Property sector continues to be on solid ground

(Published in the StarBiz 4th April 2012, page 2012)

By THOMAS HUONG 

KUALA LUMPUR: The property market would continue to be active this year, supported by various government initiatives under the 10th Malaysia Plan and Budget 2012, said Deputy Finance Minister Datuk Donald Lim.

“Last year, in terms of construction activities, the higher number of new unit starts and building plan approvals signified the confidence of developers and investors,” said Lim at the launch of Malaysia’s Property Market Report 2011.

According to the report, the performance of the residential sub-sector would be sustained, while vacant space in the office and retail sub-sectors is expected to be absorbed as more space is taken up during the progress of the country’s Economic Transformation Programme.

However, Lim also pointed out that the Government was worried about the emergence of a real estate bubble.

“We do not want a United States subprime mortgage crisis in Malaysia. We noted that a lot of foreigners from the Middle East and China are keen on buying properties here,” he said.

Lim said the Government would intervene when property prices were seen to have “shot up too high.”

“As such, measures such as the implementation of the maximum loan-to-value ratio of 70% for the third home and Bank Negara’s responsible lending guidelines were taken.”

According to data on Bank Negara’s website, the amount of loans applied for purchases of residential property increased by 17% year-on-year in the first two months of 2012 to RM26.7bil.

The amount of residential property loans approved during the period was RM12.25bil, which was 2.7% higher compared to a year earlier.

Last year, the property market performed strongly with the value of transactions rising 28.3% to RM137.8bil. Volume rose 14.3% to 430,403 transactions.

The report stated that market activity was led by the residential sub-sector, which had a double-digit expansion of 18.9%.

This was followed by the development land (14.7%), commercial (9.7%), industrial (6.5%) and agricultural (4.6%) sub-sectors.

In terms of value, all sub-sectors registered double-digit growth with two sub-sectors surpassing 50%, namely agricultural (65.4%) and development land (54.8%).

Despite more units launched, the performance of the residential market improved last year. In 2011, there were 49,290 units of new launches which achieved sales of 46.3%, compared with 47,698 units with 45.7% sales in 2010.

Selangor, Johor and Perak offered the most number (51.2% or 25,216 units combined) of new launches in the country.

In terms of market share, the residential sub-sector dominated with 62.7%, followed by the agricultural (19.7%), commercial (10.1%), development land (5.0%) and industrial (2.4%) sub-sectors.

The residential sub-sector also took up a 44.9% share of the transaction value in the market. Last year, there were 269,789 residential property transactions worth RM61.83bil, which was the highest recorded in the last five years.

Selangor retained the lion’s share by capturing 27.9% (75,344 transactions) of the country’s total transactions.

The demand for high-end units priced above RM500,000 had increased, with 21,905 transactions last year (compared with 16,782 transactions in 2010).

“This could be attributed to the increase in affordability level and supported by the ease in borrowing as well as attractive loan packages offered by financial institutions.”

By property type, terraced houses captured 36.6% (98,597 units) of residential transactions, of which about one-third were transacted in Selangor.

As at the end of 2011, there were 4.51 million existing residential units with 584,546 units in the incoming supply.

According to the report, the Malaysian All House Price Index had surged to 156.9 points in the fourth quarter of last year, compared with 147.2 points a year earlier.

Analysts optimistic on ETP

(Published in the StarBiz 4th April 2012, page3)

This year's programme will be bolstered by the MRT, Greater KL Projects

PETALING JAYA: The encouraging Economic Transformation Programme (ETP) annual report results have got analysts optimistic of a better year for the scheme, driven by big infrastructure projects and reliable implementation.

AmResearch economic research director Manokaran Mottain said that this year’s ETP performance would be bolstered by the impending My Rapid Transit (MRT) and Greater KL projects.

“Last year, RM13bil worth of projects were realised of the total RM15bil targeted for 2011. We think this year, we (Malaysia) should be able to realise RM30bil to RM40bil worth of projects, given that more investments are coming in,” he told StarBiz.

