RPGT won't hurt genuine buyers

Banning DIBS is the right move

FOR many years, the National House Buyers Association (HBA) has been urging the Government to take measures to stem the steep rise in property prices to avoid a “homeless generation” as current property prices are far beyond the reach of many low and middle-income families in urban and suburban areas.

This is a ticking time bomb that will result in many social problems if left unchecked.

Real Property Gains Tax (RPGT)

The announcement of the revised rate of tax on gains made in the disposal of properties, namely, the Real Property Gains Tax (RPGT), formerly known as the Anti Speculation Act, under Budget 2014 is far more superior to what had been proposed under Budget 2013 (See table above)

This is because, typically, if the property is purchased directly from the developer, it takes two years (for landed properties) and three years (for strata properties) to be completed.

Hence, under the previous RPGT, speculators could purchase properties from property developers upon their launch and then flip these properties on completion (after two years) and having to pay 10% (i.e. within the 3rd to 5th year).

It is hoped that the revised RPGT rate will deter speculators and, at the same time, not punish genuine house buyers who buy for their own stay or long-term investment. It is worth noting that buyers of residential property could seek a once-in-a-lifetime exemption from the tax.

Budget 2014 is best described as an “excellent mathematical formula” to curb the unbridled escalation of house prices, which has in the last three years skyrocketed. The Government has taken a step in the right direction with measures to slow down the steep rise in property prices due to false demand caused by excessive speculation fuelled by easy housing loans and the previously low RPGT.

Foreign purchasers to pay more

HBA applauds the move to increase the minimum price of property that can be purchased by foreigners from RM500,000 to RM1mil. Foreigners must be prevented from “snapping up” property meant for the lower and middle income.

This artificially inflates prices and creates a domino effect which can result in higher property prices across the industry. This is especially true for development corridors such as Iskandar Malaysia which has seen foreign purchasers arriving in droves and scooping up properties with their advantageous exchange rate.

Banning the Developer Interest-Bearing Scheme (DIBS)

DIBS is popular with speculators as they pay nothing to make a profit. Their initial down-payments and deposits are sometimes factored into the purchase price by the collusive developers, and some unethical financial institutions do not even require that the developer collect the deposit that has to be paid by the so-called purchaser.

This is one of the factors which induces “bogus” house buyers (which I have written about in this column on Aug 31 entitled: Of Speculators and bogus house buyers) who merely flip the property at the right time.

Kudos to Bank Negara for heeding our call and banning DIBS. It may be worth noting that Singapore banned DIBS in 2009.

Considering the deep pockets of property speculators, the effectiveness of these measures remain to be seen. However, they are expected to make speculation unworthwhile. HBA praises the Prime Minister for putting a stop to DIBS, which is one of the reasons attributed to the steep increase in property prices for three reasons:

1. DIBS encourages speculation as the house buyer does not need to “service” any interest/instalment during the construction stage. This will “lure” and tempt many house buyers to speculate and buy into DIBS projects hoping to flip on completion and make a quick profit with little or no capital upfront. Connivingly, the interest element is “serviced” by the participating developers.

2. DIBS artificially inflates prices as all interests borne by the developer are ultimately imputed into the property price. This in turn creates a domino effect which pulls up property prices in surrounding locations.

3. Bank and financial institution staff conniving with developers using the DIBS model should be investigated on their “modus operandi” in financing those artificially inflated prices (DIBS + sales price) and ignoring guidelines on prudent lending.

Banks and financial institutions are to be prudent and only provide mortgage financing up to the fair value/market value of the property. In this respect, a benchmark of fair value or market value is the current properties available. Somehow, properties sold under DIBS are always priced much higher; 15% to 20% higher compared with those without DIBS.

For standard condominiums costing RM500,000 without DIBS, should the developer market such properties under DIBS, the selling price could be as high as RM650,000. This creates a potential property bubble should the developer default in “servicing” the interest and the borrower/purchaser also defaults. The bank would only be able to recover up to RM500,000 if the said property is auctioned at market value.

In the event of an economic downturn, banks saddled with too much DIBS end-financing could collapse as the losses from such DIBS end-financing will erode the banks’ capital.

The collapse of just one bank/financial institution could cause a systemic collapse of the entire financial industry.

Bank Negara should take action against such bank and financial institution staff who have provided both project financing and end-financing to DIBS projects under the newly-minted Financial Services Act, 2013.

With the RPGT increase, banning of the DIBS and the Government’s aspiration to supply more ‘ownership housing schemes’ at affordable pricing, it is hoped that speculative demand for properties will stabilise to a more realistic level. I have heard that many businessmen do not do business anymore but indulge in property speculation as a livelihood and for income.

