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Saturday, April 4, 2009

High-end property value may stabilise in 2009

The value of high-end properties, which has been on the decline by five to 15 per cent as a result of the economic downturn, may stabilise when the economy recovers, according to an industry player.

"High-end properties will start to correct by next year, when the economic conditions recover. We expect it to be either stable or flat. It won't be down anymore but slowly go up again," said Ho Chin Soon of Ho Chin Soon Research Sdn Bhd.

He said despite the current situation, some high-end properties were still able to command good prices, citing those in the KLCC area which went up by more than 15 per cent.

Ho said though the overall demand for the high-end properties has declined, the situation will correct itself over time.

"A lot of developers are holding back their launches, so there will be less supply and after some time, the demand and supply situation will correct itself," he said.

According to Ho, the developers will usually change their layout during an economic downturn to offer more lower-end properties to keep their operations going.

As a result, the demand for low-cost and middle-cost properties has remained stable despite the economic conditions, he said.

Ho also said that the recent interest rate cut by Bank Negara Malaysia was expected to boost demand for properties, especially for lower-end properties.

For lower-end properties, Ho said: "From October last year until last month, we saw no downside. Asking prices are still very strong."

By Bernama

Plenty of land for development with Country Heights

AMID the current economic uncertainty, Country Heights Holdings Bhd is not targeting any aggressive launches this year, as it is focusing on selling its existing and completed properties. However, the company will stay flexible with its plans to adapt to the current volatile external environment.

“No point launching (projects), if you can’t sell above 60% (of the units)... it will only restrain your cash flow.

“We have set out different targets for different scenarios, so in case the market hits a downturn, we can react promptly. If the US recovers, the sentiment can change very fast...,” says Mark Rozario, the group’s managing director in an interview with StarBizWeek.

He says Country Heights has plenty of land available for development in most of its existing projects, as the company typically retains close to 20% of its completed units for investment purposes.

For example, for its projects Country Heights Kajang and Cyber Heights Villas, it kept 100 units of the 500 villas for each project. These units are not pledged to the banks.

In addition, the company retains about one million sq ft of bungalow vacant lot in Country Heights Kajang. He says that the values of these vacant lots have appreciated to RM70 from RM6 per sq ft since it was first launched.

Very soon, Country Heights will offer bungalow lot landowners in the College Heights development in Pajam, Negeri Sembilan a special package to help them build their dream home which includes building to obtaining the certificate of fitness.

There will be five types of designs for landowners to choose from. However, for the package to work and to allow contractors to build the homes at a 30% discount, it needs to have at least 30 units of bungalow.

The average costs of constructing a bungalow with this package is between RM300,000 and RM400,000 or RM130 per sq ft.

According to Mark, Country Heights gearing ratio is less than 0.5 times, which he considers as “comfortable” based on the industry standard. In addition, he says the group’s assets are undervalued as most of them are carried in the books at historical prices which has since appreciated significantly.

On the property market outlook, he says the domestic market has not been too badly affected; some potential buyers are merely holding back on committing to big item purchases for the time being until market sentiments recover.

“A lot of this is related to confidence and the situation may recover fairly quickly.”

Banking on other drivers

Over the medium-term, he says the group’s main growth driver will be its hospitality, leisure and health division as well as the property investment divisions.

“We will expand our healthcare business (prevention sector) aggressively, as this sector is recession proof,” he says.

Towards this end, the company will expand its healthcare screening facility at Palace of The Golden Horses to 22,000 sq ft which is expected to be completed in three months.

“We have also just launched a traditional Chinese medicine centre at the Palace Beach and Spa few months ago,” he says.

So far, Country Heights’ healthcare division has about 12,000 memberships, all of them from the Klang Valley. Going forward, the company plans to extend its memberships overseas as well as include a wider demographic such as senior citizen, children and expatriate.

The company has another healthcare screening facility at Plaza Mont’Kiara.

He says the other growth driver for the company is the property investment division, particularly the Mines International Exhibition and Convention Centre (MIECC). The company has plans to install more exhibitions events.

However, for the long term, Country Heights core activity and earnings driver will still very much be property development.

This year, Country Heights expects to chalk up an annual revenue of RM200mil and capital expenditure of RM30mil.

Launches ahead

Country Heights’ rainforest development in Sarawak, the Borneo Highlands Resort, will launch 18 super-luxury bungalow lots this year.

This project, with one super-luxury bungalow lot per golf hole would cater to the international market.

The size of bungalow lots varies from one to two acres and will be priced and sold in US dollars. (The indicative price is US$4mil-US$5mil per lot.)

During the launch of Phase 1 to 3 of the smaller bungalow lots last year, Country Heights managed to sell 80 out of 103 lots.

Recently, it launched 46 lots of Phase 4 bungalows.

“There is huge potential for international market. No where in the world is there this kind of (rainforest development) environment. We didn’t cut down the trees, the golf course is built on the original terrain.”

Currently Borneo Highlands Resort’s existing landowners have already built about 30 bungalows. This development covers 5,000 acres of land but the company will only develop 1,000 acres for now.

As for the Country Heights Damansara project, after seeing only a handful of landowners building their dream homes there a few years ago, the numbers have slowly grown to 30 households today and by the end of this year, new homes are estimated to reach 100 units.

Mark expects over 200 homes to be built in the next three years. Country Heights launched a “build and sell” concept for ten of its vacant lands to encourage more landowners to build their bungalows.

“It helped a lot and things (sales of vacant lots and construction of new bungalows by landowners) can go quickly as well,” he said.

To date, it has completed six units of bungalow and sold four of them. Four other bungalows are still under construction.

Out of the 380 bungalow lots, it has sold 280 lots. That leaves another 60 lots available for sales, as the company will keep the remaining 40 lots.

Apart from that, Country Heights has also allocated 23 acres of land for cluster bungalow and 6 acres of land for the condominium development.

By The Star

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)