He said the market was expecting more newsflow to mark the progress of the ETP and that the developments would help cushion the impact of global economy uncertainties.

“At this point, the local economy structure is changing towards more domestic demand and we can expect that and private consumption to be the engine of growth for Malaysia,” he said.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng said that the initial concerns about the poor implementation were now also put to rest.

“Earlier, we were concerned about Malaysia’s Archilles’ Heel – the implementation capability. The achievements so far has help counter that perception and that is not just in the results reported. We have also seen Malaysia’s position improve according to global indicators,” he said.

Yeah referred to Malaysia’s improvement from 26th to 21st place on the World Economic Forum’s Global Competitive Report 2011 rankings among 142 countries.

The country also improved from the 23rd spot to the18th in the World Bank’s Doing Business Report 2012, ahead of developed economies such as Germany, Japan, Taiwan, Switzerland and France.

Albeit the notable progress, Yeah said there were areas to further focus on. “We need to look into building and keeping quality human capital, the initiatives to wean the economy from dependencies like unskilled foreign workers, subsidies, price controls and government procurements. In terms of technology upgrading, it has to be accompanied by more merit- and need-based governance system in both public and government sectors too.”

CIMB Research said although KPIs were surpassed by 23% for the 12National Key Economic Areas (NKEA) and 31% for the six National Key Results Areas, the research house remained neutral on the country due to heightened election risks.

“We maintain our end-2012 KLCI target of 1,610 points, which is based on an unchanged calendar year 2013 price-earnings ratio target of 13 times,” analyst Terence Wong noted in his report.

“Constant ETP updates last year did help to rerate several sectors and stocks, particularly the O&G (oil and gas) sector. However, the overall impact of the ETP on the stockmarket has waned in recent months as investors refocused on other issues such as external risks to global economic growth as well as the upcoming general election,” he added.

The Government delivered strong results in all 12 NKEAs, 11 of which outdone their KPI. The 11 NKEAs, excluding Greater KL, exceeded the RM494bil target by 19%, amounting to RM589bil and accounting for 70% of national gross national income of RM831bil.

The communications content and infrastructure NKEA exceeded its KPI by 70% while Greater KL exceeded by 51%. This is positive for the construction and property sectors as the key entry point projects in Greater KL are the MRT, river rehabilitation and pedestrian network projects which will improve accessibility and make the Klang Valley more attractive work and live in.

Making Kuala Lumpur a great place to live in

(Published in the StarBiz 3rd April 2012, page 11)

The Greater Kuala Lumpur/Klang Valley NKEA 2020 targets are to be in the top 20 most livable cities list and the top 20 in economic growth.

The goals under this NKEA are to be realised through the implementation of nine Entry Point Projects (EPPs) and the two business opportunities. These include improving the city’s attractiveness to foreign multinational companies (MNCs) and foreign talent, putting in place an efficient public transport system and enhancing the ambience of the city by improving its physical environment through various initiatives.

Intensive efforts are ongoing to upgrade the water quality of Kuala Lumpur’s main rivers and beautifying and developing its surroundings via the River of Life EPP, going green through the planting of more trees in the city, developing iconic places within the city and providing comfortable walkways for the pedestrians.

There are also plans to enhance solid waste management and sewerage services for the metropolis, as well as efforts to improve housing opportunities and to vitalise Putrajaya.

It is envisaged that initiatives under the Greater Kuala Lumpur/Klang Valley NKEA would contribute RM190bil in GNI over the next 10 years and create over 300,000 jobs.

Achievements for 2011 have been good, with 16 KPIs meeting targets. Out of these, at least eight KPIs have surpassed targets.

Falling short of expectation were the KPIs for a biogas plant for food waste, improvement of pedestrian walkways, talent attraction programme and the website and portal improvement.

The Government is upping the ante with new critical targets for 2012.

This year’s KPIs include concluding Letters of Intent for 10 MNCs’ operational headquarters relocation in Greater KL/KV; 600 employment generation and 10 branding InvestKL activities.