It is akin to the stock market dealings that were rampant during a ‘bull run’. Certain things have to be stopped before they become worse like the sub-prime crisis in the US.

If readers were to take a drive around completed projects, they will find signboards advertising units for sale upon the delivery of keys. If the purchaser is purchasing for his own occupation, why is there this need to put up these signboards or appoint estate agents to dispose of the units? It goes to show that some purchasers are merely speculators (not investors) from day one and the banks and financial institutions choose to “close one eye” despite knowing this.

Have the banks ever gone to the ground to check whether the units purchased and financed are actually “owner occupied”? If the property is “owner occupied”, the risk rating is lower and thus, he enjoys a lower interest rate. But if it is non-owner occupied, it should have higher interest rates. Borrowers of “owner occupied” properties are normally required to make a declaration to that effect to enjoy a lower interest rate.

But does the bank participate in this booking of credit risk?

If the property is non-owner occupied, the lending will fall under ‘real estate classification’ and not ‘housing’.

So, there may even be misreporting to Bank Negara and subsequent national statistics.

This column continues next week.

> CHANG KIM LOONG is the honorary secretary-general of the National House Buyers Association (www.hba.org.my), a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO Councillor at theSubang Jaya Municipality Council.

Reducing speculation in the property market

GIVEN the comprehensive and wide-ranging nature of the Budget 2014 measures to rein in excessive speculation in the property market, all the stakeholders, irrespective of whether one is looking to buy or sell or acting as market mediators, are bound to be impacted in one way or other by the measures come Jan 1, next year.

The budget measures are among the most pervasive and some say “rather tough” on the market. Whether one is a potential house buyer, seller, developer or consultant, the multi-pronged measures have a good chance of influencing their decision making.

Tailored to promote a more stable and sustainable property market, the reinstatement of the full real property gains tax (RPGT), removal of developer interest bearing scheme (DIBS), affordable housing initiatives by the Government, and higher price threshold for foreign buyers will undoubtedly bring forth some major changes in both the demand and supply sides of the equation.

Market players, especially developers, will have to brace themselves for greater competition in terms of product offerings and pricing, targeting buyers and financing facilities.

For starters, more affordable residential projects are expected to be launched in the coming months since an incentive of RM30,000 a unit will be granted to developers who build such houses.

The profit on transaction within the first three years has been raised to 30%, 20% in the fourth year, 15% in the fifth year, while property held for more then five years will not be taxed.

This time around, foreign buyers are also feeling the brunt of these measures. Profit from their transactions within the first five years will be taxed at 30%, while transaction from the sixth year onwards will be taxed at 5%. The price bracket for houses that foreigners can purchase has also been raised to RM1mil from RM500,000.

In terms of financing facilities, developers can no longer offer products for sale under the DIBS, which means property buyers will have to bear the bank interest rates themselves during the construction period. Buyers can no longer just pay the minimum 5% or 10% deposit downpayment and only start to service their loans after the delivery of vacant possession of their property.

Top that up with the proposed 6% Goods and Services Tax come April 2015 and market players are practically staring at a slew of challenges ahead of them.

CB Richard Ellis (Malaysia) group executive director, Paul Khong calls the Budget a relatively tough budget especially for the property sector in 2014.

“The dismantling of DIBS will affect the new launches in the mid and mid-high end segments, especially in the high-rise residential market. RPGT, however, will cool off the entire market as it applies to all sectors and curb speculators looking for short-term gains,” he observes.

Speaking up for the developers, Real Estate and Housing Developers’ Association (Rehda) president, Datuk Seri Michael Yam says the measures to curb speculative activities in the market may disrupt the healthy and orderly growth of the propertymarket.

Surmising the concerns of his fellow developers, Yam questions the necessity for the Government’s intervention.

“If the bulk of the market is controlled and subsidised to some extent in varying degree, should the Government be too aggressive in intervening in the free market spectrum of the housing market?

“The needs of the mass market is already taken care off, so shouldn’t those who wish to acquire a lifestyle and higher specification and prime location home be prepared to pay more? A one-size-fits-all measure applied universally may have drawbacks in that not only does it impact that which the Government aims to control, but it also affects negatively healthy market forces,” he concedes.

Yam explains that the price increase of property was primarily driven by cost-push factors (input costs of construction, particularly material and labour, land bought at market price, and compliance costs) and in some urban areas, an imbalance of demand and supply.

And in the longer term, inflationary pressure and lack of supply will continue to drive price, he contends.

“Fundamentally, data points to the overall shortage of supply compared with demand attributable to a growing population and increase in the house buying group. This is more acute in the economic centres of Greater KL, Penang and to some extent Iskandar region,” Yam says.

