Banks not affected by cooling measures yet

THE EDGE WEEKLY ISSUE#1004

THE WEEK OF MARCH 3 – MARCH 9, 2014

By: ESTHER LEE

The banking industry’s latest results for the quarter ended Dec 31, 2013, revealed that loan growth for the residential property segment remained strong in the period, surprising some, given the slew of cooling measures imposed by the government.

In their gross loan books for the residential property segment, most banks still see double-digit growth on a year-on-year (y-o-y) basis, while quarter-on-quarter (q-o-q) loan growth for the segment averaged 3%.

Analysts say the “surprisingly good” loan growth for the residential property segment in 4Q2013 could be attributed to the influx of housing loan applications towards the end of last year, before the property cooling measures under Budget 2014 took effect.

The influx of applications should temporarily drive mortgage loan disbursements towards the end of this year and next year, since it generally takes a bank two to three years to complete full disbursements of property loans on primary purchases, say Alliance Research.

However, it is only a matter of time before banks feel the pinch from the effects of the cooling measures, as property loans make up a huge chunk of consumer loans.

The present loan pipeline for bank looks strong enough to be able to sustain loan growth for the first half of 2014, but what comes after that needs to be monitored closely, analysts say.

“New loan approvals will surely see the impact from the cooling measures implemented,” one analyst notes.

Another analyst says once the existing loan pipeline is exhausted, the impact on loan growth in the banking sector will kick in.  He expects the slowdown to become apparent in 2015.

(BNM)’s monthly statistical bulletin for December reveals that loans approved in 4Q2013 grew 38.1% to RM32.98 billion from RM23.89 billion in the previous corresponding period, while loans disbursed grew 20.72% to RM21.82 billion compared with RM18.07 billion the year before.

The government, together with (BNM), has introduced several measures to curb speculation in the property market and combat soaring household debts.  Among the measures introduced were the responsible lending practices in July 2013, which shortened the property loan tenure to 35 years from 40 years previously.

Meanwhile, those that took effect on Jan 1 this year include the prohibition of the (DIBS) scheme, the increase in the minimum purchase price for foreign property buyers to RM 1 million and the hike in the (RPGT).

Analysts say while consumer lending is expected to continue to moderate this year, the banking industry expects business loans to grow and support the moderation from the consumers’ end.

The expectation of the a growth in business loans comes on the back of the continuous mega-scale projects under the Economic Transformation Programme, such as the (MRT) and West Coast Expressway.

Analysts are projecting total loan growth for the banking sector to be between 9.5% and 11% in 2014.  The industry’s average for 2013 was 10.6%.

For the quarter ended Dec 31, 2013, the banks’ earnings came in within analysts’ expectations.  Most analysts continue to remain neutral on the sector, as they see limited catalyst for the sector.

Alliance Research, which has taken the contrarian view, giving the sector an overweight call, is expecting to see higher non-interest income for the year.

“Following a slow growth momentum in 2013, we are optimistic that banks’ non-interest income could rise in 2014, supported by resilient capital market activities,” it says.

It adds that the increased volatility in interest and foreign exchange rates due to quantitative easing tapering could induce more corporates to undertake hedging activities, which could improve non-interest income.

Nevertheless, other analysts say the margin pressures on the sector as well as the uncertainty of capital market activities will continue to weigh down the sector.

Interestingly, one analyst notes that there are early signs of an uptick in impaired loans, but it is not alarming for now.

(BNM)’s monthly statistical bulletin reveals that the total impaired loans for 4Q2013 has increased 2.8% to RM70.11 billion from RM68.16 billion a year ago.

Nevertheless, q-o-q comparison show that total non-performing loans have declined by 1.1% from RM70.9 billion in the (3Q)2013.E

Penang heritage buildings in demand

Focus MALAYSIA WEEKLY ISSUE 065

THE WEEK OF MARCH 1, 2014 – MARCH 7, 2014

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Yearning for more graceful existence coupled with hard-nosed business acumen contributes to soaring appeal

GIVEN pre-war properties’ potential for immense capital appreciation, they are in great demand in Penang, especially after the repeal of the Rent Control Act and in the wake of George Town’s having received Unesco World Heritage Site status in 2008.

