How property is priced by the market

IN a system where income levels, savings, costs, population density, demand, supply, rents, property sizes, property condition, property usage and preferences are so different, how does a property acquire “a” price that is acceptable to a buyer and subsequently acceptable to the market?

Why does a property sell at RM1.6mil when almost everyone living there can at best afford only RM800,000 or sell at RM800-RM1,000 per sq ft when up to a short while ago the maximum was only RM350 per sq ft?

Can 350 new properties in a scheme sell at the same price as one single latest transaction of an existing property in the vicinity? Can 10 developers sell 350 new properties each based on the abovesaid one single latest transaction?

Let’s take a look over the last 30 years at how properties had been priced in the market. Subang Jaya would make a good starting point.

In 1980 when I first started working, I noted that the latest phase of the new single and double-storey terrace houses in Subang Jaya were priced at between RM90,000 and RM140,000 per unit respectively, up from their previous pricing of between RM60,000 and RM90,000 in 1979. The 1980 pricing echoed the newly revised housing loan amounts of Division 2 and Division 1 government officers. All the launched units were quickly sold with the new and huge demand. In the subsequent phases, the pricing followed the momentum of the earlier fully sold sale prices with additional premiums for time, newer design and specifications and variations in the floor and land areas.

Then in the 1990s in the condominium city of Mont’Kiara, I noted the new condominiums were priced based on the price range of the existing two-storey terrace houses in Sri Hartamas/Desa Hartamas which were no longer being built due to land shortage and high land prices. The new condominiums provided an ideal alternative for the affluent younger Malaysians who were seeking a lifestyle change. The prices were also influenced by foreign buyers who preferred a new property with security and property management services at prices and rents which they could afford.

When the number and type of foreign buyers and tenants increased, the developer started to build larger units which were priced based on the price range of semi-detached and detached houses in the neighbourhood. This was well accepted by the market as it was based on actual demand for new, secure and well managed properties by foreigners especially since there were two international schools in the vicinity.

I also noted that in pricing the newly-launched terrace houses in the mid-1990s in Bandar Utama, the prices were 10% to 20% lower than the last transacted prices of existing comparable houses in the same neighbourhood such as TTDI, Damansara Jaya and Damansara Utama. Here the rationale was that the price of the newly-launched house should reflect a discount compared to an existing property, to take into consideration the 2-year waiting period during which interest has to be paid to the bank and rents have to be paid to stay in the current accommodation. It is interesting to note that this rationale is no longer followed by developers and their marketing gurus who now price the newly-launched schemes at higher prices than the highest sale price of an equivalent existing house. The basis being, “why not” when everybody wants to invest in properties and loans are easy and cheap.

Pricing trend

Another pricing trend noted was the continuous rise in the prices of shopoffices in Bangsar and Desa Hartamas, etc. Here the price rise was directly influenced by the rentals paid for the ground floor retail units which were in high demand by food and beverage outlets. This trend continues in all the new smaller shopping complexes as well, where the food and brewerage (F&B) outlets form the largest composition of tenants. The reason they can pay higher rents is because there are a large number of people/small entrepreneurs who find this sector the easiest to enter or invest in, as the payback period is only a short 3 years and there are no barriers to entry.

The other occupiers of the shopoffices and small shopping complexes have no choice but to cough up the same rent as the F&B outlets, as they set the “tone” for the rent in that particular row of shops. As the rents rise, so will the prices as they are directly related.

Similarly, properties in areas which can be converted to a different use where new demand is being created such as showrooms, bridal studios, etc can afford a higher rent. Prices rise due to the higher rents paid. Then by way of the much misused comparison method of valuation, other properties in the vicinity also rise in price, irrespective of their current use, rent and turnover.

I note that in highly popular areas where supply of a particular type of preferred property is limited, like in Damansara Heights/Bangsar etc, the number of transactions per year is very limited as no one really wants to sell since there are no other similar alternatives to move into. Then when out of the blue, a unit here is advertised for sale (usually because the owner is migrating or just wants to test the market) a “special purchaser” will come along and easily pay 20% to 30% above the last transacted price to secure the unit. This is repeated in the next sale when the second “special purchaser” pays another 20% to 30% above the last special purchaser price.

After two such transactions, the price paid by the “special purchaser” becomes the market price and extends to all other properties which are considered comparable, such that the price is now beyond the capacity of the people who have always lived or traded in that vicinity.

The price here is based more on the price which someone living or trading elsewhere is prepared to pay. This is what is happening in Singapore, London, etc. where foreign purchasers set the price. In Malaysia this is happening in Iskandar, KLCC and Penang.

