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Saturday, April 5, 2008

Will Penang’s property market continue to boom?

An artist impression of Gurney Paragon overlooking the Straits of Malacca.

A couple of weeks ago, the Penang state government created a stir when it said it would review the billion-ringgit Gurney Paragon project if there were “justifiable grounds”.

Chief Minister Lim Guan Eng said the state government would get views from all quarters and welcomes any objection.

“We will revisit the projects approved by the previous administration and if necessary, review them if these projects are adversely affecting people’s lives,” says Lim.

Lim was responding to calls by the Penang Heritage Trust (PHT) and Bar Council Legal Aid Centre to review and hold an open hearing on the project.

Gurney Paragon is a mixed integrated development by Hunza Properties (Penang) Sdn Bhd comprising a mall, two blocks of high-end condominiums and a heritage building spread over 4ha of freehold land on Gurney Drive fronting the sea.

The land was formerly occupied by the Uplands International School.

The company bought it in 2004 for RM97mil.

For several years, Penang’s property market has drawn buyers from far and wide. Be it a holiday home for Malaysians or a retirement home for foreigners under Malaysia, My Second Home (MM2H), the island’s properties have exchanged hands at a premium compared with Kuala Lumpur’s prices.

E&O Property Development Bhd marketing and sales director K C Chong says comparing like with like, the land component in Penang is different from that of Kuala Lumpur.

For example, a KL gated development may be RM150 per sq ft compared with Penang’s RM250. E&O is developing Seri Tanjung Pinang, an upscale master planned water front development.

Because it is an island, land comes with a premium. And there is certainly demand for Penang properties.

Island living offers a heady blend of sun and surf with an option of city or quiet suburban lifestyle.

Although the island is only about 1,000 sq km, it offers a potpourri of all things that foreigners and locals enjoy.

Real Estate and Housing Developers’ Association (Penang) chairman Datuk Jerry Chan Fook Sing says Penang’s selling points in attracting foreign retirees include comfort, cuisine and affordability.

Datuk Jerry Chan

In some ways, this accounts for the various landed and high-rise condominiums coming up along the Tanjung Bungah stretch right up to the Spice Garden.

Developers are building along hill slopes, each offering the best view of the Straits of Malacca and the Andaman Sea.

Chan says foreigners purchase a third or more of properties that come up in popular tourist areas.

Developers who are aggressive with the MM2H programme reported the same percentage of foreigner buyers.

“A third to 35% is not the norm generally. But by and large, locals and Malaysians working aboard account for a large number of Penang property buyers,” says Chan.

Among the most popular locations among foreigners include Tanjung Bungah, Pulau Tikus area and Gurney Drive.

Most of these projects are launched in Hong Kong, Singapore, Britain and the Middle East besides locally.

It is against this popular demand, growing affluence of Penangites, a shortage of upscale lifestyle products and the growing medical tourism offered by the island that Klang Valley-based developers like IJM Corp Bhd, S P Setia Bhd, Bolton Bhd, Malton Bhd and E&O Property Development have moved north to compete with the likes of Penang’s big boys like Hunza, Oriental group, Naluri Corp Bhd and Ivory Properties group, PDC Properties Sdn Bhd.

And because of the shortage of land and burgeoning demand, several have gone into land reclamation.

These include the E&O group, IJM, PDC and CP Land.

Nevertheless, the operating environment today has come under scrutiny, with the change in state government, coupled with the global turmoil originating from the US, developers in the country as a whole may find it increasingly difficult.

Various factors ranging from rising competition, concern over sustainability of demand by foreign purchasers, rising construction costs, inflation and a global economic slowdown as well as potential oversupply are reasons for concern.

A research report by ECM Libra on the country’s overall property sector says the onslaught of negative sentiments of late has to certain extent negated the positive impact of catalytic initiatives introduced by the government since late 2006.

Sharp correction of the stock market has caused enormous wealth evaporating into the thin air.

“This will put a dent on consumer confidence and sentiment. Huge capital investment such as the purchase of new homes may be put off for the time being.

“Demand for properties by foreigners may also wane in the coming months due to the uncertain landscape as well as the debilitating global financial market,” the report says.

The report says developers in the states of Selangor, Penang, Perak and Kedah may face potential delay in procuring planning approval for new projects post-general election due to teething problem arising from the change of state administration involving state executive councillors as well as municipal councillors.