Prices of such properties have more than doubled from those recorded 10 to 15 years ago, says Henry Butcher Malaysia (Penang) Sdn Bhd senior vice-president of asset valuation Shawn Ong Kah Boo.

“Our research shows such properties in the conservation or heritage area, whether they are in the core or buffer zones, fetch higher prices than they did 10-15 years ago.”

Referring to Armenian Street in Penang’s Unesco heritage area, he says the price per sq ft (psf) had been RM300 to RM400 in 1999 and 2000.

The current average prices for such properties are between RM1,200 and RM1,400 psf.

Looking at the price index for pre-war properties between 1980 and 2000, Ong says the prices did not move much.

The average price psf of pre-war heritage properties in George Town started to soar only after 1999 due to the repeal of the Rent Control Act.  Its compound annual growth rate from 1999 to 2013 was 12.7%.

Before the Act’s repeal, there had been very few transactions; but over the last three years, Ong says the number of deals has grown, with the average transactions volume increasing at about 12%.

Statistics from the National Property Information Centre (Napic) reveal the volume of transactions for the first nine months of 2013 has been active compared to that of the past few years.

According to the Penang Real Estate Market Research Report on pre-war properties for the first quarter of 2014 by Henry Butcher Malaysia (Penang), the market has more buyers than it has sellers due to a limited supply of good listings.

The demand for pre-war properties, said to be quite resilient despite economic uncertainties, is coming from both local and foreign investors.

Ong says people are willing to pay more for something they value as their cultural heritage.

Potential buyers are no longer discouraged from investing in old, neglected shophouses, especially those with heritage elements.  Many of these buildings have been transformed into boutique hotels or unique commercial premises.

Elaborating on why investment in heritage properties is gaining traction, Ong attributes the phenomenon to growing numbers of those with real love for heritage.  There is much sentiment involved on the part of those who have invested in such properties.

He adds that some have bought pre-war properties for business reasons, with the intention of turning them into residences or holiday homes, especially in the case of foreigners and applicants in the Malaysia My Second Home scheme.

Infill development makes up 585 (10.76%) of the buildings and sites, while the remaining 713 fall into the replacement category, according to updated preliminary figures of the conservation management and draft special area plan for George Town, Part 2.

Ong remarks: “Of the figure, the majority of the designs of the pre-war shophouses are the Southern Chinese ecletic style (32.1%) of the 1840s to about 1900, followed by the Straits ecletic style (19.19%).”

The early Straits ecletic style is circa 1890 to 1910, while the late Straits ecletic style is circa 1910-1940.

Other styles include wooden structures (11.07%), Art Deco (10.79%) – which dominates the 1930 to 1960 period – and other non-architectural designs (8.44%).  Modernism (7.48%) emerged during 1950s and continued into the 1970s.

Quoting from Architectural Heritage Singapore, Ong says: “The hallmarks of any quality restoration, irrespective of scale and complexity, are maximum retention, sensitive restoration and careful repair.

“Selective replacement should be considered only when absolutely necessary.  Total reconstruction goes against accepted international conservation practices.”

Ong says among pre-war buildings to have been refurbished is the Penaga Hotel, transformed into a 45-room boutique hotel, with its standard room size starting at 431(sf).  Occupying an area of 17,139 (sf), this five-storey heritage building at Jalan Hutton is within heritage buffer zone.

Another interesting pre-war building is Logan Heritage, spread over 31,150 (sf).  Built in the 1880s, it is named after James Richardson Logan, a well-known lawyer.

Now owned by the OCBC Bank, this commercial building, which has a number of (F&B) outlets inside it, underwent a massive refurbishment at a cost of RM6.8 mil about five years ago.  It sits along the famous banking street of George Town;s Lehub Pantai (Beach Street) area.

Citing another example of a pre-war building, Ong says the 1881 Chong Tian Hotel, comprising three pre-war shophouses at the buffer zone, was a thriving hotel in the late 1880s.  This building has been transformed into a three-storey Chinese boutique hotel, which claims to be the first and only Chinese heritage hotel in Malaysia.

Muntri Mews is another interesting example of a dilapidated building that had once been a stable, which has been converted into a boutique hotel.  Located on Muntri Street, the area occupied by this cosy hotel amounts to 5,516 (sf).  Noordin Mews, another former stable, is today also a lovely luxury boutique hotel, adds Ong.

