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Saturday, December 31, 2011

Urbanising Malaysia calls for the adoption of smart-growth principles

Green enclave in KL: Sunway Rymba Hills is a landed residential development that integrate natural forest and open park.

STRONG emphasis given by the Government in strengthening the economic attractiveness of Greater Kuala Lumpur, improving the overall public transportation system, improving linkages in major growth centers and other initiatives identified under the various National Key Economic Areas (NKEAs) will have great implications on future development of cities.

These NKEAs will influence the direction as well as speed of growth of the cities where the projects are carried out, which will then influence the property market of these cities.

Realising the high speed of urbanisation rate in Malaysia and the inefficiency that could be created by urban sprawl, it is of high importance that sustainable development be given due consideration. This has become the main focal point of discussions in property seminars and conferences in Malaysia and the region.

At the recently held The 3rd Congress of Asian Association of Urban Regional Studies, the theme was Survival City and Region: Risk or Sustainable Planning, speakers and participants were all in agreement on the need to plan, design and invest in smarter cities where sustainable planning becomes the guiding criteria.

Smart cities require skilled workers and innovative ideas. These cities must address green and sustainable issues and be resilient against natural hazards. The President of Thai Planners Society, Professor Dr Eggarin highlighted that sustainablility did not always translate into higher cost of building cities as there were natural methods to incorporate green issues in property development but required innovative techniques to suit the local environment.

It was also highlighted by Annette Dixon, the World Bank's Country Director for Malaysia in the November 2011 edition of the Malaysia Economic Monitor that “as cities concentrate a growing share of the national economy, it is imperative that they have systems to manage natural hazards and prevent them from becoming human and economic disasters.

Malaysian cities are especially vulnerable to floods and landslides. To reduce the risks related to these hazards, Malaysia would benefit from environmental restoration and integration of risk reduction into development planning”.

To lead the move towards sustainable development, one of the key thrusts of the National Housing Policy 2011 is to promote sustainability in the housing sector by promoting green technologies and features, and encouraging urban renewal and redevelopment. In Malaysia, this growing awareness on sustainable development has resulted in various commercial as well as residential developments using “green features” as one of the development concepts and theme or their unique selling features.

Ken Bangsar and 28 Mont Kiara are two examples of outstanding high rise development employing green features and technologies. Sunway Rymba Hills and Cahaya SPK Shah Alam are examples of landed residential development that integrate natural forest and open park. Launched last month, KL Eco City is going to be the country's first integrated green development targeting GBI and LEED certifications.

It can be concluded that it is becoming a “must” for property players from planners, architects, engineers to developers to take initiatives to create liveable cities by incorporating smart-growth principles in their planning and design.

We expect more new development and redevelopment projects to adopt similar principles, In the long run, smart-growth principles will add value not only in terms of capital appreciation of the properties but also social and economic liveability of entire communities.

Urban renewal and redevelopment projects are currently taking place in Kuala Lumpur city center and mature cities like Petaling Jaya. These are indications of the need for cities to grow vertically to create economies of scale in terms of space consumption and the need to minimise vehicular movement.

The current redevelopment of AngkasaRaya (Aurora Tower@KLCC) and Bok House (W Kuala Lumpur, The Hotel and Residences) and the proposed redevelopment of Hotel Istana, Kompleks Antarabangsa and Crowne Plaza into a mix of commercial and residential uses will encourage more owners of older buildings in the city center to take similar steps.

In Petaling Jaya, owners of older industrial buildings are redeveloping their land for commercial use. Approximately 16 million sq ft of prime office space will be completed by 2016 in Kuala Lumpur city center and its immediate areas, increasing the total supply by 22% to 86 million sq ft.

With the current slow take up in office space, rent is expected to remain stable in the next few quarters, hovering between RM5.50psf and RM6.50psf.