On a more positive note, Penang-based Michael Geh, director of property consultancy at Raine & Home International Zaki + Partners is of the view that those who need to buy homes will continue to buy.

“Life goes on. Those who constantly invest will pick and choose the best and sideline the average offerings.

“For those on MM2H programme, surveys taken by expatriate magazines shows that Penang rates very high as a favourite destination. Kota Kinabalu is favoured for its beachfront lifestyle living while the Middle Easterns like the KLCC precinct.

“It is our world class local food, friendly locals who speak English and a less hectic lifestyle that are bringing foreigners here to Penang,” says Geh.

Rehda Penang chief Datuk Jerry Chan says the new state government has reassured him that it will want to expedite things and be more transparent, which bodes well for the business community.

“What happened in Penang, and in the states of Selangor, Perak and Kedah, is quite drastic. And in any situation of such magnitude, it is only natural to pause. But in the long term, we will want to give the new government a chance.

“They have not said anything that is business adverse. As for the Hunza’s Paragon on Gurney, that is a mega job and it is only natural that mega jobs such as these, which impact people in different ways, be given a relook,” says Chan, who is also the managing director of Asas Dunia Bhd.

By The Star (by Thean Lee Cheng)

Bindev to unveil final phase of Bukit Istana

Properties worth RM70mil in low density residential project

An artist’s impression of the phase three of Bukit Istana project. Inset is Lim Yoke Kim

KUANTAN: Bindev Sdn Bhd is offering properties worth about RM70mil under the final phase of its upmarket and low-density residential project Bukit Istana.

The units would have a land size of 4,000 sq ft and built-up areas of 3,000 sq ft, said branch manager Lim Yoke Kim.

“The third and final phase will comprise 148 double-storey semi-detached units and four bungalows. The units are priced from RM480,000,” he said.

The last phase boasts features such as high ceiling, high-panel glass windows to allow more natural sunlight into the house and three-phase electrical wiring.

A subsidiary of PJ Development Holdings Bhd (PJD), Bindev commenced construction of Bukit Istana during the 1997 financial crisis and has completed 150 bungalows, 226 double-storey semi-detached units and 72 single-storey units, of which about 92% are sold.

The project covers 54.4ha and has a gross development value of about RM250mil.

According to Lim, Bindev continued with the project during the financial crisis as it had confidence in the state’s house buying market.

“Our target is the professionals and top level management especially those working in the Gebeng industrial area and Kuantan Port,” he said in a recent interview.

On future projects, Lim said Bindev planned to develop two plots of land in Sungai Karang and Penor.

The Sungai Karang project was located along Kuantan’s popular beach belt and was close to Swiss Garden Resort and Spa, a hotel under PJD’s hotels, resort and leisure division, he added.

Construction on the mixed development project comprising condominiums, bungalows and semi-detached units on 8.8ha was expected to begin at year-end for completion in three years, he said.

Lim said the Penor project, also a mixed development venture, would be built on 400ha and completed over 20 years.

Construction would commence at the end of next year, he added.

On its future projects, Lim said BSB had plans to develop two plots of land in Sungai Karang and Penor.

The project in Sungai Karang was located along Kuantan’s popular beachbelt and was close to Swiss Garden Resort and Spa, a hotel under PJ Development’s hotels, resort and leisure division, he added.

He said it would involve a mixed development project comprising condominiums, bungalows and semi detached units on 8.8ha of land with construction expected to begin end of the year.

It would also have a clubhouse and would be the first feature to be constructed, he said, adding, the whole project was scheduled for completion in three years.

Lim said the Penor project, another mixed development venture, would be built on 400ha of land and to be completed in stages over 20 years.

Construction would commence end of next year, he added.

By The Star (by Roslina Mohamad)

Navigating the storm: Asia’s real estate

Asia's Real Estate

In Hong Kong, strong economic growth continues to support residential market.

The confluence of economic uncertainty brought on by the deepening subprime crisis has posed a real risk of a systemic financial event and a prolonged global economic slowdown. This, coupled with another round of de-leveraging in the structured credit market has led to further pressure and deterioration in real estate prices, predominantly in the US and Europe. Given that the pendulum swung as far as it could in the direction of reckless mortgage lending, it will now swing back towards the quaint notion of buyers being lent only the amount they can reasonably be expected to pay back.