“Seven Terraces, winner of the 2007 Unesco award of distinction for heritage conservation, is next to the Goddess of Mercy Temple that was built in 1810.  Covering land area of 14,800 (sf), this row of 19^th-century Anglo-Chinese terraces is just at the back of the Penang Chinese Town Hall.”

He says Campbell House, a three-storey corner hotel built in 1903, had been acquired by an Italian couple, Nardya Wray and Roberto Dreon, before the declaration of Penang’s Unesco status in 2008.  This heritage building is opposite the Woo Hing Rolex shop.

The latest addition to the list is the Armenian Street Heritage Hotel at Lebuh Carnarvon, which had its grand opening on Jan 13 as the country celebrates Visit Malaysia Year 2014.

Aside from joining the over 1,700 buildings at the core of the George-town World Heritage Site, it acts as an extension of the George Town World Heritage Incorporated office, which will have a large model of the heritage area displayed in an area covering 1,500 (sf) on the second floor of the hotel.

Room for a family at the Armenian Street Heritage Hotel

Ong’s advice to investors considering pre-war heritage properties is to think of some factors before making a decision.  They include taking into account the location of the property; its unique architectural style and value including its historical and social value; historical ambience; and its potential for profit.  FocusM

RMAF base relocation to benefit Butterworth

THE EDGE WEEKLY ISSUE#1004

THE WEEK OF MARCH 3 – MARCH 9, 2014

By: KAMARUL AZHAR

Owners of property and land in Butterworth can expect an annual appreciation of 10% in the value of their real estate over the next 10 years as the area is set to be the next centre of development in Penang, say real estate consultants.

By the end of this decade, the price of property and land in Butterworth may have doubled from their present rates, they add.  Currently, land in Butterworth costs between RM50 and RM150 psf while property is priced at RM200 to RM500 psf.

It is worth noting that Butterworth will soon see several major infrastructural and amenity development projects, which will boost its property market and narrow the gap in the prices of properties on the mainland and the island across the straits.

The projects include the relocation of the (RMAF) base and the redevelopment of its site in Teluk Air Tawar and the revival of Penang Sentral, the state’s integrated public transport hub project, which is expected to start by the fourth quarter of the year.

The state government has also commissioned the construction of an undersea tunnel connecting Butterworth to George Town on the island.  However, the undersea tunnel is a long term project that will only kick off in 2020.

Apart from Penang Sentral, the redevelopment of the 407.5ha RMAF base site will be among the immediate catalysts for property developers with land or projects in the vicinity.

The Fong Yun, head of sales and marketing at Henry Butcher Malaysia (Butterworth) Sdn Bhd, says due to the presence of the air force base in Butterworth, the height of buildings there is capped at 15 storeys.

“The relocation of the ….base and redevelopment of the site will enhance property development in Butterworth and the surrounding areas as there will no longer be any height control,” The tells The Edge.

“Currently, due to the air force conducting training and fly-bys around the area, there is a height control of 15 storeys within a 20km radius of the airbase.  This has restricted plot ration to only four.”

In the Raja Uda area, which is Butterworth’s central business district (CBD), land is priced at the high end of the RM50 to RM150 psf price spectrum.  In Teluk Air Tawar, where the air force base is located, prices are at the low end.

To recap, TSR Capital Bhd announced on Feb 5 that it had received the government’s approval to set up a (JV) company to enter into negotiations with the latter to relocate the RMAF base that was built as the Royal Air Force base for the then British Malaya in 1941.

The JV company will include Lembaga Tabung Angkatan Tentera with a 30% stake, Pembinaan Bukit Timah Sdn Bhd with 19% and TSR holding the rest.  It will relocate the air base to a new site, which has yet to be identified, and in exchange get to redevelop the 407.5ha.

“The exercise will open up a vast area of sea-fronting land in Butterworth, which will be among the last tracts in a strategic location on the mainland,” says an official with a Penang-based property developer.

“Butterworth has a better view than Gurney Drive because it faces the island, which is already bursting with high-rises that form a beautiful view from across the straits, especially at night.”