Prices are also directly influenced in the following manner. Say a typical terrace house in a locality measuring 20’ by 60’ and 20 to 30 years old, is fetching prices in the range of RM350,000 per unit. A new scheme comes up in the area where the new unit measures 24’ x 80” and is of modern quality. Here the two properties are not comparable in terms of size and quality. The new unit is priced at say twice the price of the older smaller unit (based on cost, floor area and land area) and sets a new price benchmark for that locality. Then in a matter of time, all the existing properties in the vicinity (particularly all those that have been renovated) try to adopt a similar selling price per sq ft as the new property, using the location, location, location theory, never mind that upon purchasing the older property, the new buyer has to spend a hefty sum to make it livable to modern standards.

Then there is the effect of the policies of the lending institutions on the price. The policies of the lending institution in respect of loan tenure, interest rates and the loan to value ratio directly influence the pricing of a property. During a period of high confidence, sellers can quote high prices just to test the market, but as long as the purchase of the property can be financed, the buyer is prepared to pay the higher asking price as the loan is spread over 20 to 35 years and almost 90% to 100% of the purchase price can be financed.

And all it takes is for one property to be sold and financed at the newly tested price and the new price level will then be tested even higher with the next lending institution. This is particularly true for new types of properties which the buyer and lending institution cannot compare with an existing property.

The above real examples clearly indicate how properties have been priced by the market. It is noted that despite property being a long-term investment and outlay, the market’s pricing mechanism is very short term and dynamic particularly when moving upwards. The prices being set by the market in the short term may not always equate with sustainable market values. It is a strong probability that if one blindly follows the pricing set by the market during a very short-term dynamic cycle, life can become one of endless and needless debt. - The Star

> P.B. Nehru is the managing director of City Valuers and Consultants Sdn Bhd

E&O bullish about Seri Tanjung Pinang project

EASTERN & Oriental Bhd’s unit Tanjung Pinang Development Sdn Bhd can look forward to getting the go-ahead from the Penang government for its Seri Tanjung Pinang (STP) phase two project if it complies to all the technical and regulatory requirements for the project.

In an interview at the Chief Minister’s office in Komtar recently, Penang Chief Minister Lim Guan Eng says as long as the developer complies with the conditions and requirements, the state government will grant approval.

Under a concession agreement signed in 1990 by the previous state government and the company awarded the concession to undertake the reclamation and development of the land in Tanjung Tokong in the north-east coast of Penang, there are a number of terms and conditions for the project’s approval.

“If the terms and conditions are fulfilled by the developer, the state government will have to respect the sanctity of the agreement, otherwise it will have to pay compensation to the developer for non-compliance,” Lim says.

On April 10, the Department of Environment, Ministry of Natural Resources and Environment (DOE) granted a conditional approval for the detailed environmental impact assessment study and conceptual masterplan for the proposed STP phase two.

The proposed reclamation for STP phase two involves 760 acres of man-made islands and 131 acres of the Gurney Drive foreshore that will be handed over to the state government for infrastructure development of a new expressway, a new Gurney Drive Promenade and a parallel linear park for public recreational purposes.

Given that the state’s approval is still pending and the tender process yet to commence, analysts say the proposed reclamation work for the 891 acres of the STP phase two is expected to begin only early next year.

Reclamation works are expected to take two years and the first launch assumed to commence towards the end of the reclamation works, possibly in the second half of 2016.

Responding to queries from StarBizWeek, E&O managing director Datuk Terry Tham says E&O is now proceeding to make the necessary applications as required by the relevant authorities in respect of the proposed STP phase two development plans.

Tham gave the assurance that E&O will continue to give full compliance to all regulatory requirements, as it has done with the first phase of STP.

“Going forward, E&O is fulfilling its rights and obligations as set out in the concession agreement for the reclamation of STP phase two.

“The proposed STP phase two is of significant size, hence the conditions set out by the DOE are to ensure that the project is carried out in an environmentally responsible manner, consistent with the prevailing regulatory framework,” Tham points out.

The DEIA approval is conditional upon the following terms:

·It is applicable only to the proposed reclamation of 760 acres of man-made islands and 131 acres of the Gurney Drive foreshore, and dredging activities at the “flushing channel”;

·The provisions of the Environmental Quality Act, 1974, must always be complied with;

·The proposed STP phase two must be in line with the project concept stated in the DEIA and is subject to the approval of separate environmental impact assessments by DOE for activities prescribed under the Environmental QualityOrder (Prescribed Activities) (Environmental Impact Assessment) 1987;

·The necessary approvals from the state government and relevant government departments must be obtained before the proposed STP phase two is implemented;

·The DEIA approval conditions and recommendations of the DEIA consultant must be incorporated as conditions of tender documents and contractual agreements, to be fulfilled by any contractor/subcontractor involved in the implementation of the proposed STP phase two;

·The DEIA conditional approval is valid for two years from the date of issuance; and

·All works to be undertaken in the proposed STP phase two must further comply with specific work-related requirements and specifications as set out, including reporting obligations under the relevant laws and regulations.

New lease of life

Tham says that in addition to the 60 acres on STP phase two that will be reclaimed and surrendered to the state government, E&O is also reclaiming 131 acres along Gurney Drive to be handed over to the state.

