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Saturday, February 21, 2009

Condos still command top prices

PRICE correction or not, condominiums in the Kuala Lumpur City Centre (KLCC) area still command the highest price compared with those in other parts of the country largely owing to its significant appreciation in the past five years.

Prices of newly launched condos in the vicinity have appreciated from RM500 per sq ft in 2004 to around RM1,000 in 2006 and RM2,000 in July 2008. And in August last year, prices peaked at just over RM3,000 per sq ft following the soft launch of The Binjai on the Park by KLCC Property Holdings Bhd.

Other recent launches include the Regent Residences comprising 105 upmarket residences on top of the 5-star Regent Hotel in Avenue K with an average price tag of RM2,500 per sq ft. Since its soft launch in April last year, it has sold 60% of its units.

The unveiling of the much-awaited luxury residential project – Four Seasons Residences – by Venus Assets Sdn Bhd scheduled for late last year was postponed due to weak market sentiments. The 173 super luxurious residences are touted to have built-up of 3,000 sq ft each with a whopping price tag of RM3,500-RM4,000 per sq ft.

The latest KLCC project to be unveiled is The Binjai on the Park, which has chalked up a take-up rate of 20% since its soft launch last August. Offered under the build and sell concept, the residences are only offered to selected buyers.

The 171 residences with built-up from 2,500 sq ft are priced from RM2,500 to RM3,200 per sq ft or RM5.5mil to RM10mil a unit.

The super high-end residences offer direct view of the Petronas Twin Towers, direct access to the KLCC park, excellent quality finishes and management. Other future projects lined up include Millennium Residences, 6 Stonor and IMC Parkville.

Y.Y. Lau

YY Lau Property Solutions chief executive officer Y.Y. Lau says the luxury residential market in the KLCC has gone up a notch with The Binjai project, and developers will have to pay more attention to finer luxury concepts in the future.

She also says the practice of extending special invitation to pre-selected potential buyers seems to have been effective as in the case of selling The Binjai. “By extending special invitation, the potential buyers are made to feel important and the chances of securing a sale is higher.”

Despite the apprehension over the property market’s outlook, Lau believes it’s a good time for serious buyers to scour the market for attractive buys.

“They stand a better chance of negotiating a better deal for some prime properties in selected locations,” she says.

By The Star (by Angie Ng)

KLCC prices holding strong

AMID the global financial crisis and waning demand for luxury high-rise condominiums, the coming onstream of 2,000 more condominiums from 10 projects around the Kuala Lumpur City Centre (KLCC) area this year is expected to result in further price correction in properties in the vicinity.

After a euphoric two-year period which saw prices of some recently-released residences skyrocket to over RM3,000 per sq ft, the feverish pitch of high-end condominiums in the KLCC area appears to be cooling down.

The devastating impact of the US-led global financial crisis is taking a heavy toll on the rest of the world and with it, asset and equity values have taken a severe beating. The wealth destruction has significantly weakened consumers’ confidence and their appetite for big ticket purchases such as properties.

Since the middle of last year, prices of secondary residential properties in the KLCC vicinity have dropped 15%-20% while the rental market has eased 20%-25%. The slowdown was more visible in the last quarter of 2008 as reflected by shrinking property transactions. Industry observers are not ruling out further weakening in values and rental yields.

Eric Ooi

Knight Frank Ooi & Zaharin Sdn Bhd managing director Eric Ooi expects the current lull to continue until buyers’ confidence is regained, at the earliest in the later part of the year.

Even so, the general view among industry practitioners is that there is no price bubble in the KLCC residential market.

Terence Yap

According to Zerin Properties head of private wealth (real estate) Terence Yap, property prices in the KLCC vicinity are significantly lower than those in regional hot spots such as Singapore, Hong Kong and Shanghai and therefore, there is less potential for a severe correction: “The supply market is holding pretty well and the supply of condominiums is at a healthy level with no worry of an oversupply.”