He points out the increase in RPGT would cause recent purchasers to retain ownership for a longer period beyond the five-year holding period, thus reducing supply into the sub-sale market. “As such, would-be purchasers of older properties would now turn their attention to the new supply market which could consequently tilt the demand and supply equilibrium and add to further price increase in high demand enclaves and landed housing,” he observes.

Giving the thumbs up for the budget initiatives, National House Buyers Association (HBA) honorary secretary-general, Chang Kim Loong says what Malaysia needs is a vibrant and sustainable housing market based on real demand, and hopefully, the anti-speculative measures will be effective in stabilising the market.

“We certainly hope the measures will stem the steep rise in property prices that has affected the lower and middle income groups that typically comprise propertypriced below RM200,000 for the lower income and up to RM500,000 for the middle income group.

“The higher RPGT will hopefully slow down speculative effects which has resulted in higher property prices in recent years. It will not affect genuine house buyers who buy for own occupation or for long-term investment. Besides, buyers of residential property can seek a once-in-a-lifetime exemption from RPGT,” Chang says.

Association of Valuers, Property Managers, Estate Agents and PropertyConsultants in the Private Sector, Malaysia (PEPS) president Lim Lian Hongvoices his confidence that the measures should help the market to mature and market players will be responsible and considerate in their investments.

“Property will remain as a major long-term investment instrument and buyers will get better value for the money they pay for in comparison to the yields they may get. Capital appreciation will not be as astronomical as before but increase there will be,” Lim observes.

Concurring with Lim is Khong & Jaafar Sdn Bhd managing director, Elvin Fernandez who says the measures in the Budget are bold and needed, for the economy and the property market.

“The Government hopes to make the taxation system more efficient and in line with international practices. The right set of messages is sent and this should be followed with good implementation and continued consistency as we move forward,” he notes.

Calling for “taming the market until it is tamed”, Fernandez says if the measures do not bring prices closer to the underlying fundamentals, then further and additional measures should be taken.

“Such an overall strategy is the clear message that should be transmitted to market players. Tame until it is tamed.”

He says in the past, monetary policy by way of interest rates was the main instrument used to tame asset markets. But after the global financial crisis, most countries use macro-prudential measures directed at specific sectors, such as theproperty market.

On the proposed Goods and Services Tax (GST), Rehda’s Yam calls for greater clarity on its implementation.

“Although it is rumoured that residential properties may be GST exempt, developers would still need to bear the increased cost of input, which would be subject to GST and (there will be the) need to pass (on) the incremental costs. Thus, subject to further clarification, selling prices would need to be adjusted to account for the increased costs.”

Khong & Jaafar’s Fernandez says: “The GST, 17 months from now, has the potential of increasing the price of residential properties by 1% to 2%, but that too will depend on the state of the market at that time. If the residential market is buoyant at that time prices may go up, but if the residential market is not that buoyant and is in a steady state, it is likely that developers may just have to absorb the “input” costs.”

“Some input costs (sales tax) for building materials at present are at 5% so that means a 1% increase in the future, whereas others are at 10% and this will result in savings when the 6% GST comes into play.” - The Star

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Global property hot spots do not mean another easy money bubble waiting to burst

From China to Canada and London, fast-rising property markets are haunting the global economy again, five years after the US subprime mortgage bubble burst and triggered the worst financial crisis since the 1930s.

For now, house price inflation is neither as high nor as widespread as it was in the middle of last decade. Except in a few cases, the warning signals are flashing amber, not red, and several countries have acted to cool overheating markets.

But the confidence of policy makers that they can avoid another boom and bust could be tested if central banks keep pumping out nearly free money to support economic growth by encouraging investment in riskier assets such as equities and property.

Plentiful cheap credit is one more inducement to home buyers who, in many countries, can deduct mortgage interest from their taxable income or are exempted from capital gains tax when they sell their house, said Andrew Oswald, a professor of economics at Warwick University in Britain.

"We're stoking up a huge bubble. It's extraordinary. We virtually ruined the Western world by having high house price inflation and now we're determined to do it again," he said.

On the face of it, the re-acceleration in US house prices spells trouble.

According to the National Association of Realtors (NAR), the national median home value at the height of the bubble, in July 2006, was US$230,400 (RM725,068). In July 2011, the median price was 25.7% below that peak. By July this year, it had climbed back to within 7.3% of the high water mark.

Yet some of the engines of the price recovery are spluttering. Most importantly, mortgage rates have risen as markets anticipate an end to the Federal Reserve's bond buying.

Robert Shiller, the co-creator of the S&P/Case-Shiller Home Price Index, said higher borrowing costs could limit US house price gains in 2014 to roughly 6%. The index rose 12.8% in the 12 months to August.

