Malaysian property market on a roll

Published April 10, 2007

Malaysian property market on a roll

But with so much choice, get your target market right, developers tell PAULINE NG


MALAYSIAN property prices are trending up, fuelling expectations that top-end residential properties in the country's most desired locations are within striking distance of RM2,000 per square foot (S$880 psf) this year.

Property consultants Regroup Associates said an 'uplift' in prices is in sight, especially around the Kuala Lumpur City Centre (KLCC) and the prestigious Twin Towers, and should top RM2,000 psf later this year. The RM1,600 psf price One KLCC achieved recently for its last two apartments in the 94-unit OneKL which faces the iconic Kuala Lumpur Twin Towers indicates prices are heading up. There is not much left by way of top-end properties in the KLCC area and developers - where they can - are upping the ante.

Depending on the quality of the apartments, developers are demanding between RM800 and RM1,000 psf. Regroup executive chairman Christopher Boyd said recent feedback points to a tightening of the property market. A rosier stock market also seems to have boosted demand.

Interestingly, a CH Williams CEO opinion survey for the property sector in 2007 was less bullish. In the poll, which was conducted over September and October 2006, CEOs surveyed were less optimistic than in the preceding year. Respondents expressed caution with regard to the surplus supply of condominiums and commercial shophouses in 2007. About 20 per cent - or almost double that of the previous survey - thought the number of transactions would drop by about 20 per cent. One-third surveyed expected decreases in apartment prices in 2007, but nearly all believed construction cost constituents would increase. Sixty per cent believed they would rise by more than 10 per cent.

Some 70 per cent (compared to 75 per cent in 2006) anticipated that rentals of landed residences and commercial properties would increase or remain stable in 2007. More respondents continued to expect rentals of apartments and condominiums to dip.

In terms of interest, the respondents believed foreign investors would be consistent in their preference for condominiums. They were also of the view that foreign interest in factory premises and industrial land is on the rise - a trend confirmed by property agents in Johor. As in the previous year, the supply of Malaysian real estate remains large in a relatively soft market. The stream of high-end condominiums coming onto the market does not seem to be slowing, raising questions of a glut and lower yields. But developers with the right location, product and branding continue to report decent - in some cases impressive - take-up rates.

In the past two years, rental yields for residential apartments have averaged 6-8 per cent, slightly less for bigger apartments of more than 3,000 sq ft, Prestige Homes manager KK Yap told BT. In places such as the Klang Valley's Mont Kiara, which is popular with expatriates, increasing numbers of developers have jumped on the bandwagon following the success of early pioneer Sunrise's projects in the area.

Real estate surveyor and valuer Ho Chin Soon Research observes 30-40 per cent of Mont Kiara's 486 hectares have already been developed with numerous projects - mainly condominiums and apartments - earmarked on the remaining land. The success of the area has led to developments in adjacent areas such as Segambut Dalam 'adopting' the Mont Kiara address.

In a recent property focus on the area, Mont Kiara developers maintain the suburb is not overbuilt. According to them, demand has generally matched supply. Although more than 1,000 condos and apartments will come on stream in the coming years, they observe current non-occupancy is not in excess of 30 per cent. To bolster their argument, they point to the rise in rentals and capital appreciation. Rental yields average 8-10 per cent, they said, with the better properties fetching as high as 15 per cent.

Capital appreciation obviously varies, with better products commanding higher prices. As an example, units at Ireka Land's i-Zen@Kiara II changed hands last year at more than RM500 psf compared to its average launch price of RM380 psf in 2004. Sunrise chief marketing officer Lee Meng Tuck maintains that return on investment for Mont Kiara properties tops those in the KLCC area.

According to him, Mont Kiara's return is 7-7.6 per cent compared to 4.5-5 per cent for the latter. Despite the stiff competition, developers indicate prices are likely to continue to rise given the increase in land price, the higher cost of construction materials and other charges. Steeper price tags aside, developers who understand their target groups will do well.

'The market is increasingly competitive. There are a lot of products but good schemes are selling well,' said Regroup's Mr Boyd. Estate agents gave the example of One Menerung in Bangsar, which was launched last June at an average of RM750 psf. About 60 per cent of the 229 apartments have been sold and remaining units are now being priced at RM850 psf.

In Petaling Jaya, Selangor Dredging's Ameera Residences saw brisk sales of its 290 units in January. About 30 per cent of the development - sold at an average RM300 psf - was snapped up in two weeks.