Besides TSR, which will benefit directly as the main developer of the 407.5ha, other property developers in Butterworth and the surrounding areas will also gain, thanks to improved connectivity with the island as well as such attractions as Malaysia’s second IKEA store.

One of them is PJ Development Bhd (PJD), which has 6.56ha of land in Jalan Chain Ferry that is about a five-minute drive from the Penang Sentral project and the proposed undersea tunnel.

The parcel is part of PJD’s 12.14ha projects called the Harbour Place, which the group calls the first “metrocity” in Butterworth that offers various amenities, such as a hypermarket, shopping centre, office towers, hotels, serviced suites and an educational institution.

Developments to shift inland

Due to the central location of Harbour Place in Butterworth, its future easy accessibility to the island through the undersea tunnel and to Penang Sentral, its condos have been going for RM500 psf compared with the average of RM200 psf for properties in the area.

Congestion on the Penang island and the prospect of greater economic activity have prompted property developers, including public-listed PJD, Eco World Development Group Bhd, Sunway Bhd, Mah Sing Group Bhd and Tambun Indah Land Bhd, to scout for prime land in Seberang Perai.

“The infrastructure developments there will create an economic corridor stretching from Butterworth to Batu Kawan where land prices will appreciate by about 30% as developers rush to grab a piece of it,” says Henry Butcher’s Teh.

Hunza Properties Bhd, the developer of the Gurney Paragon project in Gurney Drive, has 284.7ha in Bertam, which is being developed into an integrated township called Bandar Putra Bertam.  Bertam is a 25-minute drive towards the northeast of Butterworth.

Tambun Indah, a leading property developer on the mainland, has a 242.8ha township development in Simpang Ampat, Seberang Perai Selatan.  Simpang Ampat is also a 25-minute drive from Butterworth and closer to the Second Penang Bridge in Batu Kawan.

Eco World, meanwhile, is rumoured to be bidding for a 190ha tract for a golf course and property developments in Batu Kawan.  Another listed property developer is looking at 113.3ha of land in Valdor, which is about 4km from Batu Kawan, say the property consultants.

The economic potential of Butterworth and the surrounding areas, coupled with improved connectivity between the island and the mainland, will eventually shift the heart of Penang’s property development further inland, they add. E

Govt bent on weeding out speculators

Focus MALAYSIA WEEKLY ISSUE 065

THE WEEK OF MARCH 1, 2014 – MARCH 7, 2014

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Buyers database to capture tax evaders and multiple-home owners enjoying higher loan-to-value ratio

WHILE the jury is still out on the effectiveness of the four-unit limit on the purchase of property to curb excessive speculation, the National Housing Department (NHD) reveals this directive is part of a bigger plan to create a mechanism to monitor future dealings in the industry to cultivate a more sustainable housing sector.

Its director-general Datuk Mohamad Yusoff Ghazali tells FocusM the measures will enable the ministry to build a database of buyers which will be shared with the Inland Revenue Board and banks in a move to capture tax evaders and multiple-home owners who have been enjoying higher (LTV) ratio than they should.

“At present, many are making huge profits flipping property and not paying any tax on income earned from it.  Also, many third or more home loan applications have been processed at a higher LTV based on the credit analysis of the applicant instead of the number of homes owned,’ claims Yusoff.

He explains that the developer will now be required to make an application t the Ministry of Urban Wellbeing, Housing and Local Government’s (MHLG) Controller of Housing seeking approval for sales of property to an individual exceeding four units.  The conditions of approval are pending a check on the purchaser’s previous track record and the ability to prove the purchase is for long-term investment.

“For now, it will take up to a maximum of seven days for approval, but as we build up our database, approval will be faster, maybe even an instant online check in the future,” says the recently-appointed director-general.

He adds that based on Section 12, Act 118 of the Housing Development (Control and Licensing) Act 1966, pertaining to the powers of the minister, the ministry has the discretion to reject an application for purchase of over four units, if it is deemed to be for speculative purposes.

Safeguarding the people’s interest

Yusoff stresses that this move is to provide first-time house buyers a better chance to purchase property at a reasonable price, as the ministry has received feedback from the public on the “ridiculous upsurge” of house prices.  He adds it is the government’s duty to safeguard the interest of the people, especially on issues of basic necessities such as housing needs.