“This land is for the state government to use for the benefit of the people of Penang. A linear park along Gurney Drive has been proposed as part of the 131 acres,” he says.

E&O is not the first developer involved in the reclamation and development of the land.

The project’s history can be traced back to 1980’s, when it started off as a joint venture between Permaijana Ribu (M) Sdn Bhd (owned by UEM Bhd, Penang Bumiputera Foundation and Magma Bhd) and Koperasi Gabungan Negeri Pulau Pinang and Penang Development Corp.

The original project proponent faced a challenging start and reclamation works were twice abandoned due largely to the Asian financial crisis.

In 1992, Tanjung Pinang Development Sdn Bhd was granted the concession to undertake the project. The reclamation of Seri Tanjung Pinang phase 1 commenced in 1997 (not by E&O). Within the same year, works were suspended due to the Asian financial crisis. In 1999, reclamation resumed only to halt again in 2000. The project was left idle for the next three years.

E&O came on board in 2003 to revive the existing but abandoned project, and Tanjung Pinang Development became a subsidiary of E&O. The project is now known as the masterplanned seafront development Seri Tanjung Pinang by E&O.

Reclamation for STP phase one comprising 239 acres was completed in 2005, and within the same year the first homes were launched. To-date, about 2,500 housing units have been completed at Seri Tanjung Pinang worth an estimated gross development value (GDV) of RM4bil.

In 2011, the Penang government granted in-principal approval to reclaim the proposed STP phase two. The second phase is expected to generate some RM25bil in GDV.

The project had been incorporated as part of the National Physical Plan 2007-2020 as well as the Penang State Structure Plan 2020.

During the interview with the Chief Minister on Penang’s development, Lim gave the assurance that the state government will ensure a holistic and balanced development model for the state, and one that is not too commercial.

“For example, we will preserve landmark historical and heritage sites, like the Penang Esplanade, and will not allow the development of this landmark historical site for commercial purposes,” Lim says.

The founder of Penang, Captain Francis Light, a former Royal Navy midshipman and trader, who founded Penang in 1786, had landed on a point somewhere at the Esplanade. The Esplanade, which can be regarded as the growth centre from which Georgetown developed and expanded, is today an important venue for many of Penang’s important events, including the Merdeka Parade on August 31.

The state’s efforts to preserve the heritage, cultural and historical sites will be in line with the 2008 inscription of the inner city of Georgetown as a Unesco World Heritage Site.

With the right concerted efforts between the state and industry players to ensure a proper balance between the built and unbuilt environment for Penang, and an integration of the old world charms with new neighbourhoods like Seri Tanjung Pinang, Penang will be assured of a place among the handful of well-regarded liveable international cities of the world. - The Star

No surprises in property report

PROPERTY experts say the findings of the Property Market Report 2013, released last week by the National Property Information Centre, came as no surprise, with the various cooling measures having their intended effect of curbing speculation and excessive price growth.

Less certain is whether demand will recover in earnest during the second half of this year, in what some expect to be a “pre-GST boom”.

CEO-Agency of property consultancy PPC International Sdn Bhd Siva Shanker tells StarBizWeek that he sees buyers making a beeline to snap up property in the two quarters prior to April 2015, when the GST takes effect at an initial rate of 6%.

Shanker, who is also president of the Malaysian Institute of Estate Agents, does not believe Malaysia will follow the example of Australia, where prices soared and then tumbled pre- and post-GST back in 2000.

“In Malaysia, what goes up does not come down. I think our property prices will rise ahead of GST and find their level there,” he says.

According to the Property Market Report 2013, volumes shrank 10.9% to 381,130 transactions but their value rose a marginal 6.7% to RM152.37bil from RM142.84bil in 2012, indicating that prices gained strength despite a raft of measures designed to rein in speculation, including a ban on interest-bearing schemes and a higher real property gains tax.

“Most people say 2014 and 2015 will be tough years for the property market. A slowdown usually lasts for two years.

“But looking at the report, my view is that 2013 and 2014 are the slowdown years. I expect the market to normalise in 2015 and make a full recovery in 2016 and 2017,” Shanker remarks.

“This year’s volumes will probably be flat, but prices are not likely to go down.”

As in the past, the report showed that the residential market dominated close to two-thirds of all transactions.

Approvals for housing loans, however, fell sharply compared with an expansion the year before. Total loans disbursed for the purchase of residential properties rose to RM74.4bil from RM64.1bil.

The report says construction activity stayed solid, backed by high-rise and high-end properties in the Klang Valley, Penang and Johor. The shop and industrial segments also saw higher starts and building plan approvals in 2013.

The occupancy rate for retail and office space remained firm, buoyed by a moderate increase in new supply, as well as fewer starts and new planned supply.

But the market showed evidence of softening across the board. All sectors posted reductions in transaction activity, led by commercial and industrial properties.

Most states fared worse save for Johor and Perlis, which recorded high single-digit improvements.

Five states experienced double-digit contraction in activity, with Putrajaya, KL and Kelantan topping the list.