In fact, he points out that there was still demand for KLCC properties in the last quarter of 2008, albeit at a slower pace compared with the third quarter. In addition, as there will be no new project launches in the next quarter, he expects demand to outstrip supply, hence stabilising prices somewhat.

Fortunately for Malaysia, while much of the world (US and Europe especially) is reeling from the crisis with asset values yet to see a bottom from a free fall, there has yet to be a visible deluge of distressed assets for sale, owing much to the country’s resilience.

“Some foreigners may be selling at distressed prices but local vendors are holding strong. And despite the correction, prices of residential property in the KLCC area have not plummeted like those in more expensive markets. Coupled with demand from opportunistic investors looking for good bargains, there will still be a flow of transactions to sustain property values,” Yap opines. “The appetite for good value buys is pretty much the same,” he adds.

Christopher Boyd

There are also other plus points that the property sector can bank on, says ReGroup Associates Sdn Bhd executive chairman Christopher Boyd, citing declining interest rates which increases buyers’ affordability – a definite boon for the sector. “Values are way below those of comparable properties in most other cities in the region. There is still an influx of expatriates and as far as I know, there is a long waiting list at the expatriate schools,” he quips. On the other hand, he says foreigners who want to cash out may be willing to cut their asking price to make a quick exit.

Noteworthy is that while Malaysia is on the radar screen of international real estate investors, 70% of property purchases in the country are by Malaysians, which YY Property Solutions chief executive Y.Y. Lau deems as positive. “This is a blessing. Local buyers are more resilient and will not liquidate their positions in a hurry like their foreign counterparts.”

She says the market’s performance depends on a few factors, including the reputation and financial strength of developers and the investment objectives of potential buyers.

“If a developer is positive and has deep pockets, has projects in choice locations and offer quality and well sought after property products, he can sit tight and weather the current unfavourable situation and come out a winner when the market stabilises and scale new highs,” Lau says.

She admits that certain groups from South Korea and Britain have deferred their purchases while others who own existing properties are trying to unload given the severity of the crisis. In addition, due to the worsening property overhang in the Middle East, there is a marked fall in demand from Middle Eastern buyers for local properties since the last quarter of 2008.

To woo foreign buyers, several developers have been holding road shows abroad in countries such as South Korea, Japan, Britain, China and India to take advantage of the competitive pricing. Zerin’s Yap says the establishment of Malaysia Property Inc to promote Malaysia as a property investment destination will definitely heighten interest among foreigners.

“We expect property around the KLCC area to be the biggest beneficiary from this initiative,” Yap says.

By The Star (by Angie Ng)

Global crisis a severetest of KL branding

Several months ago, an acquaintance received a phone call from a developer who has a project facing the Petronas Twin Towers. The caller wanted to know if he was interested in a condominium which cost slightly less than RM3,000 per sq ft.

“At that price, I must have a rental of RM30,000 a month. Who would want to rent a condominium at that price when they can rent a bungalow in Damansara Heights, Kuala Lumpur for that amount or less?”

The call proves one thing – that the brand of conspicuous consumption that some KLCC developers have been successfully marketing to wealthy clients is currently being severely tested as the global crisis sends many markets in a tailspin, wiping out wealth alongside it.

Do not be mistaken. By no means has the iconic location lost its allure. It is just that the meltdown has given the sector and that location a new dimension.

From London to New York to Dubai, the luxury residential market is hurting as the economic crisis deepens. Malaysia, nowithstanding the fact that we are seeing a slower effect of the crisis, will not be exempted.

Knight Frank Malaysia executive director Sarkunan Subramaniam says the prices have dropped significantly since August and expects prices to drop further.

The fall in value may be greater in some projects compared to others. For example, an analyst says the prices of DNP Holdings Bhd’s The Meritz has dropped 28%.

But SK Brothers Realty Sdn Bhd general manager Chan Ai Cheng says it is a misconception that transacted prices within KLCC have dropped.

