Interesting views from industry player.

Real estate seen taking a breather
Written by Ben Shane Lim
Monday, 15 August 2011 12:26



KUALA LUMPUR: Last week’s stock market selloff and volatility sparked by the downgrade of the US’ credit rating and economic concerns have thrown into question the outlook for Malaysia’s property sector. With investor confidence now shaken, the big question is whether that will also affect the property sector.

A default on US debt may have been averted but a double-dip recession still cannot be completely ruled out. Coupled with the European debt problems, a slower global growth scenario will likely have spillover effects on the domestic economy, and may eventually affect the property market.

On the other hand, a potential third round of quantitative easing in the US and perennially low interest rates may continue to fuel the property boom.

Property stocks fell on high volumes in the sell-off last Monday and Tuesday, only to rebound later. The Kuala Lumpur Property Index, which tracks property companies listed on Bursa Malaysia, plunged 6.6% in the two days, from 1,017.29 on Aug 5 to 949.79 on Aug 9, before rebounding by 3.2% to 980.47 last Friday.

For the week, the index fell 3.6%, outpacing the FBM KLCI’s 2.7% decline.

Analysts pointed out that the sharp fall in property stock prices was simply due to a strong correlation with the broader market.

Physical property prices are unlikely to be impacted yet due to a lag which can range from 18 to 24 months.

At the moment, demand still appears strong, judging by the strength of recent launches. However, analysts and industry observers noted that confidence has weakened in light of concerns over a pending global slowdown.
The US and European debt problems may eventually have spillover effects on the local economy, thus affecting the property market.

Malaysian home prices continued to rise in the first quarter of the year, although annual growth in prices, as measured by the Malaysian House Price Index (MHPI), had moderated from a high of 8% in 4Q 2010 to 6.5% in 1Q 2011.

This marked an extension of the recovery since the end of the 2008/09 global financial crisis. Even during the depths of the crisis, Malaysian home prices held up well, unlike those in the US and elsewhere, due to the lack of a preceding price bubble.

Industry observers noted that property prices had long lagged GDP and income growth since the end of the 1997/98 Asian financial crisis, with home prices, as measured by the MHPI, rising just over 3% annually.

Hence, they view the property boom over the last two years as an overdue re-rating exercise for prices to play “catch-up” after a decade of under-performance, rather than signs of a bubble. If this view is correct, then current property prices would appear to be sustainable.

Tang Chee Meng, chief operating officer of Henry Butcher Marketing, said the traditional time lag should prevent any immediate impact on property prices and demand.

However, he expects developers to think twice before launching any new projects and show preference for smaller units with bite-size pricing to attract investors. As the economy contracts, projects with lower absolute pricing will become more attractive to investors with better liquidity and low initial capital outlay.

“2010 boasted an active property market with record levels of growth,” said Tang, “However 2011 has seen the market slow down. Expect prices to increase, but at a much slower rate. Rising costs for developers and slowing demand will continue to rein in the high growth of 2010.”

Tang’s overall sentiment is of cautious optimism, and he advised investors not to speculate in the property market.

“Investors should focus on medium to long-term investments in recession-proof properties. Avoid condos which may be oversupplied and instead rely on products that are unique and differentiated from their peers. Do not count on short-term appreciation and capital growth, and expect to reap profits in about two to three years,” he said.

“Luckily, our economy is still alright. People are not afraid of losing jobs. Without that sort of uncertainty, it is still safe to consider investing in property,” he added.

Jupiter Securities head of research Pong Teng Siew has a more conservative view. From a macro perspective, he said property stocks are risky at the moment and he maintains a reduced exposure to the sector.

“Household debt to GDP is at a whopping 76%, the same level of gearing as the US before the subprime crisis hit. This level of leveraging is unsustainable in the long run. A bust is doubtful, but there is not much room for upside gains either. Given the risks, investing in properties is not attractive,” he said.