“For the Returning Expat Programme, the KPI is to have 1,200 expatriates return to Malaysia. The Residence Pass Programme is targeting for 800 approved passes, while the Employment Pass (Category II) intends to approve 300 passes. This year will also see the development of a diaspora database,” the report said.

On infrastructure, the feasibility study for the high-speed rail was due for completion. The Government also aims to have 100% completion of land required for the Sungai Buloh-Kajang My Rapid Transit line, and all elevated civil underground and depot packages are to be awarded, among others.

This year would see completion of the Heritage Trail Route 1 (National Museum to Medan Pasar), Reviving Medan Pasar and Heritage Trail Routes two to four, as well as the upgrading of Masjid Jamek, and land matters, planning approvals and detail design for Malaysia Truly Asia Centre (MTAC).

Also, there would be a 12km upgrade of non-covered pedestrian network system.

In terms of environment protection, the Government expects 15% completion of River Beautification Construction for Phase 1 under the River of Life project, and 30,000 trees to be planted.

The Government also expects a 100% roll-out of Separation at Source Scheme (Household Wastes) in Kuala Lumpur through distribution of bins to landed property; and Issuance of Letter of Approval to successful contractor via Private Public Partnership for the setting up of Food Waste Treatment Plant (Composting or Anaerobic Digestion) for food waste.

In addition, the Government was targeting a 45% construction progress for rationalisation projects of Old Klang Road; 20% sewer rehabilitation projects in Kuala Lumpur, Shah Alam, Subang Jaya and Petaling Jaya; and 18% regionalisation of sewerage treatment Lot 130, Klang.

Qinzhou start-up district estimated to cost RM2.6bil

(Published in the StarBiz 3rd April 2012, page 6)

By WONG WEI-SHEN 

PETALING JAYA: The joint venture of SP Setia Bhd, Rimbunan Hijau Group and Qinzhou Jingu Investment Co Ltd will focus its development at the Qinzhou Industrial Park (QIP) on the start-up district.

Based on a preliminary estimation, the total estimated cost for the start-up district alone is expected to be approximately 5.4 billion yuan or RM2.6bil.

SP Setia said in a filing to Bursa Malaysia that the start-up district spans over 7.87 sq km or 1,945 acres.

Qinzhou Jingu is looking for approval from the Chinese government to allow up to 30% of the commercial and residential land in the start-up district to be swapped for another piece of commercial and residential land.

This swapped land will have an equivalent land value in the more developed Binhai New Town.

The relevant parties will establish the joint venture company in Qinzhou City. It will be named China-Malaysia Qinzhou Industrial Park Investment Co Ltd.

The land swap will allow the joint venture company to gain development access to Binhai New Town, which has a total planned area of 110 sq km and a net development area of 45 sq km.

According to the Bursa filing, Binhai New Town is designed to be an industrial service centre, seaside tourist resort and high-end residential district. Once completed, the expected future population is 500,000 people.

“The proposed development is currently at a very preliminary stage and the total development cost, the expected commencement or completion date of the entire proposed development and the expected profits to be derived from the entire proposed development have yet to be ascertained,” it said.

The total registered capital of the company will be 1.8 billion yuan or RM878.05mil, of which the registered capital to be subscribed by SP Setia is approximately 396.9 million yuan or RM193.6mil. This will be funded through a combination of internal funds and, or bank borrowings.

The actual mix can only be determined later.

The joint venture agreement was formed to develop the China-Malaysia QIP.

Landowners in talks over MRT project

(Published in the Star Newspaper 6th April 2012, page 10)

By M. MAGESWARI

Counsel: Parties hoping to reach a settlement

KUALA LUMPUR: Two landowners are negotiating a settlement with the developers of the multi-billion ringgit Klang Valley mass rapid transit (MRT) project over the acquisition of their land here.

Mayland Century Sdn Bhd and Spirit Domain Sdn Bhd, the registered owners of the land, applied to the High Court for leave for judicial review yesterday.

In its application, Mayland Century is seeking to quash the declaration of the Federal Territory Lands and Mines director in respect of the intended acquisition of 1,492sq metre of their land in mukim Petaling here for the project that will be carried out by Mass Rapid Transit Corporation Sdn Bhd (MRT Corp).

