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Saturday, June 27, 2009

Too early to rejoice, say developers and consultants

DEVELOPERS and consultancies are taking a cautious stand on analysts’ optimism that the market is finally turning around.

While they rejoice over the positive signs, they are of the view that “it is too early to tell” if the sector has turned from the worst.

“The issue is sustainability,” two developers and two consultancies say. They prefer to wait for the year-end before they pop the champagne bottle.

Hall Chadwick Asia Sdn Bhd chairman Kumar Tharmalingam says he would like to look further and be more cautious.

“I will not be convinced until I see the third-quarter results. In fact, I would like to look at the next six months. If the stock market hold up until the end of the year, I would say we are at the beginning of a possible bull run and with that, the property market will improve.”

Kumar says Europe is not exactly out of the woods yet and while a dip there may not have such a big effect on Malaysia and Southeast Asia, they do buy quite a bit from China.

“If China’s economy dips further, that will affect us,” says Kumar.

He says analysts are rejoicing because the developers are seeing an upturn due to better sales volume.

“Sales volume have been good because of the close co-operation between the banks and the country’s top 20 developers. The two factors which pushed developers and bankers to work together was the slowdown which started in September 2008 and the buoyant secondary market last year.

“Because of the meltdown, buyers took a back seat. Because developers needed to sell, they sought the cooperation of the banks.

“At the same time, in Selangor, out of 217,000 units of homes that exchanged hands last year, 63% were between individuals. That means, they did not buy from developers. The situation was the same for Penang and Johor,” says Kumar.

Home buyers like the security of being able to touch and feel the property before they buy and developers know that. Because buyers went to the secondary market, developers sought the help of banks to make buying from developers more attractive. The result is the special financing programmes,” says Kumar.

Beginning with SP Setia’s who started the Setia 5/95 Home Loan Package where buyers pay 5% and need not fork out stamp and legal duties, the other developers subsequently followed with 10/90 and other variations.

“Once the toothpaste has come out of the tube, you can’t put it back and so other developers had to follow. The result is better sales volumes, which we are seeing today. This need not necessarily translate into higher ringgit sales because developers are absorbing the cost of interest until vacant possession of the property, stamp duties and legal fees, which they previously used to pass on to their buyers.”

The impact of absorbing this cost will be felt by the developers for the next two to three years, he says.

“These positive signs are limited to major centres like Klang Valley, Penang and Johor, but for the time being, this is good enough. But it does not constitute a property turnaround; it is an upturn for the developers in terms of sales,” he says.

On commercial properties, he says the sub-sector is still relatively quiet and the attractive financing schemes are not for commercial projects. Within the Klang Valley, there have not been many launches.

“At this point in time, there is more demand for housing than commercial space. There is an over supply in the commercial sector and this can be seen in Kota Damansara where literally hundreds of shop-offices have come up and most of them are empty,” he says.

Another source from a major real estate consultancy, who requested anonymity, says he sees no real change in his business.

“The manufacturing sector is still doing badly and this will affect employment. People will be cautious. There is also the issue of oversupply, especially of condominiums.

“In the office space sector, we are seeing developers and landlords gearing up for higher vacancies. Some of them have become more flexible in their pricing. Landed property prices are quite stable but we are seeing lesser transactions, which means prices are still hovering around last year’s levels.

“Buyers are taking a wait-and-see stand. In the condominium market, surprisingly, we have sold RM8mil to RM10mil so far this year. There is a pick-up in enquiries and people are still looking for good deals.”

In the rental market, he says the market is seeing a further softening. The asking and concluded rentals for high-end condominiums are lower than what they were six months ago.

Echoing Kumar, he says the condominium market around the KLCC area is beginning to stabilise between RM800 and RM1,000 per sq ft while the premium ones like Troika may hold its own at around RM2,200 per sq ft.

“We are seeing new levels of lower prices where buyers are prepared to come in,” he says.

On the optimism from certain quarters, he says this is due to developers seeing more transactions in the last few months.

Two developers contacted say it is too early to say anything and sustainability of sales is an issue.

The two senior executives from the companies concurred that the market has been performed pretty well “because we have concentrated on the domestic market and offered attractive packages. Although the market is slowly picking up, it is still too early to say there is a turnaround.”

By The Star (by Thean Lee Cheng)

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