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Saturday, October 31, 2009

Signs of green shoots

An artist’s impression of The Light Waterfront Penang’s residential precinct. More developers are lining up new greenfield projects for launch from the later part of this year

The housing property market which also succumbed to the dampening impact of the global financial crisis may be showing some “green shoots” of recovery, especially in the medium-range landed housing sector.

However, the high-end condominium market around the Kuala Lumpur City Centre vicinity is still fragile.

Since the middle of this year, the take-up rate for landed housing units has improved and developers are seeing a return of buying interest for good projects in well sought after locations. Even the high-rise residential market is showing some glimmer of hope.

The Malaysian Institute of Economic Research’s Residential Property Index (MIER RPI) hit 91.5 points in the second quarter of this year, which is a strong rebound from the all-time low of 69.3 points in the fourth quarter of 2008.

As a sign of their improved confidence, more developers are lining up new greenfield projects for launch from the later part of this year.

This is a much improved situation from late last year when things practically came to a halt and the sale registers at developers’ offices stopped ringing.

Just when developers are about to look forward to brighter days ahead, the proposed reimposition of the real property gains tax (RPGT), albeit at a flat 5% rate irrespective of holding period and category of owners, is seen as a dampener of the “overall feel good” sentiment.

Although some are not overly concern that the RPGT will slow down sales substantially, especially among first time buyers and owner occupiers, some say it will impact the investor market.

Overall, with the prevailing low interest rates and improving economy, the environment is still relatively positive.

IJM Land Bhd managing director Datuk Soam Heng Choon says with the current benign interest rates and the pent up demand due to lack of new launches in the last nine months, the sentiment should remain positive.

“Most of our projected launches are on track and we will be putting more projects into the market. By our financial year ending March 2010, we would have launched about RM1.3bil worth of products nationwide,” Soam adds.

Among IJM Land’s latest launches are the Nusa Duta project in Johor Baru in July and The Light Waterfront Penang in August. A new commercial project in Melaka will be launched next month.

On challenges ahead, he says land prices are still on the rise and the cost of doing business remains high.

“Industry players should take the lull period to improve their product delivery and refocus on quality products to lift the industry’s image in the years ahead,” Soam points out.

Tan Sri Liew Kee Sin says developers are still careful with planning their launches.

According to SP Setia Bhd president and chief executive officer Tan Sri Liew Kee Sin, the country’s economy is showing strong signs of recovery. Coupled with prevailing low interest rates and ample liquidity, the outlook looks more promising.

Although sales is picking up, he says developers are still careful with planning their launches and only time will tell if the recovery is sustainable.

Liew adds that product innovation which caters to the people’s changing lifestyle and needs will continue to fuel demand, adding that the company will continue with its launches in its townships in Johor, the Klang Valley and Penang.

Tan Sri Leong Hoy Kum ... ‘The market is gaining momentum for an up cycle in the second half of 2010.’

Mah Sing Group Bhd group chief executive Tan Sri Leong Hoy Kum says: “The market is gaining momentum for an up cycle in the second half of 2010.

This would be true for mid- to high-end landed residential projects as well as commercial projects in prime locations.”

The company is lining up some new project launches next year, including Garden Residence in Cyberjaya by the first quarter of 2010. The project has received more than 600 registrants so far for the superlink homes and semi detached houses.

Mah Sing is also planning to launch the iParc project in Bukit Jelutong comprising semi-detached factories with flexible layouts for corporate warehousing.

Leong says as property demand in the country is largely driven by fundamentals, there has been no price bubble so far and hence, any downside for property prices is limited.

“We have not seen any fire sales, and good properties that are developed by reputable developers in prime locations still see strong take up.”

As of the middle of July, Mah Sing achieved RM543mil in sales, exceeding the full year target of RM453mil.

Its unbilled sales stood at RM812mil, approximately 1.6 times the revenue recognised from the property division last year.

Hunza Properties Bhd executive chairman Datuk Khor Teng Tong says prevailing low interest rates, a growing population, relatively low unemployment, and no significant overbuilding are strong factors to fuel growth in the market.

Industry players should also be well versed with the industry cycles, trends and changing needs of the society.

Concurring with him, Gamuda Land Sdn Bhd managing director Chow Chee Wah says innovative master plans with strong concept, good systematic implementation and execution will result in quality delivery system.

“Projects by developers with strong track record, good capital appreciation and rental yields will continue to do well even during difficult economic times,” he says.

Chow says to ensure more sustainable growth, it is necessary to maintain the current financing rates. “To provide a further lift to the property market, it is important to liberalise the bumiputra quota issue and state consent on purchase of leasehold property.