In its application, Spirit Domain wants an order to quash the decision of the same Lands and Mines director seeking to acquire a few lots of land, each covering 199sq metre.

High Court (Appellate and Special Powers) judge Justice Abang Iskandar Abang Hashim set May 21 for mention after meeting the parties in chambers.

Speaking to reporters later, Senior Federal Counsel Noor Hisham Ismail said the two landowners were currently negotiating with MRT Corp for a possible settlement.

“Both sides (the landowners and MRT Corp) are looking into reaching an amicable settlement,” Noor Hisham said.

In their court papers filed on Feb 20, Mayland Century asked for the land acquisition proceedings to be stayed pending disposal of the application.

Mayland Century stated that the Lands and Mines director, in making the declaration to acquire the lands, had acted without sufficient ground, unfairly and contrary to the rules of natural justice.

Mayland Century named the director and the Federal Territory land administrator as respondents.

In the application filed by Spirit Domain, also on Feb 20, the company named the FT Lands and Mines director, the Government and MRT Corp as respondents.

Alternatively, Spirit Domain wants the court to issue an order declaring that the decision to acquire the lands is null and void and of no effect.

It’s not over for Ho Hup

(Published in the StarBiz 2nd April 2012, page 1)

By JAGDEV SINGH SIDHU 

It still faces obstacles in its Bukit Jalil project despite High Court ruling

KUALA LUMPUR: Ho Hup Construction Company Bhd still faces a number of hurdles to get its Bukit Jalil project off the ground even though a ruling by the High Court has ordered the company to buy out the other shareholder that owns the rights to the land.

Among the concerns raised was the ability to raise financing to buyoutZen Courts Sdn Bhd, which appears in a favourable position post the judgement, off its 30% share of Bukit Jalil Development Sdn Bhd (BJD), which owns the right to develop 60-arces of prime land in Bukit Jalil.

It is still unclear as to who would get the right to develop the land.

Ho Hup has appealed to the Federal Court to hear its case of having the development rights to the project after the Court of Appeal upheldMalton Bhd's case of being a joint developer to the land.

In dispute is the joint development agreement where Pioneer Haven, a subsidiary of Malton, would fund and develop the land and BJD would be entitled to 17% of the gross development value of the project with a minimum payment of RM265mil to be paid throughout the development of the land.

Ho Hup's executive director Derek Wong said it was premature to speak about financing the buy out of Zen Courts.

“At the appropriate time, the necessary announcements will be made,” he told StarBiz in an email response. “The Court's order to Ho Hup to acquire the 30% equity held by Zen Courts would give Ho Hup 100% of BJD and thus bring the shareholder dispute at the Bukit Jalil Development Sdn Bhd subsidiary to a conclusion.”

The High Court on March 27 ordered that Ho Hup bought Zen Courts' shares in BJD on a price to be determined by the net tangible asset of the BJD as at March 27 which needs to be valued by a mutually agreed independent valuer between Ho Hup and Zen Courts.

BJD was last reported to have a net book value of RM122.46mil as at Dec 31, 2010, including development costs.

While it may appear to be headed to a conclusion, one concern is that valuation of the land would have since soared and a revaluation of the 60-arces would see the value of BJD rise beyond its previously reported number. One suggestion is that the land at Bukit Jalil could be value at RM130 to RM150 per sq ft.

At the top end of that valuation, that land could be worth as much as RM392mil. Reports have indicated that the potential development of the land could produce a gross development value of RM4bil to RM4.5bil.

The other issue is that should Ho Hup, which is classified as a PN17 company, find it difficult to raise the funds to buyout Zen Courts after an independent valuation is done, Zen Courts retains the right to wind up BJD.

Was there a slowdown in Q1?

(Published in the Star BizWeek 31st March 2012, page 27)

VALUE & WORTH By ELVIN FERNANDEZ

An unusual ripple has taken place in a property market that usually moves at glacial speed

THREE months into 2012 and what has changed in the property market?