“We acknowledge that property investment clubs are largely the cause of such excessive speculation.  While our investigations can find nothing illegal with respect to their activities, we have the support of Rehda (Real Estate and Housing Developers’ Association of Malaysia) and Shareda (Sabah Housing and Real Estate Developers Association) in implementing this move,” he explains.

FocusM recently highlighted the activities of property investment clubs and how their modus operandi is a contributing factor to the rising prices of property locally.

Aimed at curbing the speculative activities of property investment clubs, the four-unit limit move was announced by its minister Datuk Abdul Rahman Dahlan who revealed the MHLG was still in talks with Rehda and was expected announce the measure in a month.

Yusoff confirms that the Companies Commission of Malaysia is spearheading a committee comprising (BNM) and the commercial crime investigation department of the Royal Malaysian Police to scrutinise the activities of these investment clubs and seek avenue to clamp down on them.

No dampener

However, Yusoff refutes claims that the directive could further dampen the property market, which has already slowed down due to the cooling measures put in place via Budget 2014.  Adding that the process takes a mere seven days or less, therefore, any genuine institutional buyer, based on the country’s economic fundamentals and the viability of the development, would still pursue the purchase.

“If these allegations of dampening the market are true, it means there are many such speculators and investor clubs operating in our property market, which are extremely unhealthy,” he points out.

At present, under Section 7 (f) (Form 7F) of Act 118, of the Housing Development (Control and Licensing) Act 1966, MHLG requires the submission of a list of buyers to up uploaded in a specified format four times a year from the previous twice a year.

Other new information required include the financial details of the project comprising the account number of the Housing Development Account (HDA), HAD balances, bank name and brance, scheduled payment certificate by architect and other expenses, and the details of the home sales which include the latest total value.

These mechanisms have been put in place as part of the government’s efforts with developers to eradicate abandoned housing projects.  Yusoff explains that this directive brought about a situation whereby certain developers would submit lists with random names, and sometimes comprising details of staff and family members ina bid to hasten the release of the bridging loan.

He says the setting up of a database for purchasers will eradicate this situation as well, as duplicate names would be investigated.

Yusoff warns those aiming to circumvent the system by making repeat purchases of four units or fewer a day, they will be brought to book once the system is in place.

“We intend to work with the respective state governments to capture sales data as well.  Those who circumvented the initial weeding-out stage will be caught when they try to sell their houses during the title transfer stage,” he warns.

Transparency key to healthier market

Allstones Group Asia chairmen and group CEO KH Sim calls on the government to include the cost of homes in its proposed database of housebuyers.

He tells FocusM that the authorities can cultivate a healthier property market by implementing sustainable methods such as the creation of the database of purchasers, which should include details of transacted property prices, to be released in a timely manner to ensure there is transparency to all parties, including property buyers, of what are currently offered in the market.

He says this information should also be shared with analysts covering listed property developers and banks so that they will be in a better position to monitor the loan portfolios.  On the developers’ front, he explains that such data will enable them to be further informed of market performance, and thus be able to better gauge the supply / demand situation when pricing their products.

“On the whole, by ensuring this database is up-to-date, we believe that it will eventually lead to fewer abandoned projects that have poor sales and wrong product mix,” he says.

Lauding the move to monitor bulk purchasers, Sim suggests the government also enforce the timely submission of bulk sales by developers to property investment clubs and discounts given.

He adds that in the long term, an information centre could be formed as a one-stop centre for property buyers and other relevant parties.  FocusM

Final decision on Plaza Rakyat soon

THE EDGE WEEKLY ISSUE#1003

THE WEEK OF FEBRUARY 24 – MARCH 2, 2014

By: KAMARUL AZHAR

The arbitration proceedings between Plaza Rakyat Sdn Bhd  (PRSB) – the original developer of the long-abandoned Plaza Rakyat  project – and Dewan Bandaraya Kuala Lumpur (DBKL) are set to be concluded on Feb 28, according to a senior bank officer, whose employer is an interested party in PRSB.

DBKL and PRSB – previously controlled by Tan Sri Ting Pek Khiing but now in receivership and under the administration of a consortium of lender banks – are locked in a legal battle over various issues.