About 11,000 new condominiums with prices ranging from RM500psf to more than RM1,000psf will be completed by 2014. Due to the high supply of newly completed condominiums within the Golden Triangle Area and Embassy Row, average rental rate for selected existing condominiums has declined by almost 5% from RM4.66psf to RM4.44psf and from RM3.49psf to RM3.31psf respectively.

Several newly completed condominiums have even lowered their asking rental rate by almost 10%. We expect the leasing market for condominium will continue to be more challenging especially for bigger units though take up rate for new projects in most cases is very encouraging, with a significant percentage of local buyers.

The retail market will see more neighbourhood malls in the Klang Valley completed between 2012 and 2015 adding about 7.5 million sq ft to the current total supply of 51.4 million sq ft. Most of these new malls are located in high growth areas such as Petaling Jaya, Kelana Jaya, Cheras, Setapak, Kota Damansara, Puchong and UEP Subang Jaya.

Will the growth of residential and commercial properties slow down in 2012? Looking at the numbers provided by the Statistics Department and RAM Economics, average annual transaction growth rate of these properties has continued to slow down from 12.8% (1991-2000) to 5.9% (2001-2009).

With the growing population, high percentage of working population and growth in employment supported by various Entry Point Projects throughout the country, we expect the Malaysian economy to provide a conducive environment for the property market to continue to be one of the key economic contributors.

Senator Datuk Abdul Rahim Rahman is the Executive Chairman of Rahim & Co group of companies. This is his last column for StarBizWeek.

By The Star (by Datuk Abdul Rahim Rahman)

Making ringgit and sense in property investments

Making sensible property investment decisions, especially in the Klang Valley, is getting tougher in today's climate where real estate values are constantly spiralling upwards.

So, would buyers of recently launched properties in the Klang Valley be able to obtain decent rental yields of at least 5% per year after the units are completed in two or three years?

A recent report by property consultancy CB Richard Ellis notes that the average asking monthly rental rates of luxury condominiums, during the first half of 2011, in Bangsar and Mont Kiara were RM3.29 and RM3.13 per sq ft respectively.

The report points out that rental rates in the three main condo markets (Kuala Lumpur City Centre (KLCC), Bangsar and Mont Kiara) on a per sq ft basis had declined since 2007, reflecting weaker demand for rental units coupled with increased supply.

Two months ago, CB Richard Ellis executive chairman Christopher Boyd said: “In some cases in the KLCC area and Mont Kiara, condominium rentals have halved in the last two years.”

Meanwhile, those who are looking at swifter returns on their investments would be asking about the potential increase in value for such units within the next three years, as they want to “flip” their purchases.

A bank-backed property analyst explained that presently, there is a huge gap between the prices of recently launched properties and secondary market units.

“Recently launched properties offer better BLR (base lending rate) spread. Many property developers offer 10:90 schemes, and also absorb entry costs such as the stamp duties.”

However, he says within the next two years, it would be difficult to “flip” recently launched properties that were bought at above RM500,000 depending on unit size and location.

The analyst took the view that many buyers of recently launched properties are facing a “short-term gain, long-term pain” situation.

“I am not hopeful about “flipping” such units and getting a 20% price upside within two years. Buyers also need to pay exit costs like real property gains tax. You may end up with the same returns that real estate investment trusts (REITs) provide presently, which is about 6% to 7% annually.”

So perhaps, investors would do better in buying REITs in the current climate?

CB Richard Ellis executive director Paul Khong said the benefits of investing in REITs include their high liquidity, annual dividends ranging from 6% to 8% per annum and potential capital gain if prices increase.

“The quantum of investment can be small. For example, 1,000 shares in CMMT (CapitaMalls Malaysia Trust) would cost you RM1,440 and some brokerage fee. CMMT was listed (in July 2010) at RM980 per 1,000 shares. If you had invested on day one, you would have made more than 50% gain both capital value and dividends. REIT values are largely more stable and the dividends are usually very consistent.”

HwangDBS Investment Management Bhd equities head Gan Eng Peng concurs and notes that REITs tend to be well diversified, and property fund managers have advantages over individual landlords in terms of attracting tenants as they have “a larger network, reputation and backing behind them.”