Getting your target market right is important. Prestige's Mr Yap believes the mid-range segment of smaller apartments costing less than RM500 psf is saturated. He is bullish on larger luxury units - exceeding 3,000 sq ft - which is a more viable option for bungalow owners looking to apartment living. But the mid-market range of RM300,000 to RM500,000 has seen growing interest from Koreans, especially in the Ampang area. Many are settling in the area under the Malaysia My Second Home programme. However, those with fatter wallets prefer Mont Kiara.

In terms of residential potential, Mr Boyd believes KL Sentral has a great future as prime offices are coming up in what is becoming a well-established transportation hub. He also favours the top end of the KLCC area and Damansara Heights, as well as Mont Kiara - or rather developments with the right products.

He is confident office space values should reach RM900 psf within the next 24 months, with prime buildings hitting RM1,200 psf. Office rentals in prime buildings are also inching towards RM7 psf - one or two already lay claim to such rates - from an average of RM4-5 currently.

Yields on commercial investments are expected to dip slightly, averaging 6 per cent, down from 7 per cent, he said, but any shortfall is offset by the prospect of capital appreciation.

Whether the property sector picks up significantly this year remains to be seen. After a promising start, a possible party spoiler for the sector is the equities plunge at the end of February which, if repeated, could dampen real estate demand.

Published April 10, 2007

Malaysia lures those looking for a second home

Scrapping of Real Property Gains Tax expected to spur stronger demand


(KUALA LUMPUR) If a second home in the sun is your thing but a villa in Florida or Tuscany is out of reach, then Malaysia's property developers have something to show you.

Sun-blackened site workers cooling off under the trees at the Kiara Hills development will vouch for the warm climate. For a cool RM4 million (S$1.7 million), three storeys of detached splendour could be yours at this swanky new Kuala Lumpur suburb on the edge of the jungle.

In Penang, about 100 km from the resort island of Langkawi, RM500,000 ringgit will buy you a tropical seaside apartment with a pool, 24-hour security and a gymnasium.

Interest rates are low and the government has slashed red tape to welcome wealthy foreigners. Developers are making hay while the sun shines.

'Property is not an easy business, but if you get the market positioning right, it can be very lucrative,' said Khor Teng Tong, executive chairman of builder Hunza Properties. 'Right now, the market is in high-end properties.'

Bigger players than Hunza like SP Setia, Mah Sing, Bandar Raya Developments and Sunway City have been selling more homes to foreigners.

Malaysia's benchmark interest rate of 6.75 per cent are lower than other South-east Asian countries, including Indonesia, Thailand, Vietnam and the Philippines.

Investors are pouring money into Asian real estate. Some US$100 billion was directly invested in Asia-Pacific property last year, 40 per cent up on a year earlier, according to property consultants Jones Lang LaSalle.

Malaysia wants as much as it can get of this year's inflow, and to that end, in March, capital-gains tax on property was summarily scrapped. Analysts see the plan working.

'The abolishment of Real Property Gains Tax will spur stronger demand for mid-to-high end properties of which Hunza has a niche,' said Mervin Chow Yan Hoong, an analyst with OSK Securities.

This is the latest in a series of moves. A 10-year old project to attract retirees and named the 'Silver Hair Scheme' has been retitled the 'Malaysia My Second Home Programme', and at the end of 2006, the government waived the requirement that foreign buyers seek approval from a foreign investment panel.

Foreigners can now also buy any number of properties.

'We think this would have a positive effect on the property market, and on the mid-to-high end property segment in particular,' Deutsche Bank analyst Aun-Ling Chia said in a March note to clients. 'Property prices in Malaysia are still among the cheapest in the region.'

Malaysia's property index is up almost a third this year, outstripping the 12 per cent gain in the benchmark KLCI. - Reuters

Published April 16, 2007

MALAYSIA INSIGHT

Govt's property push harder than it seems

Getting civil servants, municipalities to toe new line may prove too daunting a challenge

By S JAYASANKARAN
KL CORRESPONDENT


MALAYSIA's property market all but collapsed in 1998 and it has been hard going ever since.