“Prices within KLCC have not really dropped, at least not the transacted prices. When properties within KLCC were first launched, they were transacted between RM1,200 and RM1,400 per sq ft and sold out immediately,” Chan says.

(Note: Some of the earlier projects like Stonor Park and Dua Residence were launched at starting prices of RM530 and RM600 per sq ft respectively in 2003/2004. Prices began their stratospheric rise as more developers entered the market).

She adds that the quick flip allowed property owners the opportunity to cash out with higher re-sale prices.

“Just because people feel that the properties would be worth so much doesn’t mean that the properties are actually worth that much,” she says.

“Asking prices are today more realistic,” Chan says.

Besides pricing, analysts and agents have raised other concerns like sliding yields and the burgeoning supply in the vicinity.

These issues are not new or unexpected. They were on the back burner even as early as 2005 when developers were showing interest in the hotspot. Many had then questioned if Malaysia will have or be able to draw enough expatriates to occupy these 6,000-odd units. That question remains relevant up until today.

As the meltdown unravels, these same issues have taken a new urgency of their own.

Before going further, there are different definitions and perimeters of what constitute KLCC. Consider the different concentric circles with the Petronas Twin Towers at the centre. Some may consider Berjaya Central Park (by the Berjaya Group) and Cendana (IGB group) as occupying the outer circle and should be included as KLCC property. Others go no further than Persiaran Hamsphire behind Corus Hotel along Jalan Ampang. The Binjai (KLCC Properties Bhd) being on the KLCC Park itself is the closest to the core.

However one may define it, there are several thousand units out there today which remain pitch black when night falls, a sign that it is not occupied.

“If you look at the property market as a whole, over the past few years, compared with what’s happening in the global property market, we are late in coming. Property prices have not risen as significantly as in the US, where over the past six years, prices have doubled.

“Singapore’s property prices have moved up more significantly. In Malaysia, prices have been stable with the exception of KLCC and Mont’Kiara. However, over the last three to four years, prices in KLCC have doubled.”

The units in that location come in pretty large packages. Catering mostly to families, they have a built-up of about 2,000 sq ft or more. In absolute terms, a unit can cost between RM2mil and RM3mil each or even more.

There are some Malaysians who are sitting on piles of cash and are waiting to pick up some units if the price is right. Because the gap between the selling price and asking (buying) price is today too wide, some of the owners have decided to move into that location.

Says the analyst: “In a market such as today, a lot of multinational companies are cutting back on benefits and are in fact retrenching. Under such circumstances, it is difficult to be bullish about the tenant market.”

Agents and property consultants say it has become increasingly difficult to get tenants, especially in the last half of 2008 and the situation is expected to remain the same for the first quarter of this year.

Industry observers suggest that developers within the KLCC area who have yet to launch their projects should hold out for a bit before they do so as the weak market could translate to weaker sales.

“But if they need to launch, they could scale down the projects or offer smaller units hence bringing down the price,” says one observer.

Will developers revise the prices of their properties downwards due to waning demand? Not likely. “Once developers have set or raised their prices, it will not be reduced. The market does not practice this,” she says, adding that developers may provide more value add or give out freebies to woo buyers.

By The Star (by Thean Lee Cheng and Eugene Mahalingam)

How to sell in tough times

It is becoming more difficult for developers to close sales these days and the growing number of easy financing schemes and freebies being offered by developers drives home the point that the property market is becoming increasingly tough for industry players.

Buyers are taking longer to decide as the scale and severity of the global financial crisis begin to dawn on the people.

The performance statistics being rolled out by manufacturers, exporters, corporations and service providers have been pretty weak, which further create anxiety about the state of the economy.

News of major retrenchments by companies, especially multinational corporations, are unnerving to many Malaysians and they worry whether they will be the next in line.

Many are bracing for more bad news as they believe the worst has yet to unravel going by the scale of damages reported across the continents.