“Also, the REIT property fund manager would have done the homework to ensure the property is a good investment and that the tenancy process is also sorted,” he said.

Gan said investors should adopt a longer-term view when investing in REITs.

“REITs are considered a defensive play within the equity asset class. Its performance moves in tandem with economic growth and business cycle.”

However, REIT investors have no direct control of what properties the fund managers invest in and there are annual management fee payments to the fund managers, says Gan.

Meanwhile, Khong took the view that investors who have the means should have both portfolios in physical real estate and REITs.

Khong says there is a “toppish” feel regarding increasing prices for recently launched residential apartments in the Klang valley, and many developers are offering more in terms of quality finishing and full furnishing.

“We note that 2011 has been a good year for the residential market with many new projects topping the charts in terms of pricing.”

Khong points out that the residential markets in areas like Petaling Jaya, Sri Hartamas, Bangsar, Damansara, Puchong and Seri Kembangan have seen substantial increases in capital values.

“Some of the newer strata projects have also done well during this period. These include The Greens @ TTDI, The Capers @ Sentul East, and KU Suites @ Kemuning Utama.”

Based on indicators in regional markets, he expects the local market to stabilise in 2012 with “some positive movements”.

However, property consultancy DTZ Nawawi Tie Leung executive director Brian Koh says, “2011 will see more moderate growth given that the second half was not fantastic. Next year will be more challenging given slower growth, and a tightening of liquidity through the imposition of lower financing margin and pegging to the net disposal income of borrowers.”

A property analyst says there are signs that financial institutions are more cautious in lending to real estate buyers nowadays.

“Unless the economic situation improves substantially, property investors may want to wait till the second half of 2012. There may be pressure on secondary market unit owners who are looking for quick “flips” to sell at lower prices.”

Gan also expects the Klang Valley property market to be softer in 2012.

“In particular, the oversupply of condominiums in Mont Kiara and KLCC, and offices in general, will cap the upside potential of these sub-asset classes,” says Gan.

However, Gan emphasies that this does not mean lower property prices as there is substantial real demand from young property upgraders as well as ample liquidity in the economy.

By The Star

Property market welcomes new group of buyers

BEGINNING tomorrow, new guidelines from Bank Negara Malaysia to curb rising household debt are going to kick in. The guidelines cover all consumer loan products including housing, personal and car loans, credit card receivables as well as loans for the purchase of securities.

Instead of loan approvals being based on gross pay, they will be based on net pay, after income tax, social security deductions and the Employees' Provident Fund contributions. These are the three main items. The objective of this ruling is to reduce the household debt which has been on the rise.

In all likelihood, property sales will be affected but what is interesting is, how this ruling will affect an increasingly younger generation of buyers who are entering the market for the first time.

In the last 24 months, developers have seen a new group of buyers. They are young and aggressive, upbeat and have a huge appetite for risk. Many of them are in their 20s or early 30s. Many buy with joint names and they are not related to each other. They buy studio units and two-bedroom condominiums, with a built-up of between 600sq ft and 800sq ft with a price tag of averaging RM500,000. When the mortgage payment kicks in, that RM450,000 loan (based on a 10:90 scheme) will equate to a monthly repayment of about RM2,500.

A developer says this scenario is due to a combination of factors. The steep rise in property prices the last two years, coupled with the gains, have spurred this young group of buyers to take on the responsibility of shouldering this long-term commitment.

More than 10 years ago, during the stock market bull run of the 1990s, the market was on an uptrend for a good number of years before the Asian Financial Crisis hit the region. At that time, many young people, including college students, began dabbling in the stock market. Just as that period prompted young people to learn about stocks, the last two years have introduced them to another investment instrument. The difference between the two is the outlay, and the duration of that commitment with stocks needing a smaller capital and more liquid.