"The US market might be cooling," Shiller told Reuters. "I think prices will keep going up for a while. There is still momentum, but it may fade and turn down in the next year or two."

Higher interest rates are causing cash buyers to pull back. According to Goldman Sachs, in 2012 and the first half of 2013 fully 60% of home purchases were all-cash transactions, double the pre-crash figure, as Wall Street and foreign investors swooped in on distressed markets.

Family buyers are taking up some of the slack, but the speculative frenzy that marked the go-go years of the mid-2000s is missing. Banks have tightened mortgage standards, while the jobless rate is a lofty 7.2% and wages are stagnant.

In Las Vegas, prices have rebounded 29.2% in the past year, but Gregory Smith, a local real-estate agent, said the market was cooling off.

"More families are starting to get their offers accepted, as the investors retreat. These are real buyers who intend to stay in the homes long-term. We are in a flattening-out phase," he said.

To assess property market risk, house prices need to be gauged in relation to income.

Whereas the US price-to-income ratio at the end of 2012 stood at 84.3, measured against a rolling long-run average of 100, the ratio in Canada was at a 10-year high of 131.7, according to the Organisation for Economic Cooperation and Development.

Moreover, Canada's debt-to-income ratio reached a record high of 163.4% in the second quarter.

"Debt is at record levels, and we know consumers are biting off more than they can chew financially, so does this lead to more problems down the road?" asked Laurie Campbell, chief executive at Credit Canada, a credit counselling agency.

The same question is being asked across Asia. As mortgage rates return to pre-crisis averages, monthly housing payments in most Asian countries will rise by 15-25%, according to David Carbon, an analyst with DBS, a Singaporean bank.

He said Asia's housing debt as a percentage of GDP remains lower than in America, and home prices in Asia are 22% lower, relative to incomes, than in 2000.

"By this gauge, Asia has little to fear on the property front - homes are become more affordable, not more expensive," Carbon wrote in a recent report.

Even in China, prices are 40% more affordable on average than in 2000, according to DBS.

But the average masks vast discrepancies in China, where the government is concerned about a bubble and the potential for social unrest as inequality over access to housing grows.

Prices nationwide rose on average by 9.1% in the year to September, but surged 16% in Beijing and 17% in Shanghai.

"There are overheating signs in Tier 1 cities. The central government should take some measures, at least including stricter implementation of existing measures," said Wang Juelin, a former senior housing ministry researcher.

Demand by Chinese buyers has helped boost Hong Kong prices by 120% since 2008.

Hong Kong responded last October with a 15% tax on overseas buyers and in February imposed higher stamp duties and home loan curbs.

As a result, the premiums for new homes over existing homes that developers seek has shrunk to about 20% from 50-80%, according to Thomas Lam, head of research for Greater China at real estate firm Knight Frank.

Singapore has increased stamp duties and capped how much people can borrow relative to their income. New Zealand has clamped down on mortgage lending.

In Australia, house prices rose 5.8% in the year to mid-September, but Phil Chronican, ANZ Bank's local chief executive, said concern about a bubble was overstated, partly because the market had been subdued for so long.

"To stop this demand exacerbating the rising price trends, though, we need to see a supply response," he said. "We need more houses and apartments."

Supply constraints, notably strict planning rules, are contributing to surging prices in London where high-end property has been in demand from well-heeled foreign investors.

Richard Donnell, research director at property analysts Hometrack, said it was tough to set a rational price benchmark for London, given the differing motives of foreign buyers.

Prices in the capital rose 9.4% in the year to September, according to Land Registry data.

"At the moment it looks like prices are going to keep on going up. It's impossible to know what will change sentiment," Donnell said.

The British government has launched subsidised mortgage schemes to galvanise housing ahead of an election in 2015, but Donnell said there was no nationwide bubble.

Prices rose 3.4% on average in the year to September, government figures show, though mortgage lender Nationwide said property inflation hit a three-year high of 5.8% last month.

The picture in Europe is one of stark divergences.

The International Monetary Fund has expressed concern about high prices in Norway and the Bundesbank grabbed headlines by warning that apartments in Germany's biggest cities could be overvalued by as much as 20%.

In countries such as Ireland, Spain and Denmark, by contrast, price-to-income ratios have slumped since the peak in 2006/2007. Prices have also been tumbling in the Netherlands because of uncertainty over the future of generous tax breaks.

Generalising about a global asset class when conditions vary from country to country is treacherous.

In Japan, the cost of residential land, a proxy for property prices, is still 50% below its 1991 peak, but new condominiums in Tokyo are selling briskly.