A recent report published by Jupiter Securities (see page nine) highlights the fall in affordability of housing with representative price to per capita income at a high of 10.9 times, (see table above), which was only previously matched in 1996. While low interest rates currently make a repeat of the mid-1980s bubble bust unlikely, the report indicates that the interest rate cycle may have bottomed out and may possibly be on an upswing given inflationary pressures.

Falling affordability is further exacerbated by developers moving to upper-end and “niche” developments, and away from cheap mass market units, Pong noted. His other concerns include lax lending practices with longer loans and high loan-to-value (LTV) ratios.

“Banks are now offering up to 43-year loans, some spanning two generations in spite of interest rates being at a long-term low of 5%. LTV ratios have risen from ceilings of about 70% to as high as 95% and even 100% in some cases”, he explained.

“Without the high interest rates of the mid-1980s, we can expect to see the market plateau. Furthermore, observing periodic cycles, the market is at the end of a two-year cycle and is due for a downswing” said Pong.

Che King Tow, a property veteran involved in developing Bukit Rimau and Jaya 33 and currently, an independent director of Malaysian Resources Corporation Bhd and a member of the Real Estate Housing Developers’ Association of Malaysia, said he is not particularly optimistic, especially since the Malaysian Rating Corporation has cut Malaysia’s growth forecast from 5.3% to between 4%-5%.

“Growth should be between 6.5% and 7% for the market to boom,” he said.

Che, however, is still optimistic on less-speculative, income generating investments — particularly corporate, commercial and industrial space.

“High-rise developments are still lucrative, and offices on large floor plates are still in demand whereas small stratified offices on small floor plates are currently oversupplied and should be avoided”, he advised.

“Shop-houses should also be avoided due to the difficulty in securing tenants, although this class of property has always been the preferred type of investment by commercial investors,” said Che, adding that he is personally not very confident of residential properties for investment, and considers them overpriced when indexed against personal earnings.

“Location is very important. Rent continues to increase in well-located commercial and enterprise zones like Cyberjaya, Petaling Jaya, Damansara, Kuala Lumpur city centre, KL Sentral and surrounding areas that are sound for investing,” he said.

Meanwhile, property developers remain optimistic on the outlook for the sector.

Chan Wing Kwong, Bolton Properties Bhd group executive director, said in the short term, he does not foresee any negative impact.

“With a growing population and urban migration there is still demand in the own-use market. Other buyers and investors will likely employ a wait-and-see approach while overleveraged speculators will want to unwind,” he said.

While Bolton saw strong sales in 1H2011, Wing Kwong’s said he expects developers to be “more conservative and for the time being clear stocks while observing the economy”.

He shared Tang’s cautious optimism and believes property prices will not fall.

“While the Malaysian economy is not totally insulated, it should not be adversely affected by the global economy. Furthermore, the government has committed to big infrastructure plans. The spending will help stimulate the economy. Asian currencies are also healthy compared to their western counterparts,” said Wing Kwong.

He added that there is no housing bubble and attributed the uptrend in property prices over the past two years to rising costs, and not just speculation amid a low interest rate environment. Demand for properties has also increased as a more stable hedge against inflation.

Nevertheless, Wing Kwong expressed concerns that potential rate hikes from Bank Negara Malaysia in the coming months may negatively impact demand.

CEO and managing director Tan Sri Leong Hoy Kum said demand will remain strong for landed residential properties in good location, especially in gated and guarded schemes.

“Investors know that land is scarce and construction cost will continue to rise. Hence it is inevitable that properties in good locations will continue to appreciate and astute buyers would want to lock in their investments at today’s prices”, he said.

Over in East Malaysia, the outlook is stable, according to Datuk Raymond Chan, managing director of Sagajuta (Sabah) Sdn Bhd, a major Sabah-based developer which is in the midst of undertaking a backdoor listing exercise via Jerneh Asia Bhd.

Chan sees a silver lining in the current equities rout. “It could be a blessing in disguise for developers as investors will be opting to invest in properties. They are less volatile and are considered to be overall a safer form of investment for the medium term,” he said.