These include the right of DBKL to repossess the 15.3-acre project site adjacent to Pudu Sentral (formerly Puduraya), the forfeiture of the leases for the land that comprises five adjoining parcels, and whether the build-lease-transfer concept of the project ought to have been changed to an outright sale.

“The arbitration results will be out on 28 Feb.  Until then, all parties can only wait.  The banks would like the legal status to be clarified so that the new developer can rehabilitate the project and they can recover the loans owed to them by PRSB,” says the bank officer. 

To recap, in Feb 2010, DBKL issued a Notice to Remedy Default to PRSB as a result of non-performance in the Plaza Rakyat project despite the completion date being extended several times, with a final deadline of May 31, 2007.

PRSB disputed the notice and invoked the arbitration clauses stipulated under the (JV) agreement (JVA) with DBKL.  DBKL, then, responded by issuing letters to PRSB purporting to terminate the JVA and lease agreement.

These mattes are now pending deliberation.  With the arbitration proceedings set to be concluded next week, the legal question of whether Ivory Properties Group Bhd can acquire the project land from PRSB will also be answered.

Ivory’s 65%-owned subsidiary, Ivory Place Sdn Bhd, had on Sept 5, 2013 signed an acquisition and rehabilitation agreement (ARA) with PRSB to acquire the leases and development right of the project land on an “as is” basis for RM400 million cash, equivalent to about RM603 psf.

However, the ARA’s conditional precedents, among others, require an agreement between PRSB and DBKL to fully settle disputes in relation to the project and for Jawatankuasa Tanah Wilayah Persekutuan Kuala Lumpur to transfer the lease to Ivory Place.

Coincidentally, the ARA will lapse five days after the arbitration findings are made known.  The parties extended the completion of the ARA until March 5, three months after the original period lapsed.

If the arbitration results favour PRSB, which means DBKL would have no legal rights to repossess the project land, Ivory Place should be able to take over the project and PRSB will be able to settle its debts with the creditors.

PRSB owes the banks RM76.03 million, according to a court document seen by The Edge, and its now-defunct parent, Wembley Industries Holdings Bhd, RM326.17 million.

A court document in the RHB Bank Bhd-Wembley case states the PRSB had invested about RM800 million in the Plaza Rakyat project and completed the foundations as well as the Plaza Rakyat LRT station.

However, winning the arbitration proceedings would not be the end of the story as Ivory Place will still need to get various development approvals from DBKL.

Ivory Place must first negotiate with DBKL for a new or amended JVA with regard to the project.  Among the conditions sought by Ivory Place is approval for a new 99-year lease on the project land and a 10 to 1 plot ratio.

Observers say the ARA is not palatable to DBKL because it will only get a maximum share of 7% -- but not exceeding RM560 million – of the (GDV) of the entire project.  This would translate into RM844 psf for the 15.3-acre site, which is comparable to the price paid by Gamuda Land Sdn Bhd for the Robertson project land next to Plaza Rakyat.  The Plaza Rakyat land is worth between RM1,000 and RM1,200 psf, according to real estate valuers.

This site has better connectivity than The Robertson’s as it is located next to the Urban Transformation Centre (formerly Pudu Sentral) and is connected to an LRT station.

According to another court document on the arbitration proceedings seen by The Edge, DBKL is demanding an additional RM265 million for the revaluation of the project land and a minimum 20% of guaranteed profit from PRSB.

It will be an uphill task to revive Plaza Rakyat because the land comes with encumbrances and the project has been abandoned for almost 20 years.  Ivory Place will have to rework the foundations and the pillars, say property players.

On the other hand, if the arbitrator sides with DBKL, Ivory Place will likely lose the chance to rehabilitate the project.  This is because the ARA will be rendered invalid as DBKL had unilaterally terminated the JVA with PRSB in 2010.

In fact, when the ARA was signed by Ivory Place in Sept, 2013, DBKL announced that PRSB had no legal standing to enter into any pact with any third party to redevelop the site.  DBKL said it had no knowledge of the agreement between PRSB and Ivory Place.

Whatever the outcome of the arbitration, it is in the best interests of (KL) residents to see an eyesore in the city rehabilitated and bring economic benefit to the Pudu area.E