“Streamlining the process to cut down red tapes for speedier approvals in the two areas will be great help to the property industry,” he says.

By The Star (by Angie Ng)

Pressure building up in KLCC

Will the 5% real property gains tax be a deterrent?

AS the property investor goes through his checklist on why he should invest in Malaysia, that 5% real property gains tax (RPGT), to be effective Jan 1 next year, will be a bit of a blemish.

Although it is just 5%, it raises a hypothetical question. Will this 5% be raised sometime down the road?

The Government gave an exemption in April 2007 to stimulate the market when it was already quite hot. It boosted the market and coupled with the iconic location of KLCC that was then emerging at that time on the world property market scene, foreigners and locals bought into that location. The Kuala Lumpur property scene was seen as lagging in terms of prices to the regional markets. It still is.

A lawyer who declined to be named said the RPGT, with its graduating scale of 0%, if a property is sold after five years, to 30% if sold in the first two years, was never abolished.

Her remark two years ago: the Government can always bring it back, in different forms. That time has come.

With the pressure building up in the high-end condominium market in the Kuala Lumpur City Centre (KLCC) and its vicinity as more projects are completed, that re-instatement could not have come at a more inopportune time.

There is an existing supply of about 5,700 units and a further 5,800 units are expected to come onstream in the next two to three years. (See the table on KLCC projects).

The pressure is coming from two counts – prices and rental. Its effect will be felt by both owners and developers who have not sold all their units in that iconic and surrounding vicinity.

Savills Rahim & Co MD Robert Ang says the market is on the downtrend and it is clear that there will be an oversupply as the year comes to an end and 2010 rounds the corner.

“My KLCC condominium sales are not registering a boom. It is at a standstill,” he says. The situation is expected to lumber along like this for the next six months to one year.

Even at RM950 per sq ft, compared to a high of RM1,200 to RM1,500 per sq ft, it is a challenge to sell in today’s market.

An expatriate owner called to sell her condominium for between RM1,200 and RM1,400 per sq ft.

“I told her I cannot perform a miracle. She bought into that project at between RM600 and RM700 per sq ft,” he says.

As more units enter the market, and the Jan 1 deadline rounds the corner, buyers will try to bargain down further.

“This will move Malaysia a step back in terms of overall attractiveness in the regional investment market,” says Regroup Associates executive director Paul Khong.

This is another layer of tax the investor has to consider when they invest and/or decide to liquidate. Any purchaser irrespective of whether local or foreign will have to weigh this accordingly in their investment consideration.

Owners who are in the selling mode will try to beat the deadline, while buyers will try to squeeze in a further discount because of the Jan 1 deadline.

It is too early to see the impact of that 5% tax but it is a psychological barrier, particularly for those who entered that market in 2006/07 when it was at its peak.

Some of them will not be making money and they are already upset. With this flip-flop policy, they may just take their money and go elsewhere to get a better return. For those who bought in the early days at RM500 to RM600 per sq ft, that 5% is just a dent. Which is why when it comes to investing in properties, it is always a question of timing and location. About 20% to 40% of owners are foreigners.

If the project is marketed locally, the foreigner content is only about 10% to 15% and if an international roadshow is done, the percentage doubles, Khong says.

At the moment the foreigners are largely Asian investors.

“After the third quarter of 2008, buyers have been largely locals but that number is shrinking as well,” says Khong.

Generally, buyers bought into that market for rental and capital appreciation due to the uniqueness of that location and the Petronas Twin Towers.

It is liken to Hyde Park of London and Central Park, New York. Ironically, there isn’t a Petronas Twin Towers or a central park in Singapore, yet prices are chugging along over there, which takes us to the rental dynamics here, or lack of it.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez says those who bought into KLCC and its vicinity will want a net yield of between 5% and 6%.

There have been arguments that people who buy into that location do not care about rental yield. He does not buy that. People with money have alternative uses for their funds.

If a buyer bought a 2,400 sq ft unit at RM1,500 per sq ft (RM3.6mil) and rents it out at RM5 psf (which is between RM4.50 and RM5 today), he would get RM12,000 monthly rental, or RM144,000 a year. He has to less the outgoing expenses of about 75 sen psf for the quit rent, assessement and service charges, which comes up to RM21,600 a year. So he makes RM122,400 a year (3.4% net). If it were a landed property, he may be quite happy but not for a condominium.

Value in that location have been running up ahead of supportable rental, which is why as soon as the crisis came, the market shook.