We had an unusually slow start this year and this was because the Chinese New Year was only a month apart from the year end Christmas and New Year holidays and this resulted in an extended holiday mood in the country.

Waking up in February, we found that the fears of a US double dip that took hold in the second half of 2011 had dissipated somewhat and the core of the eurozone crisis, namely the possible default by Greece and all its ramifications, was being tackled with some light seen at the end of the tunnel.

As at the end of March, the US economy, an important engine of growth for the global economy, is said to be improving, but there are also concerns that “seasonal” adjustments in the data are not giving us a real picture and because the growth is being wrenched out from extraordinary monetary easing.

As for the eurozone, we are told, increasingly, that the crisis is not over, albeit contained somewhat for now. All in all, we are not out of the woods as yet insofar as the global economy is concerned.

The China slowdown is now officially confirmed, but the majority of news flows suggests no “landing” or hard landing. The official policy on lowering house prices, however, is steadfast as confirmed by the top leadership.

On the local front, Bank Negara has just released its usual, annual, twin reports and they project a slightly lower growth range of 4% to 5% for 2012. The reports list inadequate global growth as one of several risks going forward, for us.

The property market, unlike the stock market, moves at a “glacial” pace and its movements are not easily discernible in a three-month period, but coming out of the holiday season this year there was a distinct slowdown in enquiries for mortgage valuations and for house purchases in the secondary market. Whether this will persist or be shaken off as due to the extended holidays will be better known only in the second half of the year.

But there are evidences that the run-up in prices for the various “hot spots” of housing in the Klang Valley and in Penang, to levels way above desired and supportable fundamental levels, have been arrested and this has been principally brought about by the cooling measures undertaken by Bank Negara and the tightening on housing loans by the banks themselves. Arrested also, hopefully, would be the horizontal spreading of similar pricing levels outside of the “hotspots” the trickle-down concern.

The housing market, on a pan-Malaysian perspective is fundamentally sound with the country-wide “all house” price, according to the National Property Information Centre or NAPIC, stated at RM212,085 for the third quarter of 2011.

Average household

If we match that against the average household income for the country as a whole, at about RM4,000 a month, the number of times the price is, compared with the annual household income, it is an acceptable 4.42 times.

In many “hotspots”, house prices are much more than 10 times average household income (for the respective states as we only have official data on a state-by-state basis).

A recent article in the Asian Wall Street journal about the Australian housing market had this to say: “Australian house prices are (high at) 6.7 times the median household income, more than double the level in the United States.”

In the primary market, sales are increasingly being driven by new inducements for sales, that commenced, post the global financial crisis, with the 5/95 schemes and delayed payments that those schemes offered.

The market has gone further and now rebates, early bird discounts, cash back payments, Developer Interest Bearing schemes (with the developer absorbing interest payments during the period of construction), absorption of cost of the sale and purchase agreement, legal fees and stamp duty (borne by the developer) and rental guarantees, are common items now.

Most of these are de facto price reductions and that seems fine, except that loan approvals should be based on valuations that are arrived at by making comparisons on a like-for-like basis, i.e. stripping out the value of the inducements to arrive at the “effective” price and then making comparison-based valuations.

Rental guarantees could be more pernicious, especially for strata offices and retail space. Some schemes are being built and sold solely on marketing the individual units to various purchasers at prices that are built in with future rental guarantees. These guarantees can, in instances, be longer than five years and the guarantee is from the developer, and not necessarily backed by a financial institution.

If end financing is given for these schemes based on comparing prices with prices of similar schemes (also inflated due to the rental guarantees), there is a real danger that the loan gets predicated not on the real value of the real estate but on the value of the real estate topped up with the substantial financial benefit.

Risks are high when such products are purchased in the headlong rush to property on the notion that it is better than lower yielding alternativesor as a “hedge” against expected inflation. From a regulatory standpoint, leaving this to the caveat emptor doctrine is not advisable.

Elvin Fernandez believes in the free market and timely nudging by policy makers and key market participants to iron out any, and only where needed, imperfections in the system. To do this, and over time, they need a steady stream of in-depth market knowledge and insight.