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Saturday, March 10, 2012

Condo market challenging

PETALING JAYA: With close to 2,600 high-end condominiums scheduled for completion in Kuala Lumpur this year, the outlook for the luxury condominium market in the capital city is expected to be challenging.

“Bank Negara is keeping a close eye on the mortgage loan market on concerns of rising household debt-to-gross domestic product levels and has issued new guidelines to further tighten lending with effect from Jan 1,” said property consultancy Knight Frank, in its Second Half 2011 Real Estate Highlights report.

“This will inevitably have a negative impact on this sector as demand turns cautious with further pressure expected on prices and rentals of high-end condominiums in selected locations and schemes.”

Concurring with the bearish outlook is DTZ Research. In its Property Times Kuala Lumpur fourth-quarter 2011 report, DTZ pointed out that the sizeable number of new condominiums entering the market about 5,004 units in 2012 and another 4,502 units in 2013 was expected to put downward pressure on the rental market, especially in the Kuala Lumpur city centre, as a majority of them are in this location.

“The rental market will continue to feel pressure from the significant new supply that will be completed in the next two years. In addition, the economic uncertainty and tightening of credit by banks will contribute to the cautious demand for luxury residential properties,” Property Times added.

The Knight Frank report said during the review period, prices and rentals of high-end condominiums in selected schemes in Kuala Lumpur and the city fringe continued to face downward pressures due the high number of existing supply and new completions as well as a weak leasing market emanating from low occupational demand from local residents and expatriates.

The projects that are scheduled for completion this year include Residensi Kia Peng, The Pearl @ KLCC (formerly known as Stonor 16), Crest Jalan Sultan Ismail, Setia Sky Residences Phase 1A (Boheme Tower), St Mary Residences, Verticas Residensi (Towers A, B and C), Suasana Bukit Ceylon, 9 Madge, Amarin Wickham, Gaya Bangsar, and Matahari Desa Sri Hartamas.

Recent upmarket condominium projects that have been launched included Verdana @ North Kiara (Phase 1), Icon Residence Mont'Kiara, Mirage Residence, Laman Ceylon, 188 Suites, St John Woods Residence, Rimbun Condominium (formerly known as Amphill Residence) and Platinum Suites Phase 1 of Platinum Victory Face project.

Other projects in the pipeline during the first half of this year include serviced apartments project KL Trillion, Royce Residence, SoHo units @ Arcoris Mont' Kiara (formerly known as MK 20) and Damansara City 2 serviced apartments.

In the primary market, developers continued to offer attractive incentives such as rebates, discounts and a limited period of free maintenance fees to drive sales.

There was also a notable shift with more sales and leasing activities in the city fringe and suburban areas evident from several successful previews and launches of high-end condominiums at new benchmark prices commensurate with higher building specifications and improved level of facilities.

By The Star

Residential prices hardly fall

There was a lot of talk late last year that property prices will tumble in 2012 after the steep rise in the residential sector over the past few years. So far, we have not seen any of that.

What we are seeing is:

  • Bank Negara's tightened guidelines on consumer lending have started to work. Loan applications and loan approvals have fallen in January;
  • In certain locations, house prices and rental have started to ease; and
  • Developers are offering very enticing terms since the beginning of this year.

Keep your finger on these three factors and let us now take a look at today's launches. In some of these launches, buyers need only to pay about 1% downpayment of the property price instead of the required 10% on signing of the sale and purchase agreement. The stamp duty and legal fees are also waived and they need not pay anything else until after the property is completed. Such schemes have attracted many buyers.

The question to ask is: If the market is as good as many claimed it to be, why are developers offering such schemes? When a property is sold, it is registered as a sale. But the absolute revenue of the unit is yet to be paid.

For easy calculation purposes, 10% of a RM500,000 property is RM50,000. If the first 10% is paid, this RM50,000 is registered as revenue by the developer, but in the sales column, a sale of RM500,000 is recorded. That is why the sales and revenue figures vary considerably.

If a developer allows a buyer to pay only 1% of the purchase price, this does not mean he “loses” that other 9%. He will get it back after a certain period of time. The same goes for the waiver of the stamp duty and legal fees. The developer has to pay the lawyers for services rendered. All these charges and fees are packaged into the deal which the buyer will have to bear in due time. In this case, later rather than sooner.

Developers are offering such attractive terms in order to make a sale. Many of these schemes are offered in condominium projects because there is generally a glut in this segment. While such schemes may attract genuine buyers who need a roof over their heads and who are thankful that they can defer payment, it also attracts those who have no problem forking out that 1% downpayment and take a gamble that they will be able to offload it when the project is completed.