At Skyz Tower & Garden, an apartment building near the site of the athletes' village for the 2020 summer Olympics, the first 820 units went on sale in August and are almost sold out.

Buyers probably expect Prime Minister Shinzo Abe's economic policies, which include a doubling of Japan's monetary base, to push up prices and lead to higher interest rates, said Ryo Hashimoto, head of the condominium's sales team.

For advanced countries as a group, house prices were now 'appropriate' considering historically low mortgage rates, according to ABN Amro, a Dutch bank.

"We are getting to a new phase where regular, middle-class families can purchase again," said Madeline Schnapp, an economist with PropertyRadar.com, a California firm. "But unless jobs get moving and incomes begin to rise, I don't think we are in danger of any sort of bubble." - Reuters, November 2, 2013.

Rehda urges government to reconsider new budget policies

PETALING JAYA: The Real Estate and Housing Developers’ Association of Malaysia (Rehda) hopes the government will review several policies announced in Budget 2014 which may affect the property sector.

They include the 6% goods and services tax (GST), the real property gains tax (RPGT) hike and the ban on the developers’ interest bearing scheme (DIBS).

“We urge the government to consider exempting the housing industry from GST or be zero rated and material and other related costs be exempted from the GST,” said Rehda deputy president and organising chairman of the Rehda Annual Dinner 2013, Datuk FD Iskandar Mansor.

He said Rehda strongly feels this will ensure the government meets its objective of helping to make homes available and affordable to the middle-income population.

On the hike in the RPGT effective Jan 1 next year, FD Iskandar hopes the government will not “burn the candle at both ends”.

A RPGT of 30% will be imposed on properties sold within the first three years. This is followed by 20% in the fourth year and 15% in the fifth year. The RPGT will not be imposed on properties sold from the sixth year onwards.

“We as industry stake holders feel the new RPGT rate will have a negative impact on the secondary market. This will create unnecessary pessimism which will slow down sales. It will eventually cause a delay in the disposal of properties by genuine sellers which will only impact the future supply to the market,” said FD Iskandar.

“The 30% RPGT imposed on the disposal of properties by foreigners within five years will send a wrong signal to investors on our property investments and promotion policies,” he said.

FD Iskandar: We urge the government to consider exempting the housing industry from GST or be zero rated and material and other related costs be exempted from the GST.

The ban on DIBS, according to FD Iskandar, will undoubtedly affect property developers. He said banks and financial institutions need to play their part to weed out speculators by not approving property loans to those who are buying for the sole purpose of flipping.

However, FD Iskandar lauded the government’s move to introduce the private affordable housing ownership scheme (MyHome) to encourage the private sector to build more low- and medium-cost houses.

One of the possibilities that Rehda has proposed to the government is to convert the low-cost housing quota to the affordable housing quota and that the management of housing for the hardcore poor be reverted to the government via its agencies such as Syarikat Perumahan Negara Bhd, state economic development agencies and the National Housing Department.

Rehda also called for the streamlining of state level policies, which differ from those of the federal government, for an efficient delivery of affordable housing to the rakyat.

According to FD Iskandar, the different impositions and requirements for the provision of affordable housing by the various states make it difficult for developers to come up with practical solutions that can meet expectations and satisfy all parties.

The Rehda Annual Dinner 2013 was held on Wednesday evening at the Sime Darby Convention Centre. The event was graced by guest of honour Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan.

Rehda launched its inaugural Rehda Recognition Award in which two awards were handed out. S P Setia Bhd took home the Outstanding Developer award while Tan Sri Eddy Chen was given the Rehda Personality award. Rehda’s immediate past president Datuk Ng Seing Liong was conferred patronship at the event.


This article first appeared in The Edge Financial Daily, on November 1, 2013.

Double whammy for buyers

THE recent budget dropped a double whammy for property buyers — an increase in real property gains tax (RPGT), ranging from 30% to 15% within five years, and the prohibition of Developer Interest Bearing Schemes (DIBS) where developers pay for interest on buyers’ loans during construction.

What will be the impact on the property market?

According to property consultants CH Williams Talhar & Wong, an increase in RPGT will cause property transactions to drop, as they did this year when RPGT was increased in Budget 2013.

Indeed, outside of stampedes on projects like Sime Darby’s Bandar Bukit Raja,YTL Land’s The Fennel, SP Setia’s Seri Mutiara apartments in Setia Alam and Setia Eco Hill in Semenyih as well as Eco World’s debut previews, the market over the last two years has cooled compared to the bull runs of 2010 and 2011.

While total property transactions dropped about 1% last year after having climbed more than 10% in 2010 and 2011, the number of home sales in the first half of this year dropped about 13% compared to the first half of last year.