If he wants to get a rental return of 5.8%, he will have to rent at RM8.50 per sq ft. That is impossible in today’s market, Fernandez says.

Malaysians will not want to pay that sort of rental, which means owners are looking at the expatriate community. But the foreigners who arrive on Malaysian shores do not command that sort of monthly rental expenses from their employers.

In Singapore, an expatriate may get a monthly rental allowance of S$30,000. That is why prices can go up so high.

Henry Butcher’s COO Tang Chee Meng says Malaysia is not attracting enough of that level of expatriates whose rental allowance average RM15,000 to RM20,000 a month, and even less of those who command between RM30,000 and RM40,000 a month.

“They send these people to Singapore and Hong Kong, the big financial centres of Asia,” says Tang.

Rental yield aside, the second weakness in that market is the sizes of the units, which are generally more than 2,000 sq ft. In Singapore today, developers are cutting it small. Agents contacted say there is interest in the smaller units. With companies around the world cutting cost and sending less manpower abroad, the larger units will be difficult to fill, and to sell. For developers who have unsold stocks, they may try to promote their projects abroad.

No story on the KLCC property outlook may be complete without a mention on Binjai On The Park, which sets the benchmark in that location.

Even in that high-end location, they are the average priced units and the super class condominium. Binjai On Park belongs to the super class.

Early this year, it was going for RM2,400 per sq ft. At its peak, prices went as high as RM3,500 per sq ft. As it nears completion, it is unlikely Malaysia’s premier company Petronas will allow that project to be shrouded in darkness, as with many of today’s projects in that iconic location when night falls. Watch that space.

By The Star (by Thean Lee Cheng)

TA Global lines up RM7b projects over next 2 years

TA Global Bhd, which will rank as the country's fifth biggest listed property group in terms of market value, has lined up around RM7 billion worth of property development projects locally, to be launched over the next two years.

Director Datin Alicia Tiah said three projects will be launched in the second half of next year. They are Dutamas in Mont' Kiara, U-Thant 28 in Ampang and Seri Suria, a mix development in Sri Damansara.

By 2011, the group plans to launch Nova Square at the junction of Jalan Bukit Bintang and Jalan Imbi, and two 50-storey residences near the Petronas Twin Towers, in Kuala Lumpur.

Nova Square features an office tower, a serviced apartment block, a five-star hotel carrying the Aava brand, and a podium for boutique shops.

Tiah said the development order has been approved for Nova Square and it will be submitting its building plans soon.
"We will take a year to lay the foundation. Construction would take another three years. We are confident of selling the property due to its location. We will, however, retain the hotel, a few apartments and the podium for recurring income," she added.

Tiah said she expects TA Global to maintain its profits in the current financial year ending January 31 2010 and in 2011. But revenue may dip due to fewer launches.

"We expect higher margins from our overseas investment properties, thanks to foreign exchange gain. Locally, we sold many high margin products and the profits would be recognised over the next few quarters," she said.

Last year, TA Global made a net profit of RM92.9 million on a revenue of RM441 million.

"If things go well and we get faster approvals for our projects, TA Global may surpass the RM93 million in fiscal 2011," she said at the launch of TA Global's prospectus in Kuala Lumpur yesterday.

TA Global is due to list on the Main Market of Bursa Malaysia on November 23.

Its parent, TA Enterprise Bhd (TAE) is looking to raise RM230 million from the listing.

Tiah, who is TAE co-founder and managing director, said it will use the proceeds to pare down debt and for working capital to expand its financial services.

TAE folded all its property assets into TA Global to "unlock the hidden value".

The initial public offering entails 460 million ordinary shares of RM0.50 each at an offer price of RM0.50 apiece.

It will offer 360 million shares for private placement to selected Bumiputera institutions and investors, and 90 million shares to Bumiputera citizens, companies, societies, cooperatives and institutions by way of balloting.

Some 10 million shares will be issued to eligible directors and employees of the company.

TAE will retain a 57 per cent stake in TA Global after the listing, while TA Global executive chairman Datuk Tony Tiah Thee Kian will hold 8.1 per cent.

In addition, TA Global, which has total assets valued at RM2.4 billion, will raise RM135 million via a rights issue.

Proceeds from the rights issue will be used to renovate its Aava Whistler Hotel in Canada, acquire more assets and undertake new developments.

By Business Times (by Sharen Kaur)

TA Global eyes more assets

KUALA LUMPUR: TA Global Bhd, slated for a listing on the Bursa Malaysia main market on Nov 23, is keen to acquire more properties locally and internationally.

Director Datin Alicia Tiah said TA Global already had properties in Australia and Canada.