If one were to drive around certain parts of the Klang Valley today, there are some completed high-rise with large mobile numbers plastered on windows. It may not be so easy to offload units when there are so many of them.

What is noticeably absent, and which many would like to see are more launches of landed housing. But this is unlikely to happen. Only the secondary market is offering landed units, which may explain to a certain degree why the secondary market was rather robust last year. It applies not only for the Klang Valley, but for Penang as well and is a reflection of strong domestic demand despite the many negative predictions for this year.

When a developer considers a piece of land, he thinks of how much he can make from it. If he were to build a condominium and throw in various facilities, he can sell more houses than if he were to build landed units. That is why most of the launches today are high-rise projects, be it condominiums or serviced apartments.

Developers are also limited by what they have. Increasinlgy, land in city centres and popular areas are getting smaller. Which explains why in highly dense areas, condominium projects continue to be sprout up in the most congested of areas.

The development of landed units can only take place when there is large tracts of land, which also explains why the big boys like Mah Sing and SP Setia are venturing further away from city centres.

The other obvious factor in today's launches are the size and price of the condominium units. Most of the units are small. Studio apartments may be in the 500 sq ft range or thereabouts while those targeted at families may be three-bedroom units with built-up areas of 1,200 sq ft onwards. Most of the launches today are priced close to RM700,000 onwards. On a per sq ft basis, the price is still going up, whether it is a Petaling Jaya address or a Bukit Jalil one.

So, while sales volumes may stagnate in newly-launched projects (which explains why developers are offering units for sale with a 1% downpayment), on a per sq ft basis, prices does not seem to be stabilising. Developers are trying to maintain affordability by having smaller units, deferring payment and leveraging on low interest rates.

Assistant news editor Thean Lee Cheng is glad that Bank Negara is monitoring the household debt and lending in the property sector closely as this year promises to be an exciting one.

By The Star

Bankers and lawyers should know better

BUYING a property that eventually becomes abandoned is a painful experience for many house buyers. It not only hurts purchasers who have lost their hard-earned money but also affects the property industry's reputation which has taken a beating due to unethical activities of a few culprits.

This is particularly so when the abandoned project is not caused by factors such as economic downturn or withdrawal of purchasers, but solely due to irresponsible people who claim to be “developers” but do not hold a licence to do so.

It was recently reported that our Housing and Local Government Ministry has identified 195 abandoned developments that were unlicensed in our country. I am puzzled as to how these “developers” are able to start their projects when they do not even have their licence to apply for financing if they require a bridging loan, and is their sales and purchase (S&P) agreement properly attested by a lawyer before they start selling?

In this context, what can be done and who should play a part in reducing these unlawful developers? Assessing our existing housing development process would provide us with some ideas.

When a developer plans for a housing project, he must first get the necessary approvals and licences from the relevant authorities such as the development order, building plan, advertising permit and developer's licence. The developer then may need to source for a bridging loan from a financial institution and this is followed by getting lawyers to prepare the legal documents which include the S&P agreement.

When the project is launched to the market, the developer will require the purchasers to sign the S&P agreements in order to finalise the purchase. Should the purchaser acquire a housing loan from a bank, the bank will come into the picture to process the loan application submitted by the purchaser. Those are the basic procedures involved in developing and marketing a housing project in Malaysia.

For unlicensed development, the regulatory bodies are not in the picture. In such cases, it becomes apparent that the lawyers and/or bankers, both representing the house purchaser, have a role to play as the first line of defence to protect the interest of the purchaser.

Hence, there are questions that begged to be answered. How is it possible for financial institutions to approve the end financing loan for a property development in the absence of all or part of the required approvals and licences? The same questions are posted to lawyers who prepare the legal documents for unlicensed development.

I believe everyone has a role in identifying irresponsible players in the industry, especially the bankers and lawyers with their better access to information and strong regulatory network as compared to the general public. As a purchaser and a customer, you would have expected your banker and lawyer to carry out their due diligence duties to ensure that your interest is not compromised.

In other industries, professional practitioners who do not convey the right message and do not protect customers' interests can be given stern punishment as their action may be deemed as negligence, fraud or even criminal breach of trust.

According to the record of National House Buyers Association, in the case of Keng Soon Finance Bhd (1996), a financial institution had granted a loan to an unlicensed developer, and it was decided that the loan and the security offered were invalid. The bank could not institute the foreclosure proceedings on the land and therefore could not recover its loan.