His strategy for 2H2011 is to focus on affordable homes and condos priced below RM200,000 for the Sabah market.

“As for the commercial segment, we are focusing on shoplexes, duplex shops which come with lifts within a street mall concept. There is pent-up demand in this segment,” he added.

“Cash flow will continue to be sustainable as many buyers own oil palm plantations and palm oil are currently fetching a good price,” Chan said, adding that the Sabah property market will be more insulated than Kuala Lumpur’s.

Recent global economic and stock market events, coupled with an active property market over the past two years, are a potentially volatile mix.

Given that the property market depends largely on consumer confidence and to some degree stock-market generated wealth, how the local bourse fares — after the current bout of volatility ends — will be closely watched.


This article appeared in The Edge Financial Daily, August 15, 2011.

http://www.theedgemalaysia.com/highlights/...a-breather.html

This post has been edited by cranx: Aug 16 2011, 02:25 AM

hhhmmmm if this does happens, what does it means?
say a person who owns 20 props but under mortgage by the bank. hyperinflation hits and the amount owed to bank say rm6mil can be instantly paid off within a much shorter period and the guy still owns 20 props?
another person who owns 20 props fully paid up. hyperinflation hits and his rm6mil portfolio suddenly become rm200mil?
care to shed more light on how hyperinflation will do to property supply and demand?
thanks.

"THIS TIME IS DIFFERENT" will kill many ppl.

Haha. don't tell me you own 20 properties and fully paid off

I'm not an expert in this, but as far as I know, hyperinflation does benefit debtor and harm creditor (as the country prints money to pay off its debt)

When your currency collapses, and loses a lot of its buying power, people in this country will struggling to buy daily necessities like food (USD500 for a roti canai), petrol, health care etc.

Nobody will flip/upgrade houses at that time I suppose (so less demand), the nominal house price will increase for sure (as you said 6mil to 200mil), but in terms of real house price (adjusted for inflation) it will decrease in price (decrease in buying power of your cash after you sold your props).

I'm not saying hyperinflation will occur, but have to be cautious, the western world is headed to this path...

This would be the most expensive experience if you chose to believe it.

If boleh land housing bubble burst, the price will not be plateau or stay flat, or "this is new "normal market" trend" as the developers/real estate agents like to say.

It will have a steep crash as everyone rushes out in panic mood, if history repeats itself.

Share: All these are the factors to bring property price to a higher level.

The Star Online >
Monday August 15, 2011

Developers burdened unfairly

Privatised utility fi rms must build and fi nance infrastructure for their respective utilities

By ANGIE NG

angie@thestar.com.my

PETALING JAYA: The National House Buyers Association (HBA) wants the privatised utility operators to shoulder the responsibility of building and financing the infrastructure for their respective utilities.

Questioning why the responsibility is still being shouldered by developers and ultimately house buyers, HBA honorary secretary-general Chang Kim Loong said it was time these companies provided the full capital outlay and meet these expenses from their own resources.
Chang: ‘New, courageous and bold steps forward are required.’

“These privatised utility companies are demanding ever-increasing contribution from developers for water, electricity, telecommunication, sewerage and refuse disposal services, and the building of infrastructure works. Developers have no choice but to comply to ensure the services are available to their purchasers,” Chang told StarBiz.

He said it was unfair of these privatised utility operators to impose the capital contribution for their infrastructure on developers and house buyers, adding that such practice had gone unnoticed for a long time and was one of the factors for the high housing prices.

Chang pointed out that developers were not charitable organisations, “so the costs (including cost of building infrastructure for the basic utilities) were passed on to property buyers as these utility contributions, deemed the “hidden costs,” were factored into the property prices.

“As part of their social responsibility, privatised utility companies should play their role to ensure that the Government's aim to promote home ownership among Malaysians is achieved, instead of burdening house buyers.”

He said the utility companies also had at their disposal the monthly payment and requisite deposits for the utilities and services from house owners for their “start-up” capital expenses.