Prime Minister Abdullah Ahmad Badawi has now identified property as a new growth driver, not just for the domestic market but as an instrument to attract foreign direct investment (FDI). It's not a wildly original idea except for the latter part - the foreign element - which is courageous to say the least. And for obvious reasons: a political hot potato is what would develop if Malaysians begin complaining about foreigners pricing them out of affordable housing.

Targeting property as a means to attract FDI is a tacit acknowledgement of Malaysia's slide as a global investment destination. So Mr Abdullah has begun pulling out the stops - first, removing the monetary cap on investments by foreigners; then, cutting back the bureaucratic procedures needed for foreign purchases of residential housing, and also scrapping a three decades-old tax on gains from property sales. Last week, he attempted to remove bureaucratic obstacles to development projects by cracking down on the country's municipalities. Complaints about these agencies comprise the bulk - over 70 per cent - of all complaints against the civil service, so Mr Abdullah has picked his targets well. Among other measures, Mr Abdullah mandated six months as the new time frame between submission of the initial project application and final approval (or rejection) from the current one-to-four-year period.

Where foreign or government applications are concerned, the time would shrink further to four months, Mr Abdullah said.

And some powers would be taken away from the municipalities. Most significantly, they will no longer be empowered to issue the so-called Certificate of Fitness, a document which allows house buyers or building-occupiers to actually take possession of the premises they bought or rented; this has been a frequent source of inordinate delay.

Now that power will go to qualified professionals behind the project such as engineers or architects. In effect, Mr Abdullah trusts the industry to regulate itself.

Other measures including amendments to the law and the creation of a building ombudsman have been announced but one hopes they will be effective. These are agencies that have evolved work ethics and cultures that haven't changed over two decades and change may prove difficult. Indeed, that is understating the issue considerably. The Prime Minister has given government officials a two-month deadline to understand, and implement, the new measures through a course at the National Institute of Public Administration.

That may be easier said than done and, again, it very considerably understates the matter. The composition of municipalities themselves must change. These agencies are what is known as 'closed-service' bodies, which means the bulk of their staff cannot be transferred away. This also means that a threat of a transfer to remote places holds no terrors for them and they can quite easily become a law unto themselves.

Incidentally, the same closed-service ethos also exists in the states of Johor, Kedah, Perlis, Kelantan and Terengganu: a historical accident dating back to the time when the five made up the Unfederated Malay States. It's no surprise that their civil services generally don't measure up to the others.

Of course, the other problem with the municipalities is its often-cited lack of accountability. This can be easily rectified by subjecting its now-appointed councillors - usually beneficiaries of the ruling political parties - to an electoral test.

But we will have to be satisfied with Mr Abdullah's measures as the latter prospect is as likely as the name of the album the Eagles came out with when they re-united in the 1990s.

The album was called Hell Freezes Over.

Published April 19, 2007

Fewer Malaysian homes sold in 2006 as rates rise

Number of transactions down 3%, but sales value up to RM28.7b


(KUALA LUMPUR) Malaysian developers sold fewer homes in 2006 as sales at new projects slumped for a fourth year, their worst performance since 2002 amid higher interest rates and a property glut.

The number of transactions fell 3 per cent to 176,277 last year from 2005, while the value of sales rose to RM28.7 billion (S$12.7 billion) from RM28.41 billion, the Valuation and Property Services Department said in a statement.

Malaysia, which is reviving home sales after the central bank lifted its key interest rate three times between November 2005 and April 2006 to curb inflation, this month removed a three-decade-old capital gains tax on property transactions and allowed foreign investors to take on more mortgages. 'Considering all the concerted efforts taken by the government to stimulate the national economy, which would have direct or indirect impact on the property sector, the property market on the whole is expected to remain resilient in the coming year,' the statement on the department's website said.

Malaysia's biggest developers include SP Setia Bhd, IGB Corp and Sunrise Bhd.

The number of unsold homes jumped 31 per cent to 25,645 units, while the value surged 59 per cent to RM4.2 billion last year.

The southernmost state of Johor had the highest number of unsold homes at 8,215 units, followed by the central Selangor state's 5,233, the department said. The government also said last week that it will accelerate development approvals and property transactions, in a bid to cut red tape and draw more investment to the country.

Developers offered 38,526 new units last year compared with 57,290 in 2005, the Valuation and Property Services department said. The percentage of homes sold at new projects fell to 40.6 per cent, from 46.2 per cent in 2005. In 2002, the take-up rate was 54.7 per cent. - Bloomberg