According to the report, residential properties saw improved sales of new launches and more housing starts and completions, which helped pare down the number of “overhang” properties.

The all house price index jumped to 192.9 points against 172.8 points the year before. Average prices rose 10% to RM266,304 from RM241,591.

In terms of volume, most states posted a downturn except for Johor, which expanded 16.6%.

In value terms, all major states saw growth except for Kuala Lumpur, which declined by 9.7%. Johor was most improved with 63.2% growth, while Selangor recorded 2.8% growth and Pulau Pinang, zero growth.

Houses priced between RM250,000 and RM500,000 were the most popular, capturing 27.3% of all transactions, while demand for those in the low-cost RM100,000-RM200,000 category weakened.

Terraced houses made up the largest share of residential transactions, with Selangor, Johor and Perak contributing to more than half of the market share, followed by condominium and apartment units, most of them being transactions in Selangor and Kuala Lumpur.

The number of new launches fell last year after three straight years of growth to 48,290 units from 57,162 units in 2012, even as their take-up receded to 45.1% against 47.7%.

Kuala Lumpur, Selangor and Perak topped the list of new launches, commanding 57.4% of the national total.

From a price standpoint, the Kuala Lumpur market continued to be resilient. The report reveals that single-storey terraced homes at Bukit Bandaraya and Lucky Garden, both in Bangsar, saw 25.3% and 11.4% growth, respectively, pushing the value of a unit to upwards of RM1mil.

Spurred by the MRT factor, homes in Taman Bukit Anggerik and Salak South Garden posted 17.2% and 17.8% growth, while double-storey terraced units in Kepong’s Desa Park City ranged between RM1.31mil and RM2.48mil.

The report highlights that select condominiums in Kuala Lumpur, such as Bangsar Puteri, OBD Garden Tower and Casa Vista experienced growth of over 20%.

A downtrend was seen in Mont’Kiara Damai and Tijani 2, however, as prices tumbled by 5.7% and 12.4%, respectively.

Home prices also stayed firm in Selangor, but Johor’s landed residential segment jumped by double-digits in certain areas, particularly Johor Baru.

Condominium pricing in Johor Baru remained competitive, with the highest transacted price being RM500,000 per unit in Taman Pelangi. On average, units were priced between RM150,000 and RM350,000.

Up north in Pulau Pinang, residential properties were stable as the limited number of terraced houses on the island boosted demand for the Timur Laut and Barat Daya districts.

While Iskandar Malaysia was clearly a boon for Johor, CH Williams, Talhar & Wong managing director Foo Gee Jen says he is concerned if that performance is sustainable.

The veteran property consultant also expects a pre-GST rush for property.

“Buyers are concerned that prices will go up. If you are looking at a piece of property, now is the time to lock in your purchase,” he quips.

In Foo’s estimation, residential property could experience an 8%-10% jump in price after GST, and the landed segment a stronger 10%-15%.

“There is no oversupply in landed homes, but I can’t say the same for condominiums, especially the Soho (small office home office) or Sovo (small office versatile office) types.”

Kim Realty CEO Vincent Ng tells StarBizWeek that demand in the primary market remains firm and will likely continue apace unless interest rates go up.

“The primary market may gain traction in the second half as developers have been holding back on launches. Those with unsold stock will want to unload them before GST,” he points out.

“I don’t think prices will be cut drastically, but developers will make it attractive for buyers.”

Nonetheless, Ng acknowledges that the banks have tightened the screws on mortgages, leading to a mass of loan rejections.

“From what I understand, 30%-50% of the people who have put in deposits have had their loan applications denied for various reasons,” says Ng.

“The damage has already been done. More cooling measures will kill the market,” says another property agent. - The Star

Property transactions dip, but house prices continue to rise

KAJANG: The various cooling measures on the property sector dampened transactions last year, with the volume of properties bought and sold dipping by 10.9% from 2012, even as total value rose 6.7%, a sign that prices did not come down.

According to the Property Market Report 2013 released by the Valuation & Property Services Department, there were 381,130 transactions in the country in 2013 compared with 427,520 the year before, although their value climbed to RM152.37bil from RM142.84bil.

The all house price index edged up to 192.9 against 172.8, and all house prices to an average of RM266,304 from RM241,591.

The residential subsector retained the lion’s share of the market at 64.6% of volume and 47.3% of value.

This was buoyed by the prevailing low interest rate environment on the back of a base lending rate of 6.53% and weighted average lending rate of 5.4%.

Last year saw 246,225 residential property transactions and worth RM72.06bil, which declined 9.7% and rose 6.3%, respectively.

There was a slight decrease in the sales of new launches but the number of overhang properties also dipped.

In the primary market, new launches shrunk after three consecutive years of growth, with 48,617 units of new launches rolled out from 57,162 in 2012. Some 45.1%, or 21,904, of these units were sold.