Developers say there are essentially two groups of young people who have entered the market in the last two years. The first group are those who, seeing the gains made by earlier purchasers, enter the market with the objective of making a quick gain. Another group ventures into the market before prices go up further and they plan to hold the property for the longer term.

A major factor that encourages this group of aggressive young buyers is the availability of easy credit. The introduction of the 10:90 schemes induces them to make the decision. Many of them hope they will be able to flip that property on completion and make that 25% to 30% gain.

For this group who are buying to flip, they may find the gains not worth the while for the simple reason that the premise of making a 25% to 30% gain is based on a rising market. Prices are today stabilising and there is a glut of high-rise condominiums.

Lawyers and property professionals say investors are unlikely to make that 20% gain going forward. Furthermore, the 5% real property gain tax will also shave off gains. In the event they are unable to off load their units fast enough, they will have to rent them out, but they may encounter another problem a glut of condominiums and few tenants.

Assistant news editor Thean Lee Cheng wonders how many of these young buyers will stick with their commitment.

By The Star (by Thean Lee Cheng)

Will the slowdown in property prices continue?


In all likelihood, there will just be slower growth across the board for the mere fact that the last three years have seen exceptional growth since 2008, when the global crisis hit. The following year saw a recovery and 2010 was a year of exceptional growth. Property professionals had never seen such price increases in their 30 years in the profession, where prices went up by double digits in a short period of time.

This year witnessed continued exuberance among developers, agents and property buyers. The final two quarters usher us into 2012, which will be the year of the “great slowdown”.

It will be perceived as such because of the remarkable growth experienced in 2010, but in reality, it is not really a slowdown. It is not possible for prices to go up, up and away until kingdom come.

There has to be a reality check. So we will see slower growth in the coming year. In some locations, prices may hold their ground, but unless something major happens, whether at home or abroad, prices are unlikely to recede in the Klang Valley and other major cities.

Hence, it is not that there will be no growth; price increases next year will be slower, and more subdued and stable. In some locations, prices may plateau.

If there is still growth, however small, why call 2012 the year of the great slowdown?

On the global front, we have the eurozone crisis, which is still unravelling. If the eurozone breaks up, it will affect sentiments. The stock market will be the first to be impacted by the dim outlook and this will spill over into the property sector.

Of greater concern are individuals who have over-invested. They may find it challenging to meet their commitments. These include those who have multiple property purchases, and young people who over-committed themselves with properties costing RM500,000 and more.

By The Star

Property sector to correct

The steep increases seen in the last two years expected to sputter to a halt on weak global sentiment

The overall weak global sentiment is expected to cast a pall over the property sector, which is expected to undergo some downward correction next year, agents, property consultants and developers say, with the steep increases seen in the last two years sputtering to a halt. Virtually all segments of the property market will be affected.

International Real Estate Federation (Fiabci) Malaysia president Yeow Thit Sang says the slowdown, though gradual, will be seen in the pricing and take-up rate of all housing segments, particularly more so in the high-end category.

“Whether it is Penang or the Klang Valley, we don't have that many multinational companies coming in to occupy some of our high-end properties. Rentals with yields of between 6% and 8% are no longer achievable,” he says.

This slower rate of growth is expected to be more apparent after the new ruling by Bank Negara kicks in. Effective Jan 1, new lending guidelines require banks to use net income to calculate the debt service ratio for loan approvals.

The new guidelines cover all consumer loan products including housing loans, personal loans, car loans, credit-card receivables and loans for the purchase of securities.

While this latest round has the objective of reducing overall household debt, it will affect the property sector, a branch manager of a local bank says.

Previous lending guidelines capped monthly mortgage repayment at 1/3 of net pay instead of gross pay. This new ruling, and the requirement to have a 30% downpayment on the third and subsequent property, introduced in 2010, will result in the banking sector being more stringent when it comes to mortgage loan approvals. The re-imposition of the real estate property tax, at 5% flat within five years of purchase, was another measure to curb speculation.

These measures, together with the global concerns over the United States and the eurozone, will affect sentiment. However, there will be opportunities in the affordable housing segment, which is part of the Government's Economic Transformation Programme.