This was from around 136,000 units to about 119,000 units, according to the Finance Ministry’s National Property Information Centre (Napic). The number of home sales dropped by about 16% in Selangor, and by almost half in Kuala Lumpur.

“Since early last year, when Bank Negara imposed the responsible property lending guidelines, we have seen the market slow down,” said MIEA president Siva Shanker.

“Before that, it was a bit of a free-for-all. Anyone could get all sorts of loans, especially in the primary market.”

Will prices drop?

In terms of value, however, the value of total home sales stayed pretty constant throughout Malaysia and Selangor in the first half of this year (1H2013), compared to 1H2012, although they did drop about 26% in Kuala Lumpur.

In terms of average home prices transacted, in fact, that still increased in 1H2013 by a national average of 16% compared to 1H2012, or 19% in Selangor and a whopping 41% in KL.

Indeed, according to Napic’s house price index, house prices increased every year since 1988. Outside of 1998 and 1999, in the wake of the Asian Financial Crisis, the index has increased even in years when the total values of property transactions dropped, such as 2001 and 2005, albeit marginally.

Some industry watchers also believe that there will be a surge in demand next year, before the goods and services tax (GST) is implemented in 2015.

“We do not think property prices will correct, but rather stabilise allowing a greater pool of buyers to come on stream,” suggested Kenanga Research in its post-Budget analysis.

Nevertheless, property prices in some areas have increased to unsustainable levels, believes Khong & Jaafar managing director, Elvin Fernandez.

“For selected hotspots in Kuala Lumpur, property prices are not four times the average household income, but 15 times!

“Even for highly popular areas like Bangsar, there has to be a limit. If Bangsar is RM1.5mil, people want to live there, but are you saying that if the price is RM3mil or RM10mil, will people still want to live in Bangsar? At some point, it has got to stop.”

Taking shape: More properties are coming into the market next year. 

Completed but empty

One property that has purportedly dropped its prices is a beautiful condo development located behind my own.

It sits on a hilltop within a quiet and low-density neighbourhood, within striking distance of Bangsar, Damansara Heights and Mont’Kiara. For many, you can’t get a more desirable address than that.

The property itself is gorgeous with all the mod-cons — exclusive lift lobbies where access cards open only to your apartment, video intercom, fibre optic backbone, and the like. Even though the development was completed about three years ago, more than 60% of the tower is empty.

“This tower was originally bought en-bloc by a tycoon who intended to re-sell for profit, but it is taking some time because they are all big units of more than 2,000, sq ft,” said a source close to the development.

“Now, the bank is also involved in the sale, and although the developer’s last price was over RM800 per sq ft, the price has recently been reduced to RM720 per sq ft.”

Another condominium in a central Damansara Heights has been quite empty since being handed over in 2011. A total of 92 out of 318 units are occupied, which works out to under 30%, said a source close to the development. In fact, there are still developer units available for sale. The majority of sub-sale owners here are foreigners, including investors, from Europe and Singapore, as well as block owners holding between 25 to 40 units, who engage agents to market their units.

Too many luxury condos

Many times, owners of apartments such as these would rather hang on to their investments in the hope of selling for a profit, than look for tenants, reckoned Siva Shanker.

“We as estate agents often go to these owners and ask them, ‘Would you like to rent your unit?’ They say, ‘No, no, I want to sell!’ and we say, ‘But you’re getting nothing for it now, why don’t I bring you a tenant that will give you at least RM6,000?’ Maybe they don’t want to spend RM150K to renovate, put in kitchen cabinets, wardrobes and all that. They just leave it and don’t care.

“It’s a distortion of the market,” admitted a young developer. Too much money speculating on property, while the main core of market cannot afford those prices.”

“The worst part about it is when absentee buyers don’t pay management or maintenance charges. Sometimes, they say there’s no income from the unit so they don’t want to pay. The result is dilapidated facilities and a security concern for those few units that are occupied.”

Even developers don’t like properties that stay empty after being handed over.

“We don’t want it empty,” said one representative of a leading developer, “It doesn’t look good.”

Even if owners are willing to rent, the average occupancy rate for existing luxury condominiums in KL has been on a downtrend since 2008 except for the Kenny Hills area, according to CH Williams Talhar & Wong’s Property Market Report 2012.

“In 1H2012, the average occupancy rate further decreased by about 5% to 61.6%.

“This is because new units were entering the rental market at a faster rate than the slower projected demand from working expatriate professionals entering Malaysia. Furthermore, many more luxury condo units will be completed in the Klang Valley this year,” the report said.

