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Saturday, April 4, 2009

Tweaking product offerings

Developers may have to resort to more affordable properties

AFFORDABILITY is the key word these days. Developers have no choice but to review and tweak their product offerings, particularly those in the high-end price range.

Buying interest for property has been dampened by the economic downturn. The property market has yet to show signs of bottoming out and the adverse impact of the prolonged global financial turmoil on the people’s sentiment and confidence will take a while to recover.

Amid the global financial meltdown, interest in the property market continues to wane as reflected by the contraction in residential and non-residential property loan approvals in January.

Further contractions are expected in the months ahead following a sharp fall in property sales these last few months. The high unsold property stock further aggravates the situation.

Rather than being stuck with poor take-up of their high-end products, developers are opting for lower margin products. As can be seen in newspaper advertisements these days, most of the projects launched are of the affordable range.

Even big time developers like SP Setia Bhd and Mah Sing Group Bhd have made adjustments to their product lines and resorted to more affordable products with scaled down built-up space.

Following aggressive sales campaigns by developers early this year, loan approvals for residential property may recover from the second quarter although the slide in non-residential property loan approvals is expected to persist.

With the country’s gross domestic product (GDP) in the first quarter of this year expected to plunge into the negative territory after recording a nominal growth rate of 0.1% in the fourth quarter of last year, consumer sentiment is likely to remain weak, especially for big ticket items such as property.

Meanwhile, the Government’s RM60bil allocation under the second stimulus package or mini budget to stem the slide in the economy is expected to take a few months before it gets filtered down to the needy sectors, especially with the impending changes in the Cabinet line-up after the recent Umno general assembly.

To ensure the economy gets back on its recovery track and to restore the people’s confidence, it is imperative for the expedient and efficient implementation of the mini budget’s allocation for the identified sectors and projects.

With Malaysia’s manufacturing and export sectors expected to remain weak for the next few quarters following a prolonged weakness in the developed economies, especially in the US and Europe, any recovery in the local economy will have to be local consumption-driven.

Besides the service industry which has a strong local market content, the property sector also has the ability to create big spill over on the economy given its link with more than 140 other industries.

To give a lift to the staggering property market, more developers are resorting to easy financing packages for buyers of their properties and it looks like these financing schemes will be a norm for the market at least until the year-end before a recovery can be expected.

Developers are facing a “double whammy” of sorts as they can only come out with more affordable homes which have lower profit margins and yet have to offer attractive financing packages to attract buyers. These days residential products that are still selling well are double-storey terrace houses priced between RM300,000 and RM400,000.

Either it’s the 5:95 or 10:90 packages, developers have to finance the cost of a property’s construction as buyers only need to pay a downpayment of either 5% or 10% of the property price while the repayment of their loans will only commence after they receive vacant possession of their property.

If developers are not willing to “downgrade” their high-end projects, they have to either scale down the project size and build less units for now although many have opted to defer their projects for a later launch when the good times come back again.

Meanwhile, those with strong financing capability and good products in the right locations should take advantage of the build and sell system, a largely untapped market with much potential going forward.

·Deputy news editor Angie Ng believes greater proactiveness and innovative prowess are the way forward for industry players during bad and good times.

By The Star (by Angie Ng)

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