Says Ireka Corp Bhd executive director Lai Voon Hon: “We see strong growth potential in these under-served' sectors such as mid-market residential and commercial as well as green' developments located close to infrastructure nodes. Market movement in recent months had observed major developers acquiring parcels of land outside the Klang Valley such as in Kajang, Semenyih and Nilai which are destined to be the next “hot spots”.

“With 65% of the Malaysian population falling under 35 years old, we trust that the demand will pick up as consumer confidence recovers. Close to 10 million people are expected to work, live, learn and play in the Greater KL metropolis by 2020.

“Burgeoning young and middle-class population also means the demand for mid-market properties will remain steadfast,” Lai said, adding that the mid-market will receive strong support in terms of demand, and this will be Ireka's primary focus in 2012.

Other developers to move into affordable housing include the Sime Darby group and Mah Sing group. Sime Darby recently launched affordable housing in Bandar Ainsdale in Seremban. Mah Sing Group Bhd, too, is moving away from high-end housing to go into the affordable housing segment.

Mah Sing group managing director and group CEO Tan Sri Leong Hoy Kum says: “The high-end sector, both landed and high-rise, will be more challenging with the RM4mil and above units taking longer to sell.”

Ireka's Lai says the company will be developing a 28-acre freehold land in Bandar Nilai Utama, Negri Sembilan into a trendy mid-market neighbourhood, consisting of landed houses and apartments. Another five acres of prime land in Kajang will be developed into a mixed development. consisting of two mid-market apartment blocks and a retail precinct.

Ireka will also embark on a modern industrial park development on its 21-acre freehold land in the established Sungai Chua industrial area near Kajang.

Aside from these three mid-market developments, in the pipeline is the launch of its boutique hotel and serviced residences project in Jalan Kia Peng, within the Kuala Lumpur City Centre (KLCC). This 30:70 joint development project between Ireka and Aseana Properties Ltd is slated for launch in the second half of next year.

On the overall market, Lai says launches and sales take-up rate will be generally slower. However, Malaysia's property sector (will be) resilient, he says.

Property consultant DTZ Debenham Tie Leung's executive director Brian Koh says “properties will have to be sensibly priced” with smaller units (if they are condominiums), selling better than larger ones. DTZ will be launching Naza TTDI Sdn Bhd's Platinum Park around the KLCC area next year.

Over in the office segment, the current glut is expected to persist into next year which will put pressure on rentals.

The overall view of property professionals is that the office market in Kuala Lumpur will remain soft next year unless the global economy recovers sufficiently to spur business expansion to take up the current supply in the city. With the eurozone the way it is, that seems unlikely.

Y. Y. Lau of YY Property Solutions expects Grade A office buildings in KL (existing and new) to face intense competition to secure tenants next year.

“Demand for prime Grade A office buildings held up well last year. But we are expecting an estimated five million sq ft of office space to come onstream in the Kuala Lumpur Commercial Business District and city fringes by end-2012, with KLCC and the Golden Triangle area providing over 90% of the new supply in the first half of next year. “In the second half, the bulk of the supply will be coming from the fringes of Kuala Lumpur.

“We opine that KL Sentral, Bangsar South and Mid Valley City will play a catch-up game in attracting eminent companies seeking MSC status and green building features, as well as conveniences in terms of availability of public transportation, ample eateries and amenities, and upgrading of corporate image. Good building quality and property management services provided are expected to attract companies to set up its businesses here,” Lau says.

By The Star

Singapore stamp duty a blessing?

Malaysian properties like the Sky Garden Residences project Setia Tropika in Johor Baru are more attractive because of the stamp duty imposed by the city state on investors.

Malaysian properties appear to be even cheaper for investors compared with those in the republic

Singapore's decision to impose additional taxes on private property purchases may be a blessing in disguise for other property markets in the region.