Whilst the rout has largely been confined to markets outside Asia, we see considerable softening in real estate markets with high foreign participation and in certain high-end segments. Opportunistic investors are pulling back from Asian property given more scope for acquiring distressed assets in their home markets, and loans remain elusive in Japan and Singapore, one of their favourite markets.

Hedge funds have stopped dabbling in property in the region, and although private equity players will continue to develop property in India and China, they are more likely to buy buildings cheaply in Western countries than in Asia.

We expect values for US commercial real estate to fall by 23% in the next five years from their 2007 peak, causing losses of about US$1,600bil, including those on commercial mortgage backed securities.

London office values have dropped 12% from a peak in the middle of last year, and will be under further pressure from forecasts of a 15% decline in rental values through 2009.

In 2007, total direct investment in Asia jumped 27% to US$121bil – a sixth of the global total – with approximately half invested in Japan and Singapore.

Real estate stock in Asia currently stands at US$9.5tril, growing on average by 6% - 7% p.a (except in China which grew by 15% p.a). China and India make up 50% and 12% of the total stock respectively while Japan constitutes 20% of the total.

The demand for real estate is dependent on the health of the economy, which in turn is affected by financial markets.

In 2008, we expect prospects for Asia’s real estate to remain lukewarm, especially in traditional FDI led markets like Singapore. The global economy still faces major uncertainties as to how a further unravelling of the credit crisis will affect the availability of credit and asset pricing.

The resilience of Asian economies and the real estate market will be truly tested in 2008. Buoyant domestic consumption is expected to help the region weather a substantial economic slowdown as weaker global demand impacts Asian exports.

Overall, despite the risks inherent in the region, we believe opportunities remain in Asia’s real estate market, mainly in grade-A office space, driven by sound GDP growth (projected at 8% y-o-y) underpinned by sustained private consumption, higher public and private investments; a re-rating of property as an asset class, sustained domestic demand and on-going infrastructure development.

We remain bullish on India and Vietnam, with a cautious view on China, Malaysia and Singapore.

Rent and value

Asia's positive economic growth has shored up property rents and capital values to new highs throughout the region in 2006/07. Prices of residential and non-residential properties in many major and smaller cities continue to rise despite higher interest rates/ borrowing costs across Asia.

Capital flows to the Asian region have increased tremendously since 2005, mainly into major economic sectors such as manufacturing, services and oil and gas, and opportunities remain abundant in the property sector.

The US is among the largest sources of investment inflows into the region; nevertheless, the largest increases in the availability of capital for real estate are expected to come from the Middle East, China and India. The main sources of capital for property investments in 2007 and 2008 remain private equity investment funds, institutional investors and real estate investment trusts (REITs).

Since 2006, the Asia region has experienced strong demand in the residential sector despite high interest rates that led to higher house prices. In mainland China and Hong Kong, strong economic growth continues to support the residential market. Beijing and Shanghai continued to attract high levels of foreign investment that entailed a higher number of expatriate professionals which led to higher demand for luxury residential property.

Residential real estate prices have shot up particularly in Singapore. Singapore’s residential price change in 4Q07 stood at 31.4%. Concurrently, Malaysia witnessed stable prices and rentals for 1H07. Strong demand for high-end residential units in prime cities such as Hong Kong, Kuala Lumpur and Singapore has escalated with the launch of new high-end residential units throughout 2007.

The most expensive residential segments in Asia continue to be Hong Kong, Tokyo and Singapore at over US$10,000 per sq m.

In Hong Kong, the real estate scene has not been very different from other countries in the region with house prices trending higher at 8.78% y-o-y in 2Q07 compared to 0.65% negative growth in 2Q06. The real estate market has been gradually recovering since the country’s downturn in the property market last year, following the housing slump in the US.

We expect interest rate cuts in the US to push prices up further in the residential segment. In Japan, land prices advanced 0.4% y-o-y in 2007, an indication that the Japanese residential property market is recovering from its 15-year price slump.

