist the developer is reputable and has extensive experience

SETAPAK?

What do you think about Setapak?

Coming up: More KL Sentral Stuffs

Keep yourself posted here...

Q Sentral at KL Sentral - Office Suites

MRCB of the KL Sentral monopoly has teamed up with Office supremo Quill to build a Grade A office in a slim patch between the Le Meridien hotel and future St.Regis hotel.



This is a star location considering the upcoming developments in already very congested KL Sentral. Opposite this project is the KL Sentral Park retail outlets which is nearing completion. Accessibility is however expected to be a nightmare with KL Sentral roads and access roads already heavily congested and public transport being a sham in this sham of a transport hub in Kuala Lumpur.

However, I believe despite the weakening market, Grade A offices are in demand in central locations including KL Sentral. This is despite many large corporations starting to move out to the suburbs such as Damansara Perdana, Uptown and Shah Alam. But I think MRCB and Quill has the right strategy by carving out their office suites into bite sizes for those small to medium sized companies looking for a posh address.


The above plan is typical for most floors with sizes around 1200sf-ish... And priced from RM1500psf, it is quite affordable to house about 10 to 20 employees in under and around RM2million. The cheapest office unit is peddled around RM1.6million, which is 1066sf. The corner units and those facing the Lake Gardens are priced slightly more. In terms of Feng Shui, one should really have the Lake Gardens view as the KL Sentral side includes a breath-taking view of the Sungai Besi Chinese Cemetery where the famous Mr. Yap Ah Loy, the founder of Kuala Lumpur (*depends whose history you believe in) is interned.

The launch this weekend is expected to be quite hot. This is because, MRCB has cleverly marketed the starting price as from RM420k onwards. This is not at all deceiving because you can snap up one of the so-called "Business Suites" at around RM500k per pop. Still at RM1,500psf, this sounds like a bargain except that you are staring at a small 300-ish square foot office with no windows. These tiny offices are located on the 30th to 32nd floors only and they basically occupy the center void of these floors as my very poorly blurred photos below illustrate:

Despite what anybody might say about these windowless units, in my opinion there aren't many of them... only about 20 units per floor. And it should be quite easy to find tenants among small start-ups or overseas rep offices to pay RM2000 to RM3000/month to rent them. It should not cost a lot to furnish them too. This is all to get the famed KL Sentral address and enjoy the this very trendy sky-garden somewhere on the 13th or 14th floor.

MRCB has failed miserably with their Plaza Sentral. The management sucks, the place is dirty and things falling apart. However, they are smart to partner Quill. With Quill's reputation as an experienced office player, this is very hard to go wrong.

That's just my opinion....

St.Mary Updates

Last i've checked, the 3 towers have already topped up. E&O has built show houses at the site. For the amount of postings I've made about St. Mary, some of you may have already gone zzzzz...

But to see your investment from this stage...




...to this stage...


until it has reached this stage...

...is indeed very exciting...

The actual show houses give us an exact feel and experience about the unit's layout. The immediate effect is the spacious feeling of the living area.

The unique layout where both bedrooms flanking the living area allows you to see both the other bedroom and the balcony.

But the sharpened corner of the window may need some creativity in designing the shades..

The prices are now in excess of RM1000psf, up from around RM700psf at launch. For those happy to pay more than RM1500psf (over RM1.6million), you enjoy the view of the courtyard.

and totally unblocked views of KLCC.

Still another 12 months from Vacant Possession... it is well going to be worth the wait.

ONE @ Bukit Ceylon

Yet another project in Bukti Ceylon. This one opposite Somerset Seri Bukit Ceylon is by the UOA Group. One @ Bukit Ceylon is going to be a Serviced Residence / Hotel. Unlike Seri Bukit Ceylon (Somerset), One Residency (Park Royal) or Verticas Residensi (Lanson Place), UOA is going to manage this hotel themselves and they are giving buyers a Guaranteed Return of 6%.

Being a hotel, One is laid out with long corridors 22 units per floor. There is a facility floor with swimming pool, gym, sauna etc somewhere between the car park floors and the rooms. Above that, there are 20 odd floors, consisting of:
1 x 2br unit and 9 x 411sf studio units facing One Residency and
1 x 2br unit ansd 10 x 453sf studio units facing Changkat Bukit Bintang



The most popular is the Type B 2 br unit which is 893sf facing Changkat (above). But all these are sold out despite the above a million price tag. The 2nd type of 2br units aren't as popular due to the poor layout. They have 2 bedrooms with windows, while the living room, kitchen, dining and bathrooms are without windows.

The studios are... well... pretty standard studios... If one chooses the unit facing One Residency, it won't be long before the car park in between is developed blocking all views. The Changkat view isn't that great either. Although it will be perpetually unblocked, the nightly noise from the bars in Changkat is certain to turn away tenants. So, you get to choose between 2 evils - future wall view or noise.

Pay future prices today. Is it worth it?

453sf unit on 13th floor for RM600k (RM1324psf). With 6% Guaranteed rental returns over 12 months.
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640sf unit across the road at Seri Bukit Ceylon selling below RM600k (RM930psf) can be rented out at RM3500 per month (though not easy).
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What do you think?
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*Building pics taken off One Bukit Ceylon website without permission

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 ;)

Dua Sentral near KL Sentral

With the construction boom and all that around KL Sentral, I decided to visit Dua Sentral to see if this is going to be a good investment. Apparently, they are going to be a Serviced Residence cum Hotel operated by Best Western, an aggressive group taking up quite a number of properties in the Klang Valley lately.

The building is almost completed and apparently, they have set up a show unit at the site.


Clearly, the directions to the show unit is well sign-boarded. I only need to follow the arrow...


Follow the arrow....

Keep going... follow the arrow...


I have now found myself at this car park. It says "Buyer's Parking" so I must be doing something right... I parked my car...


And followed more arrows...


... and follow another arrow...


and this last arrow pointed me towards this lift lobby, and at this point I thought "hmmmm..."


I went into the lift lobby and found this lift in a hole in the wall and it has no push buttons...


I was reluctant to get inside. I saw an elderly man in a smart Dua Sentral shirt and asked him, "Sir, where is the Show Unit".

He said, "It's on the 7th floor. But wait, I think we've moved it to Midvalley... Why don't you go up to the 7th floor and check"

"I went inside the lift and it was quite scary. There were no buttons. How do I get up to the 7th floor?"

He replied, "Oh well...if it's scary, you better leave..."

Oh ok... "Bye bye Dua Sentral..."