And the market for commercial property is also not spared. With its luxurious, fully-glazed and curved facade, this office building is a looker located just next to the Sprint highway, opposite Tropicana City Mall.

Yet, even though it was handed over to its strata title owners early this year, it is still only about 10% to 20% occupied, said an estate agent who sells units there.

Signs recently came out for a furniture retailer to take up the ground and first floor, while one floor was sold to a Japanese company, she said. Nevertheless, the rest of the units remain empty.

Unsurprisingly, prices and rents have dropped. Launched at about RM270 per sq ft, owners had originally listed the units for RM550 per sq ft, but some of them are now willing to go down to RM440 per sq ft, she adds.

“Asking rent has also gone down, originally from RM4 per sq ft to RM2.50 or even RM2 per sq ft.”

These prices going down are just asking prices, however, says Siva Shanker.

“Take condos around KLCC for example, people were asking for RM2,500 psf, and then in 2008 and 2009, people didn’t want to buy anything, so prices dropped to RM1,700 or RM1,800 per sq ft.

“In reality, many of the good locations stayed flat in transacted price. People are still making money compared to what they first paid.”

Hopefully, this would ultimately mean more realistic prices.

Given the banning of DIBS and tighter credit controls, loans may be less and less easy to come by, but prices may ideally approach fundamental values and keep the market moving.

The increase in RPGT will also make it more attractive to rent than flip.

“Instead of trying to sell at a high price, rent it out for the next two to three years. Don’t leave it empty. Get rental income,” advised Siva.

Hopefully this ultimately means all those properties we are told are so scarce and in-demand but end up empty will, rather than just being owned and held, actually be occupied and lived in. It just seems to make more sense, doesn’t it?

Is now the time to take advantage of an uncertain market?

* Check out all the latest real estate projects and discussions about the impact of Budget 2014 at Star Property Fair 2013, happening from Nov 8 to 10 at KLCC Convention Centre. More information from fair.starproperty.my. Contact the writer at sulin.chee@thestar.com.my.

Only World Group won open tender to rejuvenate Penang’s Komtar

Restoring the shine to an icon

KOMTAR — arguably Penang’s best known landmark — will be revitalised to become one of the top tourism draws in the state.

Chief Minister Lim Guan Eng said the state wanted to bring back the past glory of the iconic tower.

“At one time, it was the main shopping centre. We want to bring back its shine,” he said after launching the construction of a banquet hall at Level Five in Komtar.

Lim said work was in progress for the rebranding of the 65-storey tower.

“After almost 30 years of neglect, most of the shoplots and office spaces for the private sector have been taken up,’’ he said.

The banquet hall is part of Komtar’s revitalisation initiative undertaken by the Only World Group, which was entrusted with the project by the state government and the Penang Development Corporation through open tender.

Apart from the banquet hall, this project will also include the construction of two external high speed observation bubble elevators.

Levels 59 and 60 as well as 64 and 65 will be refurbished into international-class sky dining restaurants including an outdoor dining area.

Only World chairman and chief executive officer Datuk Richard Koh said the restaurant would be installed with a transparent floor to provide an impression that the patrons were dining in the sky.

Only World has pledged over RM50mil for the project and Koh was confident that it could reap returns from this venture, owing to the state’s growing clout as a tourist destination.

He also spoke highly of Penang’s tourism sector if the state could develop new must-see attractions. - The Star

Property market is expect to self-correct in the next year

PETALING JAYA: The "bold measures" to cool the market under the Budget 2014 will help the property market self-correct within the next six month to one year, said the spokesperson for the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS)

The higher real property gains tax (RPGT), goods and services tax (GST) which will kick in April 2015, banks to stop funding projects with developer interest-bearing schemes (DIBS) and developers to be more upfront about their freebies will likely cause a surge in property transactions and launches as developers, institutions and individuals rush to "beat the system", followed by a dearth of launches as developers cope with added cost arising from the GST.

"The market is dynamic. If supply is less than demand, developers will come in to build more. So the mechanism of demand and supply will self-correct," said James Wong, publicity chairman for PEPS.

PEPS past president Elvin Fernandez also noted that the RPGT will help mitigate the higher property prices - including residential properties due to higher material and labour cost arising from the GST.

"We have 17 months before GST kicks in and in the meantime you have the RPGT so that will arrest the rush into property to beat the artificiality inherent in the implementation of the GST.

The effective abolishment of the DIBS and transparency about marketing packages will also lead to a more balanced and realistic market, said PEPS vice president Siders Sittampalam.

"With this moves against excessive speculation, we will have more realistic pricing, backed by fundamentals rather than excessive speculation," he said.

He added that the market was distorted by all the incentives by the developers, who had initially introduced these innovative schemes to boost flagging sales in the aftermath of the 2008 financial crisis.