People are postponing purchase decisions for big ticket items, including property and cars, as they fear more bad news ahead.

The biggest challenge for developers this year is to regain buyers’ confidence and developers have to be proactive by showing their commitment to their projects, which include putting up the necessary infrastructure ahead of a project’s launch.

To encourage buyers to sign on the dotted line, developers have came up with an ingenuous plan by working with their panel of bankers to provide easy financing schemes to purchasers.

Even the top gun developers of SP Setia Bhd and Mah Sing Group Bhd have joined in the bandwagon with their 5:95 home loan packages.

Depending on whether it is a 10:90 or 5:95 scheme, buyers only have to fork out either a 10% or 5% of the purchase price as downpayment after choosing a property while the bank will release the progressive payment to the developers during the construction period.

The developers will bear all legal fees, stamp duty on the sale and purchase agreement, loan agreement and memorandum of transfer and also service the interest during the construction period.

This way, the buyers will not have to fork out money to service the loan until the property is completed and handed over, which typically takes two years for landed properties and three years for high-rise projects.

Some, like Gamuda Land, have gone the extra mile. It has accorded buyers another “honeymoon year” once they’ve taken over vacant possession, afterwhich they will have to start servicing the loans.

As property development is ultimately a business that calls for efficient cash flow management, these financing schemes will ensure developers have enough cash flow to finance their projects during the construction period.

Having buyers sign up loans for their property purchase will also lower the risk for the developers as the buyers will have to answer to the banks should they decide not to proceed with their purchase.

As for the financial institutions, the arrangement will ensure they are able to meet their loans growth target.

In fact, total loans approved for residential property purchase nationwide dropped by 23.3% to RM3.69bil last December compared with the same period in 2007.

It is imperative for buyers to put some serious thought before taking the leap to sign up for a financing facility as once a loan agreement is sealed, they are committed to the loan repayment. Important factors to bear in mind - one’s affordability, developer’s reputation and suitability of purchase.

On the other hand, it will also help if developers undertake feasibility studies to ensure there is demand for the type of products they are offering.

* Deputy news editor Angie Ng hopes to see more Malaysians having the opportunity to buy homes as a robust housing industry has huge spin offs on the country’s economy.

By The Star (by Angie Ng)

Rebranding for IJM

Every company knows the importance of brand image and the vital role it plays in defining awareness and distinguishing it from its competitors and the rest of the industry.

In the case of the IJM brand, its association with the construction sector is so well known that not many realise that it has also been involved in property projects for quite a while, IJM Land managing director Datuk Soam Heng Choon says.

Soam ... We want to communicate to customers that we are also developers

“Most people know IJM group as a construction company (IJM Corp), which is our core business.

“But under the IJM stable there are also three other listed companies, namely IJM Land Bhd, IJM Plantations Bhd and Industrial Concrete Products Bhd (a product manufacturer),” he tells StarBizWeek.

IJM Properties Sdn Bhd, the property arm of IJM Corp, has been selling properties for many years, especially within the Klang Valley, Penang and Johor. In 2007, it acquired RB Land Holdings Bhd to fortify its position as a property player.

Then, in September last year, the group initiated a rebranding exercise to create awareness that it was more than just a construction player.

“We embarked on the (rebranding) exercise to streamline our property business into one entity – IJM Land Bhd.

“We wanted to communicate to customers that we were also developers. Customers are more likely to purchase property from a reputable developer rather than a reputable contractor,” Soam says.

One of the first big changes to be made under its rebranding exercise was the incorporation of a new logo that says “IJM Land.”

“Within the KLCC area, you can see the IJM logo on some of the tower cranes because we are the contractors for a few of the projects there.

“But within the area we also have a project that we are developing ourselves. If we retained our former logo which just said ‘IJM,’ people would think that we are just the contractors,” Soam says.