“It is a serious concern that a significant percentage of a property, about 5% to 10%, goes to these utility contribution, and the payment demanded from developers seemed to be influenced by the property price rather than the real value,” he added.

Chang said in light of the Price Control and Anti-Profiteering Act, 2011, the relevant utility commissions should peruse the imposed contribution sums for these basic utilities.

Under the Act, the Price Controller may determine the maximum, minimum or fixed price for producing or retailing any goods, which include property and utilities provided by privatised utility companies.

“Quite simply, it is submitted that the Price Controller determines the price of houses and in turn the amount of contribution developers may be required to pay the utility companies.

Together with the perusal of cross subsidy, a more equitable solution ought to be implemented. In the interest of the people, particularly house buyers, new, courageous and bold steps forward are required,” Chang stressed.

He said the relevant utility commissions, namely the National Water Services Commission and Malaysian Communication and Multimedia Commissions, should try to change the utility companies' perception of developers to that of a symbiotic business relationship for more equitable benefits for all the stakeholders themselves, developers and the house buyers.

Responding to Chang's views, Real Estate and Housing Developers' Association (Rehda) president Datuk Seri Michael Yam said consumers should not be double billed by having to pay the selling price of the property which would be loaded with the upfront construction costs, as well as the additional tariffs and deposits required.

“The principle of tariff recovery should both cover the initial capital investment and operational costs. It is not easy to justify the capital contribution payable by developers, for instance when it is calculated based on percentage of sales value of the property, instead of by usage,“ he said.

Yam said the contribution costs were usually between 2% and 3% of the project's gross development value, adding that “someone has to bear the costs of providing roads, infrastructure and services”.

“It is only fair that consumers or buyers of the development in question share the burden of that cost hopefully through payment for their consumption as billed monthly.

“But the principle that should be adopted by utility companies should be that user pays and such upfront investment costs should be recovered through tariff, which in turn should include a proportion of the capital costs,” he added.

Yam pointed out that it would be ideal if the Government or the utility companies could invest in the initial capital outlay to provide the critical infrastructure and services.

“It is cheaper on a shared basis and the cost can then be recovered by imposing a fair contribution from developers and through tariff recovery from the users. Such upfront costs can be huge and the capital invested in these requires a return apart from the heavy interest costs to fund it,” he said.

Yam said as a project became larger scale and more sophisticated, higher standards of specification of material and more services would be demanded.

“As an example, to comply with best practices in safe city concepts, more buffers are required between vehicles and pedestrian, installation of broadband services and ducting, CCTV, concealed drainages etc.

“Such upfront costs can be huge and the capital invested in these requires a return apart from the heavy interest costs to fund it.

"These additional costs will find their way into selling prices and the challenge is whether the market can bear the additional loading on the selling prices.

The more discerning and affluent buyers would appreciate such enhancement features which are cheaper to be installed upfront than as a retro-fit but this segment is relatively small and can only be effective in prime parts of the urban space,” Yam explained.

He said in large township developments where the developer would have carried out a comprehensive masterplan together with a phasing plan, “it is acceptable for the developer to carry out most of the roads, infrastructure and services as he is required to execute it as part of his project cost, especially if such roads and services are exclusively for his township only, thus rendering sharing of costs with other users not possible.”

The developer is also able to carry out such works due to economies of scale, control of phasing and timing, and these costs can be spread out over a large project and absorbed within the selling price.

Where projects are small and part of a greater shared development, Yam said the costs of building roads, infrastructure and services should be apportioned and shared with other developments in the vicinity or with users of such services.

It is possible for the local authority or utility companies to bear this upfront cost and then apportion the costs to the various developments.

Yam said in the past, it was quite common for developers to help lay ducts (material provided by the utility companies) and provide trenches as a matter of convenience.

“This is not an obligation but done in the interest of speed and better co-ordination especially when the service provider is short-handed. In short, it is only fair that while developers are prepared to help, utility companies should in the first instance be responsible for the services it provides and the payback of such capital and subsequent operational costs should be recovered through tariff recovery,” he noted

© 1995-2011 Star Publications (Malaysia) Bhd (Co No 10894-D)

http://www.bloomberg.com/news/2011-08-15/h...forecaster.html

dun worry, malaysia property price is the cheapest in this region.