Under our Housing Development Act, a property developer that engages in, carries out or undertakes housing development without having been duly licensed can be fined between RM250,000 and RM500,000 or to imprisonment for a term not exceeding five years or both. This is an avenue to take action against unlicensed developers. While we have the law in place, it is equally important to ensure strong enforcement comes along.

For house buyers, you are strongly advised to purchase property from reputable developers and to do thorough “shopping” and analysis before signing on the dotted lines. Responsible developers are keen to work hand-in-hand with purchasers and appreciate the role of the National House Buyers Association which advocates the protection of house buyers in Malaysia. We should stand together as a team to fight against irresponsible developers.

And for anyone of you who think that you have bought into one of those unlicensed developments mentioned earlier in the article, it is time to write and call your banker or lawyer for clarification.

Datuk Alan Tong is the group chairman of Bukit Kiara Properties, he was the FIABCI World president in 2005-2006 and was named Property Man of The Year 2010 by FIABCI Malaysia.

By The Star

Hua Yang unveils plans for Ipoh township

IPOH: Hua Yang Bhd has unveiled plans for a pedestrian mall and three types of affordable homes on a 335.2ha site in Bandar Universiti Seri Iskandar (BUSI), about 25 minutes' drive from here.

The ongoing development has a gross development value (GDV) of RM80 million.

BUSI is an upcoming township which has grown into a large student and university catchment, and has become a haven for public servants working at Perak Tengah District council, and others from Manjung, Tronoh, Batu Gajah and Pusing.

Students and university lecturers from Universiti Teknologi Mara, Universiti Teknologi Petronas, Institut Perdangan Mara and Institut Kemahiran Belia Negara contribute to the 10,000-strong population of BUSI.

"To further enhance the facilities offered at OneBU@Seri Iskandar - the lifestyle and business hub of BUSI - we will be previewing the pedestrian mall at our sales launch on March 10," Tony Ng, Hua Yang's Perak branch manager, said recently.

The mall offers 123 units and is located adjacent to the newly-opened Tesco Superstore and complements the lifestyle experience at OneBU@Seri Iskandar.

"We will launch three types of affordable homes ranging from RM130,00 to RM180,000 for single-storey and double-storey link houses," Ng said.

The Seri Idaman and Seri Andaman series consist of single-storey terrace houses measuring 800 square feet and are priced from RM130,00 onwards. A total of 909 units will be built.

By Business Times (by P. Chandra Sagaran)

SP Setia said to be keen on fresh bid for London’s Battersea site

PETALING JAYA: SP Setia Bhd, which made two bids of £262mil (RM1.2bil) and £324mil (RM1.5bil) last year for London's Battersea Power Station site, is said to be keen to make a fresh bid for the ongoing sales tender exercise for the 15.8ha (39.1 acres) freehold site.

According to an advertisement in The Wall Street Journal on Wednesday by joint agents Knight Frank and Ernst & Young, the freehold of the site is offered for sale by private treaty via informal tender.

It said the site is located in a prominent central London riverside location with valid outline planning permission for a major mixed use development totalling about 750,000 sq m (or 8 million sq ft) in gross external area (GEA).

However, when contacted yesterday, SP Setia declined to comment on the tender exercise.

Knight Frank Malaysia executive director Sarkunan Subramaniam said a number of Malaysian developers had the technical and financial capabilities to undertake the redevelopment of the Battersea Power Station site into a mixed used development.

“It is a sizeable commitment, no doubt, and we expect a number of good bids for this tender exercise,” he told StarBizWeek.

Sarkunan said a series of advertisements which started appearing last Saturday, had appeared in a number of countries including Malaysia, Hong Kong, China and the Middle East.

He pointed out that the submission of bids should be no later than 12 noon, London time, on May 6.

On Nov 18 last year, SP Setia submitted its first offer of £262mil to Lloyds Banking Group and Ireland's National Asset Management Agency to buy debts linked to the power station.

However, the offer was rejected. It subsequently submitted its second bid of £324mil to take control of the site and to buy up the bank debt but the bid was also rejected.

In an announcement to Bursa Malaysia on Nov 24 last year, SP Setia confirmed the rejection by the lenders but added that it believed property development prospects in London were positive.

“Accordingly, the group will continue to look out for and assess other possibilities to invest, via strategic partnerships and land-banking opportunities, in this exciting market,” it added.

SP Setia president and CEO Tan Sri Liew Kee Sin had said that the company was keen on venturing into London's property market.