The company’s rebranding initiative continues into 2009 and the next step is to address the mindset of its employees, says Soam.

“We need our people to start thinking more like a developer rather than a contractor. We also need to communicate our change to our stakeholders, suppliers, consultants and contractors on what we expect of them now.”

He admits that it would take time for everyone to accept the company’s new image and objectives, especially its own employees.

“We have people who have been with the construction side for quite a long time and the expectation of being just a developer is different from being just a contractor.

“As a contractor, you just build and that’s it. But as a developer, you have to consider various issues such as the design, quality of the product, customer service, complaints and the maintenance,” Soam says.

He adds that the company incorporates a lot of forward thinking elements into its designs when working on a particular project.

“When we put in a design, we actually think what people want in a home, office or factory that we are building.”

Asked how much IJM Land would invest in the exercise, Soam says: “We spend what is necessary, especially with the current economic climate.”

On the question of timing, he says: “I don’t think there is a right or wrong time to do a rebranding exercise. For us, it’s a good opportunity to do it.”

IJM Land has a landbank of nearly 10,000 acres spread all over Malaysia. It has projects in Penang, Negri Sembilan, Johor, the Klang Valley, and Sabah. About 60,000 acres are undeveloped.

“We have about 40 ongoing projects in Malaysia,” Soam says.

The company currently has about 300 employees. It is also one of the largest property developers in Malaysia in terms of asset size.

On the outlook of the local property market, Soam says: “I think it’s a foregone conclusion. The market is getting softer.

“But the central bank has cut down interest rates and that is a good thing. The situation is unlike the Asian financial crisis in 1997 when we were hammered by high interest rates.”

By The Star (by Eugene Mahalingam)

MK Land expects to post net profit of RM20m

MK LAND Holdings Bhd, controlled by developer Tan Sri Mustapha Kamal Abu Bakar, is optimistic of achieving RM20 million in net profit for its current fiscal year, boosted by land and property sales.

The developer expects sales to surpass its initial target of RM350 million.

It made a net profit of RM10.1 million in the six months ended December 31 2008, against a net loss of RM18.3 million in the same period of 2007 while revenue doubled to RM125 million.

Mustapha Kamal said MK Land will be able to repeat a similar performance in the second half of its financial year.
The confidence is built on its recent land sale (9.2ha) at its Damansara Perdana township in Selangor, for RM150 million.

It also sold RM150 million worth of residential and commercial properties at the township in the past seven months.

"MK Land has turned around, thanks to the group as a whole. We have turned losses into profits. We are going on the road to recovery. It would mean that the structure we have, seems to be working," he told a news conference in Damansara Perdana yesterday.

Mustapha Kamal, who returned to helm MK Land in June 2008 after a brief spell with his private companies, had outlined the details of a three-year plan to rejuvenate the company last year.

Four people were roped in from Emkay Group, and its 75 per cent unit, Setia Haruman Sdn Bhd, the master developer of Cyberjaya, to handle specific tasks such as strategic planning, cash flow, and projects in the south and north.

MK Land is aiming to launch five major projects over the next 3-5 years, worth RM4.1 billion collectively.

They are North West Corner, Armanee Terrace Condo and Metropolitan Square in Damansara Perdana, Armanee Condo in Damansara Damai, and Jelapang One in Ipoh, Perak.

MK Land will use RM73 million from its RM150 million land sale to kickstart the projects.

Mustapha Kamal said cash from the operations are being earmarked to repay its final bond of RM60 million, due in June.

However, in case cash from the operations are not received on time, it will utilise from the balance of RM77 million, to pay for the bonds, he said.

"We recognise that there is a slow down in the property market as a result of the current economic downturn.

"But with excellent location and value-added products, we are sure they will sell through aggressive sales strategies. We have what the market wants," Mustapha Kamal added.

MK Land has 2,710ha of land, which will be able to generate as gross development value of almost RM20 billion.

By Business Times (by Sharen Kaur)