Moving forward, we expect the Asia’s residential market to sustain growth, albeit in the long term, underpinned by the following factors:

  • Strong economic growth in most markets in Asia will support the strong performance in the residential segments.
  • Rising income per capita will enhance purchasing power and therefore boost consumer spending. High economic growth, improved employment levels and positive wealth effects arising from equities in most parts of Asia Pacific have led to higher disposable incomes.

    Average per capita income for the region rose to US$14,371 in 2006 from US$12,906 in 2004. Per capita income is expected to average US$15,217 in 2007 and US$15,886 in 2008 that in turn, will boost demand for residential properties.
  • In most Asian markets (China, India, Singapore, Malaysia) the high-end residential property market has witnessed increased demand spurred by the influx of expatriates and skilled professionals, the region's increasing attractiveness as a second home (retirement) and higher rental yields.
  • The demographic profile of Asia is relatively young. Asia’s young population (aged 15 to 59) continues to increase, creating strong demand for housing for ownership occupation and rental increases. India’s population is expected to increase from 1.1 billion to almost 1.5 billion by 2025. In 2006, the working age group of those aged between 15-64 years stood at 64.3% and expects to increase moving forward.

The Asian real estate market capitalisation stands at approximately US$4.9tril, mainly dominated by Japan followed by China and the rest of Asia. We expect this ratio to alter moving forward with strong growth in Asian markets. Apart from Japan, real estate activities are focused in Singapore and China.

A common practice that is picking up in the region is the number of sale and leaseback transactions particularly in Singapore and Japan. We expect this trend to spread across the region over the medium term.

Real Estate Trends

The real estate industry has seen rapid growth across Asia post-crisis, with varying stages of development within each country. Nevertheless, we have identified several similar trends/patterns, unique throughout the region, as follows:

  • The real estate sector in Asia is driven mainly by rapid and dynamic growth in the offices and high-end residential segments.
  • Prices for residential and non-residential properties in many major cities and smaller cities continued to rise, despite higher interest rates across the region.
  • Asia’s REITs markets continued to grow with many companies converting their assets into REITs. The total number of Asian REITs at the end of 2007 stood at 86 with a total market capitalisation of US$74.8bil.
  • The overheating property markets in many countries across the region led governments to enforce stricter rules to cool down the situation.

The Chinese government further tightened measures by increasing taxes, requiring developers to build more low-cost houses and tightening rules on property purchase by foreigners. South Korea and India also tightened rules in relation to borrowing.

  • In most markets (Singapore, Hong Kong, Malaysia, China, India) demand for office space is highest followed by hotel/resorts, retail, industrial/distribution, homebuilding and apartments residential.
  • The strong capital inflow into Asia real estate particularly China leads to the problem of demand exceeding supply. Although the Asia market has unparalleled potential for growth, in most cases, it lacks depth. The lack of a solid investment base to absorb current levels of incoming capital lead to the reflection of the current scenario, therefore increasing the risk of overheating.

Looming subprime issue

We expect the US subprime issue to continue to rear its ugly head well into the year as write downs continue.

However, we expect the impact on Asian markets to be minimal (safe the export sector) given that the region’s financial institutions have relatively limited direct exposures to US subprime mortgages.

In the region, China is the largest overseas holder of US mortgage-backed securities, at around US$260bil, which is held mostly through its international reserve holdings and through holdings of commercial banks.

We take the view that Asia remains relatively insulated from the US subprime issue for the following reasons:

  • Asia’s huge pool of international reserves at US$3tril (including Japan and China)
  • Asian banks’ exposure to subprime debt instruments is minimal and manageable
  • Asian corporate sector leverage is very low
  • The banking system has been strengthened and is strongly capitalised
  • The financial sector’s direct exposure to equity markets also appears relatively limited
  • Asian central banks have taken steps to improve the regulation of high-leveraged activities
  • Asian economies have become more resilient to shocks to their capital accounts as external vulnerabilities have been reduced
  • Companies depend less on the more risky capital inflows

As such, we expect the contagion from the US subprime crisis to be limited to the capital markets. An indirect effect of the subprime crisis on the region is that it has increased the cost of raising capital for banks, corporate and investment bodies.

New bond issues will have to be priced slightly higher to reflect rising credit market volatility and the anticipated temporary decline in investors’ demand for these products both globally and in the region.

Liquidity on capital markets in Asia remains vast although a re-rating of risk will see some liquidity being sapped out of equities/real estate in the medium term.