Five states exceeded the national average take-up, of which three – Putrajaya, Selangor and Pahang – surpassed the 55% mark.

In terms of units launched, Johor, Selangor and Perak topped the list with 20.9%, 13.5% and 11.85 of the national total.

Terraced units made up the bulk of the new launches with 47.8% comprising 9,080 single-storey terraces and 13,273 two to three-storey units.

Condominiums and apartments contributed to 19.1% or 9,265 units. The sales of both these categories stood at 50.9% and 44.8%, respectively.

In terms of value, the Valuation Department said most states saw a downturn in market activity save for Johor, which grew by 16.6%.

Transaction volumes in Putrajaya fell the most by 41.7%, and Kelantan 34.6%, a reversal of its 93.6% growth in 2012. This was followed by Kuala Lumpur (-34.4%), Labuan (-33.9%), Penang (-23.9%) and Selangor (-14.3%).

By market share, Selangor outpaced the other states, contributing to 26.1% of all residential transactions. Johor was next at 13.7%, followed by Perak, Penang and Kedah.

In terms of value, only Kuala Lumpur saw a contraction in value of 9.7%. Johor posted the best growth of 63.2%, Selangor grew 2.8% and Penang saw no growth. Perlis, however, shot up 80.7% from the previous year.

The report said the different market segments as measured by price indicated a divergent scenario.

Transactions in the lower-price range softened last year. Compared with 2012, the market activity of homes in the RM100,000 to RM150,000 and RM150,001 to RM200,000 bracket fell 26.6% and 17.9%, but the RM250,001 to RM300,000 range climbed by 23.2%.

Houses priced between RM100,001 and RM300,000 were the most active, capturing the largest share of the market at 42.9%.

Housing approvals fell sharply by 22.5% from an expansion of 47.4% in 2012, while total loans disbursed for the purchase of residential properties increased to RM74.4bil from RM64.1bil.

Deputy Finance Minister Datuk Ahmad Maslan told reporters after the launch yesterday that the goods and services tax, which comes into effect next April, was not expected to raise house prices significantly as the tax was exempted on the home itself. - The Star

Developers' focus shifts with the opening of the second Penang bridge

DESPITE a softening property market on Penang island and Seberang Prai, Kuala Lumpur and Penang-based developers will be undertaking projects to the tune of RM4.56bil this year, a check with various developers show.

The island, however, is seeing fewer residential property launches due to land shortage, higher land cost and a challenging property market environment. Nevertheless, Raine & Horne director Michael Geh says the gross development value (GDV) of the projects launched on the island this year will still be higher.

Geh says the price of vacant land in Batu Maung has increased to RM250-RM300 per sq ft.

Of this RM4.56bil, about RM1.86bil will be residential and commercial projects planned in Seberang Prai, while the remaining RM2.7bil will be on the island.

Although in value terms the island will have a lion’s share, much of the focus is expected to be on Seberang Prai, located on Peninsular Malaysia.

To a large degree, the focus on Seberang Prai has been triggered by the announcement of the second bridge by Malaysia’s fifth prime minister and Penangite Tun Abdullah Ahmad Badawi in the Ninth Malaysia Plan in August 2006. Since then, property prices in Seberang Prai and on the island have risen significantly. One can consider 2006 as the watershed where Seberang Prai is concerned.

The opening of the RM4.5bil second Penang bridge on March 1 is also expected to spur a second wave of interest.

The connectivity is expected to boost retail, for a start. There are plans to develop a RM200mil premium retail outlet known as Penang Designer Village and an integrated shopping mall which will be anchored by an IKEA store in Seberang Prai.

Fook says land prices in south Seberang Prai has jump to RM40-RM50 per sq ft.

PE Land Sdn Bhd will undertake the Penang Designer Village, while the integrated shopping mall with residential components will be developed by Aspen-Ikano.

Residential development is also expected to improve with the entry of big players into that area in terms of style and design.

Last December, Mah Sing Group Bhd acquired 30.9ha in Jawi, comprising 20 pieces of prime freehold contiguous land, for RM400mil. Its group managing director and chief executive Tan Sri Leong Hoy Kum says the group plans to introduce an integrated township called Southbay East.

Leong says the township is currently at the planning stage. He says the freehold township located just 6.6km from the Jawi toll plaza on the North-South Expressway is expected to attract those who work and live in Southbay East’s immediate surroundings. The property developer is proposing linked homes, semi-detached units and town houses. There will also be a club-house.

But land prices may become an issue. Henry Butcher Seberang Prai’s associate director Fook Tone Huat says vacant land prices in the area, especially those in south Seberang Prai where the second bridge is located, are now hovering between RM40 and 50 per sq ft, a huge jump from 2006’s RM8-RM9 per sq ft.

Land prices in Central and North Seberang Prai were then between RM20 to RM40 per sq ft, compared with today’s range of between RM50 and RM100 per sq ft. The increase in land prices has translated into higher property prices.