A Hwang DBS Vickers research note yesterday said backing from Permodalan Nasional Bhd (PNB), the largest shareholder of SP Setia, could enhance the company's bids for government land and large overseas projects.

“SP Setia, with its RM83mil net cash and RM2.8bil record unbilled sales, has room to landbank further.

“It is eyeing government land redevelopment projects, as well as PNB's prime landbank in the Klang Valley and Johor.

“It may also consider expanding in Vietnam (downtown Ho Chi Minh City and Hanoi for long-term potential), Australia (Melbourne, Sydney), and London (still pursuing Battlesea with government-linked companies as potential partners), with a minimum target of 20% in pre-tax profit margins,” the report added. Meanwhile, a Reuters report on Feb 15 stated that the price tag for the site was about £300mil to £400mil.

It added that the decaying coal-fired power station that was closed in 1983 after 50 years in service was expected to draw interest from the Far East, Russia and the Middle East.

The site has seen several failed redevelopment attempts in the three decades since the power station was closed.

Irish developer Real Estate Opportunities (REO) was the last to try its luck with a £5.5bil redevelopment plan but the plan collapsed in December last year after the company went into administration.

AFP reported last month that even top English Premier League football club Chelsea had expressed an interest in acquiring the site.

By The Star

Parkson plans RM3b chain of shopping malls in China

KUALA LUMPUR: Parkson Holdings Bhd, a Lion group company, will invest some RM3 billion to develop a chain of 10 shopping complexes by 2020.

The development and management of the mall, which will be under Festival City Sdn Bhd, will open in major cities within the country and carry the Festival City brandname.

Group managing director Datuk Alfred Cheng this is a natural extension of its enormous retail experience and to create a new and steady source of income.

“Parkson is in its 25th year of operations and has a lot of retail experience. In some of our overseas operations where we occupy a larger area, we are already operating a ‘pseudo’ shopping malls.

So, we already have experience running malls and this is a natural extension,” he said.

Cheng explained that it used the word “pseudo” as it already has seven malls in China where Parkson is the main occupant with smaller retailers.

“The focus (previously) was to build a network of Parkson (department store). Now that we have achieved more than 105 stores in Asia, we feel ready to also venture into shopping complexes,” he said.

“Within the next three years, we expect to have two more malls and, within 10 years, 10 malls in total in Malaysia,” he said.

In a recent interview, it was reported that Parkson was finalising a second mall that will be located in Malacca.

“Each mall will cost between RM250 million and RM300 million on the average or maybe even a little more,” Cheng told Business Times following the official launch of the first mall.

“We will only be in major cities for a start,” he added.

Cheng also did not discount the fact that it could buy an existing mall but said that it would focus on developing its own mall.

Parkson Holdings is the majority shareholder in both Hong Kong-listed Parkson Retail Group Ltd and Singapore-listed Parkson Retail Asia.

The former listed entity covers the retail operations in China, while the latter covers operations in Malaysia, Vietnam and Indonesia.

Meanwhile, Cheng said KL Festival City will post a earnings before tax and interest of RM20 million in the first year of operations. The mall's tenants are expected to rake in a total of RM300 million in sales in during the same period.

KL Festival City, whose theme is "Every Day is a Celebration", is a 1.1 million-sq-ft mall with a total net lettable area of 500,000 sq ft.

Shares of Parkson Holdings yesterday rose 3 sen to close at RM5.56. The stock's price has fallen by 1.77 per cent so far this year, compared with the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index's 3.15 per cent rise.

By Business Times

Rental eases in London market

FOR those who have bought into the London property market and are expecting some yield from their investments, a residental lettings agency urges Malaysian investors to be “realistic about rentals” as the market has shown signs of easing in some locations since the second half of last year.

Mehra: ‘Some tenants are willing to downsize.’

Benham and Reeves managing director Anita Mehra says “some tenants are willing to downsize or move further away as they cannot afford to pay high rentals.”

Mehra was in Kuala Lumpur recently to speak with Malaysians who bought into that market.

She says that although the rental market is healthy, unemployment which is expected rise and a slowing down of the UK economy will affect the rental market going forward.

Her comments are supported by research reports by property consultancies Savills and Jones Lang La Salle, both of which are based in London.

According to Savills, “the previously strong residential rental growth has recently eased in the prime rental market of central London. Prime markets of the south-east have also soften slightly.”

Jones Lang La Salle reports that “rental values have been increasing for two years now (but) the rate of growth has slowed during the second half of last year.”