Credit market spreads that reached record low levels pre-subprime crisis are likely to widen and remain high into 1Q08, both in the region and for emerging markets as a whole. In the medium to longer-term, as deals get bigger in size and more complex, access to cheap international capital is becoming more important.

The crisis will continue to affect the region indirectly in that it has heightened uncertainty and resulted in a reassessment of risk, as reflected in the periodic declines seen in stock market in 2007.

We expect frequent and large reassessments of risk and high volatility in asset prices to figure largely in Asian economies for the most part of 2008.

Inflation poses a key challenge for the region, which has enjoyed robust expansion in the last few years amidst muted price pressures. Oil prices, which are expected to remain firm in 2008, have raised the spectre of global inflation trending even higher this year.

This poses a key threat to the region’s inflation outlook. We expect oil to trend higher this year to average at US$80 per barrel, vs US$72.4 per barrel in 2007.

A different set of rules will apply moving forward as policy makers strive to balance the need for tighter monetary conditions to rein in rising costs even as growth weakens.

By The Star (by KFH RESEARCH)

Halal certification can open new opportunities

Mohd Shukri Abdullah

KUALA LUMPUR: Companies can benefit greatly from having halal certification, says Malaysia International Halal Showcase (Mihas) chief executive officer Mohd Shukri Abdullah.

He said with the certification, the halal sector could create a lot of opportunities for them.

“Halal certification is becoming a big deal. One day it will be an important standard in both the local and international food industry,” Shukri told StarBiz.

According to him, many companies without halal certificates were losing out.

“Many hotels and big restaurants these days are very conscious of whether their suppliers are halal and many of these suppliers lose business because they are not,” he said.

“The global demand for halal products is increasing. To meet this demand, products would need to be safe from contamination of non-halal substances and the only way to prove such compliance is with halal certification.”

Shukri estimated that there were currently only about 2,300 companies in Malaysia with halal certification.

“Many companies today do not have halal certification because they do not meet good manufacturing practice (GMP) standards. When the Department of Islamic Development conducts checks on them, they lose out on cleanliness.

“Companies looking for certification are rejected for poor GMP and not on whether products were halal. If a product is unclean, it is not safe for human consumption,” Shukri added.

Many countries, primarily within the Asean region, were going into halal certification and Malaysia was starting to realise its importance, he said, adding that by adopting certification, Malaysia had an opportunity to steal a march on countries from the Middle East, which, ironically, were not so stringent on halal certification.

“Countries from the Middle East are allowing all kinds of foods to enter their countries because the products do not comprise either pork or alcohol.

“Pork can come in different forms such as emulsifiers, conditioners or even colouring,” he added.

Shukri also said suppliers of products to the Middle East might be unwittingly including products tainted with non-halal elements.

“A non-Muslim supplier could decide to use a type of colouring that could be cheaper or of better quality but may not realise that it may be tainted with non-halal elements,” he said.

“All the particular supplier would be taking into account is that he is not supplying pork or alcohol.”

He also said Middle Eastern countries would then look to countries that issued halal certification like Malaysia as an alternative for halal supplies.

On Malaysia’s potential as a global halal hub, he said the country still had a long way to go.

“But it is getting there and events like Mihas would help expedite that process,” he said.

Organised by the Malaysia External Trade Development Corp (Matrade), Mihas is the largest annual gathering of halal industry players and entrepreneurs in the effort to ease the sourcing and selling of global halal products.

Shukri said Mihas would also help boost foreign direct investments.

As an example, Shukri said companies from China often had problems exporting to Muslim countries because of their predominantly non-halal products.

He said Malaysia would not face a similar problem despite the fact that the country’s exporters were predominantly Chinese.

“They are still successful because they are based in Malaysia. With Mihas, we are trying to encourage local Chinese businessmen to work with their foreign counterparts,” he said.

“We want to encourage them to come set up factories here, send their raw materials here, process and pack them here. They can then get local halal authentication and send them to the world.”

This year, Mihas will be held from May 7 to 11 at the Matrade Exhibition and Convention Centre. It expects participants from 30 countries to open 610 booths. It also hopes to attract about 40,000 visitors from 70 countries.

The event last year registered over RM600mil in sales.

By The Star (by Eugene Mahalingam)