Not enough sizeable launches due to wait-and-see stand by developers

DOES the general election affect the property sector?

Yes, it does, as with most other sectors.

Probably the most obvious one is putting launches on hold by developers, and buyers adopting a wait-and-see stand, say property consultants and property professionals.

For those who need a house, they will not be so much affected by the elections as they will need a roof over their heads. For investors, they may prefer to let the dust settle.

It is under this scenario a lack of sizeable launches that some property investors/investment clubs are today offering unsold units to their “members”, say Adzman Shah Mohd Ariffin.

Adzman, chairman of the Property Management Valuation & Estate Agency (surveying division) of the Royal Institution of Surveyors Malaysia says: “Because there is not enough stock that offer early bird' discounts and discounts from bulk purchases, these property investment clubs are looking at projects which were launched two years ago. They are selling these to their members.”

Adzman is concerned that some of these club members, or investors, may end up buying properties which developers are trying to unload.

“These investors, or club members, are then left holding properties which they are unable to rent out,” he says.

Adzman says property clubs are not new. They are modified versions of Western models to suit a Malaysian audience with participants automatically become club members on paying a fee to attend talks organised by these “specialists”.

They have a certain amount of charisma, speak well and are very convincing, say property professionals.

Their life-line is a double-digit property boom, as in the last couple of years between 2009 and 2011. Because property prices are consolidating today, these clubs are less active than before, but they are around, offering their members properties in Nilai and other less popular locations.

Adzman says: “People look at it as something legal to invest in.” These clubs, with a charismatic principal driving them, were most prolific between 2009 and 2011. They offered to help interested parties to “ride the property wave” in order to become “millionaire landlords” by buying multiple properties in an easy credit environment.

Some of these “property gurus” are also prolific authors.

Participants are charged a fee to attend a talk which may last from a full day to several full-day sessions. Fees may range from a few hundred ringgit to up to RM10,000.

Says one of these gurus: “When you have made RM100,000 on a previous property investment, RM10,000 does not seem like a lot to pay.”

CH Williams Talhar & Wong managing director Foo Gee Jen says changes in lending rules, a lack of new stock and gradual, sustainable price increases make participating in these clubs less attractive.

“There was a lack of investment instruments then, which prompted many to jump on the (property) bandwagon. Another reason was the steep price in property prices. Because they were buying in a group, they were given certain bulk discounts, early bird discounts and preferential treatment,” says Foo.

“When times are good, you will surely make money. There is such a thing as the probability factor,” he says. There is also the herd mentality. Their confidence gets a huge boost when they act in a group.

Foo says buying a property is always a long-term investment, whereas the objective of members are short-term gains. Some of these clubs buy into a project as a group, and exit as a group. The question is, what if the market turns?

“The fundamental issue is yield, actual demand and not just value creation, that is, buying with the aim that the price will go up,” he says.

Foo says these gurus are making money both ways, from the developers and from the members. They charge a fee for the classes, and are given a commission by developers when they sell to their members.

“There is obviously a conflict of interest. Who are their principals? The members or the developers? Who are they accountable to? Whose interest are they representing? These are questions the people must ask.”

He says the Kuala Lumpur market is quite unlike Singapore, London or New York. Hot as Kota Damansara or Puchong may be, how many of these units, be it condominiums or serviced apartments or shoplots, are actually occupied.

“Have did we come to the stage where a four-storey shop is built only to have the ground floor occupied? Investors must look at these facts,” he says.

The same principle applies in locations such as Bangsar and Ampang Hilir. The fact that there are so many unlit units at night should be warning signs. Foo says it is the herd mentality which is driving people to such forms of “investments”. He likens it to musical chairs. When one out of 10 is left without a chair, the casuality factor is 10%. But when it comes to two fighting for a chair, the risk or casualty factor rises to 50%.

“When the market becomes saturated, the risk increases,” he says.

The operations of these clubs vary greatly.

Some clubs offer a project which is yet to be launched and attached an early bird and a bulk purchase discount, which together can come up to 10% of the property price.

Upon completion of the property, they do a “killing”. When they sell upon getting the keys, they get an average of at least 20% of the launch price. Because they have already got early bird and bulk discount, they may make a clean 30% profit.

Adzman cautions that what goes up must surely come down. He says although there are certain areas that are popular, sales have been rather challenging the last six months or so. Both Foo and Adzman say the authorities should regulate such clubs.

Siders Sittampalam, managing director of PPC International Sdn Bhd, says with the market slightly overheated, many of these investors will not see capital appreciation as much as they did in 2010 and 2011. The returns will not justify long-term holding. While Foo and Adzman are of the view the authorities should step in, Siders advocates a free market. - The Star