"Prior to this we had speculators outstripping investors and with these measures to curb excessive speculation we will have a market that is a little more realistic, dominated by investors and owner-occupiers.

"With the abolishment of the DIBS... the secondary market will start leading the way in terms of pricing," he said.

Meanwhile,  PEPS president Lim Lian Hong noted that the revised RPGT is more effective in reducing excessive speculation because it covered the usual construction period of 36 months.

"Buyers should at least see the construction of their property to completon, because if there is a lot of selling and reseling, it would interrupt construction, cause a lot of upheavals, so the project will not go on smoothly. The exemption after five years is also good because it protects long-term investors," he said.

According to Lim, in the past two yeard hotspots such as Kuala Lumpur, Penang and Johor have seen prices rise by 20% to 30% per year.

The new RPGT rate imposes a 30% tax on the first three years of holding,  followed by 20% on the fourth year and 15% on the fifth year. Sales from the sixth year onwards are exempt.

Meanwhile, foreign investors and companies will be charged a 30% tax for the first five years and 5% on sales in subsequent years. - The Edge Property

E&O said to be in final stages of approval for reclamation works for STP2 in Penang

PETALING JAYA: Eastern & Oriental Bhd (E&O) is increasingly getting on the radar of analysts’ positive view on its shares in light of its reclamation-based development in Penang.

E&O is reportedly in the final stages of securing regulatory approval for the commencement of reclamation works for its Sri Tanjung Pinang Phase 2 (STP2) project in Penang.

Some analysts envisage reclamation to start in the second half of 2014.

Analysts expect a significant positive impact from STP2 in terms of the projected gross development value (GDV). They reckon that it will be about three times the GDV of the first phase of the Sri Tanjung Pinang project (STP1), which stood at about RM4bil.

Under STP1, E&O has already reclaimed some 97ha for development.

On Aug 24, E&O held a public forum for its proposed master plan of STP2 at Straits Quay, Penang.

While STP2 has already received approval in-principle, this is the last hurdle before the final approval by the state government. STP2 is 78.8% owned by E&O and the balance 21.2% by the Penang government.

“The cut-off period for the submission of public feedback on the detailed environmental impact assessment (DEIA) study is set for Oct 31. Subsequently, questions raised by the public… together with the responses, will be collated and compiled into the DEIA report. The target submission to the Department of Environment (DOE) is in the middle of November,” AmResearch said.

In early October, AmResearch initiated coverage on E&O with a fair value of RM3 per share – based on a 35% discount to its net asset value (NAV) of RM4.61 after incorporating the significant accretion to its asset value from STP2. Stripping out STP2, AmResearch said the NAV of E&O would be RM1.36 per share.

AmResearch reckons that STP2 would be granted regulatory approvals from the Penang government by the first half of 2014.

HwangDBS Research property analyst Yee Mei Hui pointed out that E&O has a strong pipeline of RM2.35bil worth of projects to be launched for its financial year ending March 31, 2014.

They include the Mews@Yap Kwan Seng condos (with a GDV of RM400mil), the maiden launch of terraces at Medini in the Iskandar Development region, Andaman at STP1 (GDV of RM500mil) and the Princes House in Central London (GDV: RM300mil).

Yee has a target price of RM3.10 for E&O based on a 30% discount to its revised NAV of RM4.41.

Given the strong sales pipeline, AmResearch sees E&O’s earnings expanding by a compounded growth of 18% over the next three years, from RM141mil in financial year 2014 to RM200mil in financial year 2016.

For the first quarter to June 30, 2013, E&O’s net profit was down 11.38% to RM27.22mil while revenue was down 46.88% to RM94.99mil. The lower profit was mainly due to cost incurred for the completion of various development projects, namely in STP1, St Mary Residences and Villas by-the-sea bungalows.

Meanwhile, E&O has entered into a memorandum of agreement with Sime Darby Bhd to start negotiations on the proposed acquisition of 55ha of freehold land in Bukit Jelutong. The land, part of a 341ha plot, is also part of the larger 809ha Elmina West estate.

RHB Research views this development positively as this marks the beginning of efforts by both E&O and Sime to reap the synergistic benefits since the latter bought a 30% stake in the former in 2011.

While there are no indications of pricing and GDV, RHB Research said that checks on raw land in Bukit Jelutong showed that it could be worth RM15 to RM20 per sq ft (psf).

“Upon conversion and completion of infrastructure, its value could potentially be worth about RM30 psf. Hence, this purchase will potentially cost E&O RM180mil. Based on the land price, we estimate that the potential GDV could amount to RM1bil to RM1.3bil,” it said. - The Star