CB Richard Ellis (CBRE) Malaysia executive director Paul Khong says move will have a positive impact on Malaysian properties especially those in Johor.

Malaysian properties appear to be even cheaper as a result of the stamp duty by the Singapore government which translates into a further 10% discount compared with properties in Singapore.

“Many other countries including Australia and Britain will benefit as their investment climate is improving due to the lower interest rates and poor market conditions which will make their propertiesattractive to buyers. They are the favourite investment destinations too,” he tells StarBizWeek.

Singapore has announced an additional buyer's stamp duty (ABSD) of between 3% and 10% from Dec 8 on private property purchases, and it is applicable to all Singaporeans, permanent residents and foreigners. The move is aimed at “moderating demand and promoting a more stable and sustainable market.”

The ABSD is in addition to the buyer's stamp duty of 3%.

Khong says the imposition of an additional stamp duty on residential properties will have substantial impact on the Singaporean market.

“Many foreign investors will stay away from the market for a while and the tax will curb speculation on the market,” he says.

Observers are of the opinion that the Malaysian government is unlikely to impose more taxes to “ease” the property bubbles in some key locations.

“The Malaysian government is unlikely to take such an action even though the property prices in some areas especially in the Klang Valley are going up unreasonably,” said a local research house analyst. He says such a move could deter growth in the property market and even suppress demand.

According to Maybank Investment Research, prices of private residential properties have continued to rise, albeit more slowly in the last two quarters. It says prices are now 13% above the peak in second quarter of 1996, and 16% above the peak in second quarter 2008.

“Even with the current global economic uncertainty, the demand for private residential property remains firm largely driven by the volatility in the equity markets and with interest rates remaining low, private property in Singapore continues to attract local and foreign investors,” it says.

Khong: ‘Many foreign investors will stay awa y from the market for a while.’

The introduction of guidelines on responsible finance by Bank Negara last month has helped to clear some concerns about possible lending measures to curb property demand.

“However, the new guidelines are unlikely to lead to a significant drop in the prices of the property market. We think there is still a possibility for further property cooling measures if housing demand remains strong,” it says.

Meanwhile, Khong says the Singapore property market may take quite a while to adjust to the new move as the duty imposed this round is a hefty 10%.

Currently, the real property gains tax (RPGT) for properties held and disposed of within two years from the date of purchase stands at 10% (up from the current RPGT of 5% for properties sold within five years of the date of purchase).

On Wednesday, the Real Estate Developers' Association of Singapore (REDAS) said the latest move by the Singapore government to cool the residential property market might cause the economy to slip into a recession.

REDAS president Wong Heang Fine was quoted by Reuters as saying that industry players were of the consensus view that the measures would, at least in the short term, negatively impact property sales volume and price.

Local players vs new ruling

It is still too early to know the impact on the Malaysian developers who are making a foray into Singapore although there would be an unavoidable slowdown in Singapore property sales, according to Maybank Investment Research.

“This new ruling will not bode well for Malaysian developers which have projects in Singapore. Unlike Malaysia a buy and hold strategy is less applicable in Singapore due to relatively higher land costs of 40% to 60% of gross development value GDV compared with 15% to 20% in Malaysia's,” it says.

Sunway Bhd and SP Setia Bhd have property projects in Singapore while UEM Land Bhd has an indirect involvement via project fees from overseeing and marketing of Khazanah-Temasek's SG$11bil joint venture projects in Marina South and Ophir-Rochor.

Sunway has four ongoing projects with a total GDV of SG$1.7bil under its 30:70 joint venture with the Ho Hup Group and a small wholly owned projects with a GDV of SG$32.8mil.

SP Setia just started to make inroads with its first project known as the 18 Woodsville under a private development scheme expected to be launched in a few months.

“We believe the impact on Malaysian property players will be rather minimal as their exposure to the Singaporean market is relatively small.

“With the ABSD, we think there is possibility of some property investors turning their attention to the Malaysian market, especially in Johor given its proximity to Singapore,” OSK Research says.

By The Star