The company’s existing portfolio includes two five-star hotels in Australia and a four-star hotel in Vancouver, Canada.

“We’re always looking for opportunities. Buying a hotel is not as easy and a lot of homework needs to be done. We want to buy properties that have the right location, price as well as offer good yields,” Alicia said after the launching of the company’s prospectus yesterday.

She said the company was not under pressure to buy anything at the moment but would consider it if something came along.

To a question, Alicia said she hoped TA Global would have some “good news from Canada to disclose soon”.

Going forward, Alicia expects revenue from its hospitality division to triple in the financial year ending Jan 31 (FY10).

Alicia said hypothetically, revenues from hospitality should increase judging by the number of hotels it had now from one previously.

On pro-forma basis, TA Global posted a net profit of RM92.8mil on revenue of RM440.7mil in FY09. For the three months ended April 30, its net profit fell to RM15.7mil from RM19.8mil previously. Revenue was also lower at RM49.2mil.

“I’m sorry. We’re not allowed to give forecast but we’ve been profitable over the last three years,” Alicia said when asked on the company’s financial performance. However, she expects the company to “maintain” its financial performance in FY10 and FY11.

Executive chairman Datuk Tiah Thee Kian said the company’s properties were all iconic assets. “They are not only located in prime areas but also yield a steady income for TA Global.”

On the local front, TA Global owns land in prime areas in the Klang Valley. Its head office, Menara TA One, is scheduled for refurbishment and when completed, is expected to see higher yield.

With the listing, TA Global is expected to be one of the largest listed property companies in the country.

The exercise includes a rights issue of 269.9 million new shares to its single-largest shareholder TA Enterprise Bhd (TAE) at an issue price of 50 sen, raising RM135mil, which will accrue to TA Global.

TAE will offer for sale up to 460 million TA Global shares at an indicative offer price of 50 sen each. Of the total, 90 million shares are allocated for bumiputra individuals and organisations. Another 360 million shares are for approved bumiputra investors and 10 million shares for eligible directors, employees and business associates of the TA group. The listing exercise is expected to raise RM230mil.

By The Star

Reimposition of real property gains tax appears untimely

The proposed reimposition of the real property gains tax (RPGT) come Jan 1 has ruffled feathers among property investors and industry players with calls made for its review before being implemented.

Depending on whether you own just “the roof over your head” or have a nest of property assets, the concern from various quarters largely centres on the fact that a flat rate of 5% will be imposed on all gains from disposal of real property irrespective of the holding period and category of owner.

To ensure the tax will be equitable and acceptable to all, there is a need for further fine-tuning before its implementation. Prior to the exemption of the RPGT in April 2007, tax on gains from property disposal was on a progressive basis from 30% to 0% depending on the holding period of the property.

If one buys a property and disposes it for profit within two years of purchase, the profit will attract 30% tax; within the third year will be 20%; fourth year 15%; and fifth year 5%. A sale in the sixth year and thereafter will not be taxed.

Long-term property investors and owners who have held on to their properties for many years or decades are particularly spooked by the proposed 5% tax rate.

Firstly, their contention is that they should not be the target group of the RPGT when the intention of the tax is to reign in speculation in the property market in the first place.

After all, they are not speculators and have dutifully held on to their property which in a way has contributed to the market’s growth over the years.

They don’t see the logic of having to pay tax for the “gains” they will make if they decide to sell their property one day, especially when there is no explanation on how the “gains” will be calculated.

It will be unfair to just base the calculation on the sale price minus purchase price when the value of the ringgit has not been duly adjusted. The time value of money should be considered and there should be an equitable formula used to calculate the actual value of the “gains” if the tax is to be imposed.

We have to bear in mind that the value of the ringgit when the property was first purchased in the past was many times higher than the value today.

There should also be a cut-off time for the holding period after the fifth year as imposing a flat tax rate of 5% irrespective of number of years of acquisition is punitive to owners who may have bought their properties many years ago.

What if after holding the property over a period of time, the owner decides to move into a better property or to relocate to another place?

Some also voice concern that extending the tax on long-term property owners will be like imposing a capital gains tax on them when there is no tax on gains made from equity trading.

Another concern is the timing of the implementation. Reinstating the tax at this juncture when the local property market is just recovering from the global financial crisis may be untimely.

Although sales have picked up since the middle of the year, this was mainly due to the many housing packages and easy financing facilities offered by developers and financial institutions.

It will be a better gauge to see if sales will continue to hold once those packages expire around year-end.