“New landed properties such as double-storey terraced units in South Seberang Prai are now priced between RM350,000 and RM400,000 compared with between RM150,000 and RM200,000 prior to 2006,” Fook says.

Double-storey terraces in prime locations in Central and Northern Seberang Prai have doubled from RM200,000-RM270,000 range to RM400,000-RM600,000.

“We are also seeing a lot of life-style condominium projects being planned in Bukit Mertajam this year with new units priced at at around RM300 per sq ft,” Fook says.

As for the secondary or sub-sales market, double-storey terraced houses have a wide price range of between RM250,000 and RM500,000, depending on location.

Landed properties in the sub-sales segment command the best pricing in Bukit Mertajam and Butterworth town.

Despite the interest in Seberang Prai, Fook expects the volume of property transactions to soften this year, due largely to the difficulty in obtaining housing loans.

“There will definitely be fewer transactions this year compared with about 12,000 registered for 2013.

“Since January, we have seen fewer enquiries for primary and secondary market properties as the rejection rate of housing loans is currently at about 60%. Property prices are expected to remain more or less the same as last year,” Fook adds.

Real Estate and Housing Developers’ Association (REHDA, Penang) chairman Datuk Jerry Chan says due to the tightening of bank loans, he expects the volume of property transactions to decline by about 30% this year.

“The overall transacted value will also fall by about 20%,” he says. Raine & Horne’s Michael Geh expects properties in the secondary segment to remain stable, while those in the primary market might soften slightly.

“There will definitely be a dip in the volume of transactions, due to the stringent loan conditions,” Geh says.

Despite issues about buyers getting the margin of financing they would like to have, this does not seem to have deterred developers from entering the Seberang Prai market in a fairly big way.

DNP Land, which is part of Singapore’s Wing Tai group, will be developing a RM250mil condomonium project known as Bukit Mertajam Mahkota and the RM550mil Jesselton Hills landed property scheme in Bukit Mertajam, located in Central Seberang Prai. Tambun Indah Land Bhd is also planning RM616mil worth of landed property launches for Bukit Mertajam and Pearl City in Simpang Ampat, south Seberang Prai.

DNP Land (North) general manager K.C. Tan says the Bukit Mertajam Mahkota project will be the town’s first high-end condominium development. As for Jesselton Hills in Alma, it will have 200 units of semi-detached and terraced houses.

“The projects are strategically located between the first and second bridges, and is close to Jalan Song Ban Kheng, a prime residential district. They are also surrounded by the Prai and Bukit Minyak Industrial Parks and Penang Science Park.

“We expect buyers from Kedah, especially from Kulim High Tech Park, as Bukit Mertajam is the main connecting point between Penang and Kedah,” Tan says.

IJM Land, known for its Penang island Light project, is also launching RM236.5mil worth of properties comprising double-storey houses in Jawi, south Seberang Prai, and double-storey linked bungalows in Bukit Mertajam, central Seberang Prai. One of Kuala Lumpur’s heavyweight, Sunway Bhd is also planning to launch some RM150mil worth of residential and commercial projects for the second phase of Sunway Wellesley in Seberang Prai, a mixed-development project in Bukit Mertajam, at the end of this month, while the RM60mil third phase, comprising resort condominiums, will kick off in October.

Sunway Bhd general manager Tan Hun Beng says the group will be launching more properties in Seberang Prai as the lower land prices there has allowed the group to price its properties affordably. In June this year, Sunway will launch the RM80mil Sunway Cassia third phase, double-storey semi-detached and three-storey terraced houses, in Batu Maung, in Seberang Prai.

The focus on Seberang Prai, by no means, mean that there is less interest on the island. In fact, property prices have grown by leaps and bounds the last several years. This year, however, will see less launches of landed units, due largely to land shortage and high prices.

Raine & Horne Malaysia director Michael Geh says the price of vacant land has increased to around RM250 to RM300 per sq ft in Batu Maung in the southern part of the island, where the second bridge is located, from about RM50 to RM60 per sq ft prior to 2006. This effectively means that in just eight years, land prices have increased by 400%.

However, Geh also says land prices depend on what the land is being zoned for, whether it is agriculture, commercial or residential usage. This increase in land prices coupled with other factors have resulted in higher property prices.

New two- and three-storey terraced houses on Penang island now cost about RM1.2mil in the south of the island, compared with about RM450,000 prior to 2006.

“New condominiums in similar locations are now priced at RM700,000-RM800,000, compared with RM250,000-RM300,000 prior to the second-bridge announcement in 2006. In the prime locations of the north-east districts such as Tanjung Bungah, Tanjung Tokong, and Pulau Tikus, new lifestyle high-rise units start from RM800,000 onwards, doubled what it used to be in 2006,” Geh says.

How sustainable are these prices? The reponse to launches will be an indication.

Eastern & Oriental Bhd will be launching its RM800mil Andaman Edition 18 East condominium scheme on the island in the first half of this year. IJM Land will introduce its RM125mil Trehaus@Bukit Jambul. This comprises condominium villas and semi-detached villas, and a yet-to-be-named medium and low-medium cost project, which has a RM177mil GDV, in the fourth quarter of this year.