In its January 2012 report Residential Market Analysis: Prime Central London, Jones Lang says “demand continues to be the highest at the lower end of the market and even more so recently since the increase in rental values has forced some tenants to seek smaller properties or less well-located areas.”

The report goes on to say that “rental value growth has been strongest in studio and one-bedroom apartments. These smaller flats have seen average rental growth of 17.1% during 2011, whereas larger flats have seen a 9.3% rise.”

Although the report focused on Prime Central London, and not the Greater London rental market, it does somewhat give an indication of the Greater London area.

While prices continue to rise in London, prices are on the downtrend in other parts of the country.

Mehra singled out success stories like the riverside development Imperial Wharf in Chelsea where a one-bedroom unit can be rented out for £400 per week compared to Beauford Park in Hendon (£250 a week for a one-bedder).

At the presentation, many investors also enquired about a project in Acton and properties in Ealing.

“Some areas may be further away from the city but the environment is good, like Ealing where it is more family-oriented,” she said.

Reports from Savills said Asian buyers tend to like east of the city in areas like Canary Wharf, at one time known as Docklands which has undergone massive regeneration.

In prime central London, Savills says the Greeks, Italians and Egyptians like Marylebone and Regents Park and tend to go for the large trophy houses and turnkey flats, while other buyers from Europe have taken a liking to Mayfair, Knightsbridge and Chelsea, Kensington and St John's Wood. The Americans go for the well-maintained family houses in West Brompton.

Dynamics changing

The London property market, as a result of the 2007/2008 global financial crisis, is undergoing changes, Mehra says.

One of the most obvious is the foreign capital flight into the market, despite the economic uncertainties in the eurozone.

They call this a “flight to safe haven”, that is foreigners are putting their money into property which they consider as a “preserver of wealth.”

Over in the United States, the reverse is happening. Across the Atlantic, prices of property have gone below the value of their mortgage loans, that is the value of the loans taken out on properties is greater than the market value of the properties.

It is baffling that while the eurozone debt problem languishes, London properties are increasing in value.

Savills' Prime London Residential Markets (January 2012) says global unrest and economic uncertainty is to London's advantage as this has resulted in equity flowing there from other parts of Europe, the Middle East and China.

The prime residential markets of London performed the most strongly over the course of last year as it benefited from strong demand from international buyers who accounted for 55% of sales. These investors introduced £4.5bil of new equity into the market in 2011, one of the highest in recent years. In 2010, foreigners invested £3.7bil into the prime residential market.

Despite the eurozone problems, the European share of the market rose from 13.2% of sales in 2010 to 19.6%, while that of Middle Eastern buyers increased from 7.6% to 8.5%.

However, in the ultra prime market where values typically exceed £15mil, and overseas demand is strongest, annual growth ended the year just short of 19%. Growth was modest in the second half of last year at just 3.75%, the Savills report says.

Buyers who go for this ultra prime real estate are also rather telling they include billionaires from Greece, Italy and Egypt. Both Greece and Italy are among the two worst-hit economies in Europe while the Middle East unrest has also resulted in capital flight to London.

The dynamics of the London property market is undergoing other changes.

Of the £4.5bil that entered the prime central London last year, about a quarter or £1.4bil of new equity (investments) flowed into the newly built prime market alone as opposed to the secondary market. Last year, most of these newly-built properties were sold to Mainland Chinese and other Asians who accounted for a quarter (26%) of foreign purchases in this sector, while UK buyers formed a little over a third. In 2009, UK buyers formed three-quarters of the market for newly build London properties, Savills' The World in London says.

Buyers from Mainland China, Singapore, Hong Kong and Malaysia tend to be more investment oriented. Their objective is to benefit from the weak sterling and possible long term growth. They dominate the apartment market but at the lower price points compared with most other overseas buyers. Good access and communication links were their key requirements.

The report further says that “developers have consequently sought to target the Chinese and Pacific Asians by tailoring products to their preferences in terms of configuration, layout and design features.”

Says Malaysia Properties Inc (MPI) chief executive officer Kumar Tharmalingam: “Those who buy into the London market are taking a risk that the sterling will strengthen and the prices will go up. They are also taking a risk that the Malaysian economy will weaken.

“While London is an international market like Singapore, being an absentee landlord, you will have to pass the management of the property to an agent and there will be a cost to that. The only thing they can hope for is capital and currency appreciation. The laws there protect the displaced, and are anti-wealthy while the laws in Singapore protect the owners and Singapore is just two hours away.”

MPI is a government agency set up to promote Malaysian properties.

By The Star