Perhaps the soonest time to reinstate the RPGT will be the middle of 2010 when there is more certainty on whether the economic recovery is sustainable or that it will head for another dip or a “W” recovery.

And instead of the proposed flat 5% that will also penalise long-term owners, it will be a better alternative to impose a higher tax rate on those who make high profit from disposing of their property within the first two to three years of purchase.

That will be more effective in preventing overheating and bubbles from forming and ensure a more balanced long-term growth.

Deputy news editor Angie Ng believes companies making huge profit margins, especially providers of consumer services including telcos and banks, should contribute towards a corporate responsibility fund for more social-oriented projects for the people.

By The Star (by Angie Ng)

Iskandar Investment, UK college in landmark deal

ISKANDAR Investment Bhd (IIB), the catalytic developer of Iskandar Malaysia in Johor, is expected to reveal numerous investments in the south economic region over the next few months.

"We continue to have growing interest from potential investors worldwide, who see potential in Iskandar Malaysia," said Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar.

IIB, a unit controlled by the state-owned Khazanah, is on track to surpass the US$13 billion (RM43.94 billion) foreign direct investment target for its first phase of development.

Yesterday, Education@Iskandar Sdn Bhd, a subsidiary of IIB, signed a landmark agreement to develop Marlborough College Malaysia, as part of a long-term plan to establish EduCity - located within Iskandar Malaysia - as a world-class education hub.
The signing was witnessed by Deputy Prime Minister Tan Sri Muhyiddin Yassin, who is also Education Minister.

"Malaysia is an emerging contender to attract international students and the agreement between Iskandar Investment and Marlborough College is testament that we are moving in the right direction to become a global education hub in Asia," Muhyiddin said.

There are some 16,000 international students studying in private and international schools in Malaysia.

Marlborough College Malaysia is the first international venture for the leading British independent, co-educational boarding school for pupils aged between 13 and 18.

Expected to open in September 2012, Marlborough College Malaysia will provide first class education to local and international students across Asia.

Its 36.42ha campus here will see initial intake of 350 students in June 2012, with enrolment projected to increase gradually to up to 1,300 students in 2020.

Marlborough College Malaysia will boost economic growth in Iskandar Malaysia with the creation of over 340 job openings for academic and non-academic staff, with additional employment and business opportunities in the future.

The entry of one of UK's leading independent co-educational boarding schools follows investments from other education groups such as Newcastle University Medical Malaysia, which is due to open its campus in 2011.

IIB also recently inked an agreement with De Ruyter Maritime Institute and Willem Barentsz Maritime Institute to set up a Dutch Maritime University at EduCity.

Other institutions IIB is looking to bring in include skilled training institutions, international schools, research and development facilities and regional training centres.

By Business Times (by Rupinder Singh)

New agreements in pipeline at Iskandar

PUTRAJAYA: Iskandar Investment Bhd (IIB) hopes to announce numerous agreements on investments in Iskandar Malaysia over the next few months as there is growing interest in the economic zone from potential investors globally.

IIB is an investment holding company working in close partnership with the Iskandar Regional Development Authority to attract investments to Iskandar Malaysia.

“This is testament that Malaysia is seriously competing in the global marketplace and meeting with ongoing success despite the prevailing economic situation,” said chairman Tan Sri Azman Mokthar, who is also managing director of Khazanah Nasional Bhd, the government’s investment arm.

Speaking at an agreement signing between Education Iskandar Sdn Bhd, Marlborough Overseas Ltd and M East Sdn Bhd here yesterday, Azman said to increase Iskandar ’s profile as a “thriving, international urban centre”, efforts were being put in place to increase the overall accessibility of the special economic region.

This would be done via the building of new infrastructure such as highways and so on, he added.

Yesterday’s agreement will see the establishment of Marlborough College Malaysia in Iskandar, the country’s first economic growth corridor which was launched in 2006.

Education Iskandar is a subsidiary of IIB while M East is a special purpose vehicle set up to develop this project.

The setting up of the institution is also the first international expansion of the co-educational British boarding school.

Marlborough College Malaysia, to be opened by September 2012, is expected to create over 340 job opportunities for academic and non-academic staff with additional employment and business opportunities in the future.

The school will cater to students between the ages of five and 18.

“Education is a key pillar of growth for the region and our long-term objective is to create a world class education hub here in Iskandar Malaysia,” Azman said.

“Other institutions IIB is looking to bring in include skilled training institutions, international schools, research and development facilities and regional training centres.”

He declined to reveal the value of investment of the college, saying that “announcements would be made in due course”.

By The Star (by Yvonne Tan)