Sick with those experts (stock mkt / property mkt) report

In the past, experts / guru keep forecasting the mkt trend (bull or bear), > 70% of those predictions were wrong.
Every time prediction wrong, they silent
if 1 out of 100 times correct, they claim themselves as "EXPERT"

Many of those statements are not clear, talk easy, cheap! let me quote a few..(talk like no talk )

"I think the mkt is over supply, buyers need to be cautious" - ini budak sekolah pun tahu!
My question : how much % over supply? which sector? which area? since when? how long it will take to recover back to normal? etc
US sub-prime crisis, it will affect the local market in long term
My question : how long is the term? How it affect? Local mkt refers to overall throughout the country or KV only?
LTV 70% imposed by BNM, sure will affect the property mkt especially speculators who buy for short term gain...
My question : How much it affect the bank's business (%)? which sectors? how much it affect developer's new project sales? etc

Sometimes it is wasting time reading those comments, too general!! IMO Expert/guru shd be able to give a firm & specific answer (I know it is not easy), if prediction correct, I salute and thumbs up
if wrong, must APOLOGIZE!! (ya is impossible he he...) LPPL lah

This post has been edited by UFO-ET: Aug 16 2011, 02:43 PM

LOL.....Noone know how and what the trend will be in future unless got help from crystal ball.

One can only tell from the experiences and also "gut feeling".

Better got supporting figures to drive your conclusions.

yes, i agree with this, investment need to learn, not only listen to those expert/guru.
i recommend fund is bcos, it have less risk, compare to invest in property and stock. especially current situation.
US and UK is suffering their debts problems, and China also facing problems like labour costs going up, US keep printing $ and china holding alot of US debts, etc. etc.
fund is easy to cash out, when anything happens.
if invest in property, u need about 3~6 months to get your cash, if nobody wanna buy your unit, u will be in big trouble.

actually funds is fun..... more risky compare to real estate.. just because it is fund is easy to cash out, when anything happens.

Yea, how true. Ever seen a 100 billion Zimbabwean dollar bill? LOL... Can only buy three chicken eggs.

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Added on August 16, 2011, 4:55 pm

This post has been edited by gregy: Aug 16 2011, 04:55 PM

Yes, you are right. There are simply too many statements that are not clear. It includes many of those published views in newspaper by developers, columnists, financial wits, bankers and etc, all empty talks and empty cheques. Especially the local one, they are merely making reports and not predictions. But they might have their own wicked agenda, as long as they make money they do not care whether the market loses. After all, nobody will really hold them responsible if they paint the wrong picture.

Everybody has failed, advanced economy, developing or bad-ward economies. That goes to show how vulnerable the global and local economies are. Who is the real experts?

When there is uncertainty, the practise of prudent financial management is the best thing to do.

long time didnt post here, only read
in investment i salute Warren Buffet and i think he is 1 of the expert
if u guys noticed even Warren Buffet says that GOLD is bubble more than 3 months ago...but the price keep increasing
so how

1· No point using limited life to chase unlimited money.
2· No point earning so much money you cannot live to spend it.
3· Money is not yours until you spend it.
4· When you are young, you use your health to chase your wealth; when you are old, you use your wealth to buy back your health. Difference is that, it is too late.
5· How happy a man is, is not how much he has but how little he needs.
6· No point working so hard to provide for the people you have no time to spend with.

So lesson is don't be so greedy?

3· Money is not yours AFTER you spend it.

The high end condos in KLCC/Mont Kiara are even more expensive than the luxury apartments in New York City where the wall street guys live in!

Don't you believe the propaganda created by the developers/real estate agents, they are in bed with the mainstream media, they control what "news" you will read on the newspapers.

Not necessary must sacrifice life/health to earn wealth. you can have both. not mutually exclusive