S P Setia will launch in the second half the RM300mil Setia Sky Vista, a condominium project, in Relau.

These launches will be keenly watched.

MyHome requests to start on April 1

BY LEE YEN MUN

PUTRAJAYA: The MyHome Scheme, which provides a RM30,000 incentive for each affordable house, will be open for applications starting April 1.

Private sector developers and house buyers interested in the scheme may file their applications online via http://ehome.kpkt.gov.my.

The scheme, announced by Prime Minister Prime Minister Datuk Seri Najib Tun Razak last year, consists of a RM300mil incentive allocation offering 10,000 units of affordable homes nationwide.

“MyHome is part of a continuous effort by the Federal Government to provide affordable homes to the rakyat (people) of all levels,” said Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan at the launch of the scheme here yesterday.

Under the scheme, qualified private sector developers will receive an up front incentive of RM30,000 per affordable home sold.

The incentive would cover the 10% deposit required of buyers after the sales and purchase (S&P) agreement is signed.

A 10-year moratorium would apply from the effective date of the S&P agreement, prohibiting a buyer from re-selling or transferring ownership of the home except if the latter is carried out to immediate family members.

The scheme is expected to benefit two categories of households. While MyHome1 is open for households with an income of between RM3,000 and RM4,000, MyHome2 is for those with a household income of between RM4,001 and RM6,000.

Houses under the MyHome1 would cover a minimum of 800 square feet of space with a market price of between RM80,000 and RM120,000 in the peninsula and between RM90,000 and RM120,000 in Sabah and Sarawak.

MyHome2 prices would range between RM120,001 and RM200,000 in the peninsula and between RM120,001 and RM250,000 in Sabah and Sarawak for homes measuring a minimum of 850 square feet.

MyHome2 houses will have three bedrooms and two washrooms as well as basic amenities such as parking spaces, a community hall, a surau and a playground.

Interested buyers must be Malaysians aged 18 years old and above who are buying a property for the first time.

“Qualified buyers will be reviewed by the ministry and a selection will be done through a balloting process,” Abdul Rahman said. - The Star

Consumer groups call for transparent house buyer selection

PETALING JAYA: There must be transparency in the selection of qualified buyers and the final balloting under the MyHome Scheme, said consumer groups.

“We must hold true to the principle that whoever deserves a house (under the scheme) should get it regardless of race,” said National House Buyers Association honourary secretary-general Chang Kim Loong said.

“The Housing and Local Government Ministry should also ensure that buyers meet all the eligibility criteria for the loan before they grant the incentive,” he added.

Fomca secretary-general Datuk Paul Selvaraj stressed the importance of transparency in the selection process.

“We must ensure that those who qualify would be entitled to a house. The process must be transparent so that those who do not get the incentive or house will still feel the selection process was carried out fairly,” he said.

Paul added that the scheme would help more Malaysians, especially the younger generation, to realise their dream of owning their first home.

Chang commended the inclusion of a 10-year moratorium, which prohibits a buyer from re-selling or transferring ownership of the home unless it was transferred to immediate family members.

“This will make sure there will be no flipping of properties,” he said.

Property developer Mah Sing Group Bhd also lauded the scheme.

“We are keen to find out if we meet the conditions (to file an application for the scheme),” said its corporate communications general manager Lyanna Tew. - The Star

House prices expected to stabilise as a result of measures

PROPERTY professionals, especially developers, continue to grumble about the challenging first six months of this year as a result of various government and banking measures kicking in with some developers delaying launches to the second half of the year.

A survey by the Real Estate and Housing Developers’ Association (Rehda) reveals that 87% of 150 respondents are “pessimistic or neutral” about the first half of the year.

While the situation may indeed be in a flux for some developers, especially the smaller ones as buyers turn cautious, all is not lost when one considers the big picture.

In an earlier seminar on the property sector, Valuation and Property Services Department deputy director-general Faizan Abdul Rahman said house prices were expected to stabilise as a result of these measures. He was speaking at the 7th Malaysian Property Summmit 2014 organised by the Association of Valuers,Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia late last month.

The distress among developers is understandable. Because of Malaysians’ general interest in this sub-segment, developers have focused on meeting this demand over the years. This focus on the residential market escalated considerably between 2010 and 2013, accounting for multiple launches among developers.

Faizan said residentials formed the bulk of transactions for the first nine months of last year, or 64% of about 280,000 transactions. In terms of value, it accounted for RM51.51bil of total value amounting to RM105.7bil, or 49%.

Faizan said the residential sub-segment would continue to drive the market in the months ahead with prices moving on a more even and moderate keel.

One of the speakers, property consultancy C H Williams Talhar & Wong managing director Foo Gee Jen said that looking ahead, property investment would continue to be relatively more popular than other forms of investments with rising demand for affordable housing.

“Genuine demand will lead the market. There will be no more double-digit price increases,” he said.

Analysing prices for the first nine months of 2013, Foo said serviced apartments had the highest price on a per square foot basis at RM609 per sq ft while terraced housing were the lowest, at RM327 per sq ft.

“In the landed segment, he said most prices had doubled over the years. Bandar Utama’s double storey housing was priced at RM280 per sq ft in 2005. It was RM620 per sq ft in 2013. The overall landed sector had average percentage increase of 8% between 2005 and 2010 but hit 18% a year for three consecutive years between 2011 and 2013.”

He came to this conclusion after analysing prices in Taman Tun Dr Ismail, Bandar Utama, Bukit Jelutong, Kota Kemuning and Bandar Kinrara.

Foo said gated and guarded housing experienced the greatest increase, averaging 10% between 2005 and 2012 with selected developments having a higher annual appreciation of 14.4%. Detached houses had the highest return at 27.2% per annum followed by semi-detached houses at 17.3%.

“Gated and guarded housing was introduced into the Malaysian market more than 10 years ago. In 2013, this segment outperformed the rest of the other types of housing. In 2005, a detached house in a gated and guarded community was RM600 per sq ft (2013: RM1,200 per sq ft), a semi-detached house was RM400 per sq ft in 2005, doubling to RM975 per sq ft last year,” he added.

Terraced housing averaged RM480 per sq ft in 2005 and increased to RM600 per sq ft last year, he said.

As for the condominium market, Foo said total stock had grown considerably over the years and as at 2013, there was more than 355,000 units. Of this, about 27,000 units are luxury condominiums. He did not defined what he considered as a luxury condominium.

Foo said: “The supply of luxury condominiums grew at an average rate of 20% a year between 2008 and 2013 with a vacancy rate of 25%.” He cautioned that more than 32,000 units are expected by the end of this year.

“It will be a challenging market for developers in 2014. Residential property market is expected to cool down, prices stable and secondary sales slow,” he said.

The trend for developers to seek development in fringe areas continue to escalate with developers now building in areas with a radius of about 40km away from the city centre.

Mah Sing Group Bhd is building M Residences in Rawang and Southville City in Bangi. In Shah Alam, Sime Darby group is development the Elmina township andIJM Land Bhd in Bandar Rimbayu. Puchong and Semenyih have the highest concentration of new launches.

With affordability being the main issue the last few years, Foo says this is expected to change with the government’s programme on affordable housing. The government aims to build 300,000 units of affordable housing for the next five years, of 60,000 units a year. - The Star

City & Country: Consumer confidence props up residential market

PRICES in Penang’s residential market continue to rise, although the overall volume of transactions has fallen, says Raine & Horne International Zaki + Partners director Michael Geh when presenting the Penang Housing Property Monitor for 4Q2013. This was gleaned from the National Property Information Centre’s data for Penang from 1H2010 to 1H2013, he adds.

In 1H2010, transactions on the island’s primary and secondary markets totalled 8,301. Sales grew to 13,832 in 1H2011, but declined to 11,889 in 1H2012 and 8,547 in 1H2013.

“The fourth quarter of 2013 saw a continuous downward trend on the primary and secondary markets in terms of units sold,” remarks Geh. “One of the main reasons was that loans were hard to come by. This factor alone pulled the Penang developer-direct market down during the quarter. The secondary market was still active, but a little down in terms of units sold.

Geh: There was good take-up of anything less than RM500,000 as people are looking for affordability now. I would describe the market as price-sensitive.

“There was good take-up of anything less than RM500,000 as people are looking for affordability now. I would describe the market as price-sensitive.”

The 4Q2013 data shows there was double-digit year-on-year price growth in many of the areas sampled, which could spill over into 1Q2014.

“January would have seen strong activity because Penangites who work overseas or in KL come home for the Chinese New Year holidays and usually purchase properties for their family or help them upgrade,” Geh explains.

Overall, consumer confidence is strong, he comments, attributing this to the soon-to-be-opened second bridge, the RM1.25 billion worth of investments pumped into the state by the federal government and the opening of IKEA and the Penang Designer Village in Batu Kawan, among others. News that Sunway Bhd is buying acres of land on the island from Lee Rubber Co Ltd, which, once developed, will have an estimated gross development value of RM1.5 billion, has also boosted optimism in the property market.

As a result, consumers are on the hunt for good buys in the Penang housing market, says Geh, highlighting several hot developments and areas on the island and the mainland.

One is E&O Bhd’s Seri Tanjung Pinang in the northern part of the island while the 152-acre The Light Waterfront by IJM Land Bhd is another. Parts of the latter, which is very close to the first bridge, have been completed and handed over to the owners. According to Geh, The Light Waterfront properties have seen a lot of rental activity and secondary market sales in the last three to four years.

In the south, near the second bridge, Teluk Kumbar and Teluk Tempoyak are creating a buzz, he says, adding that areas south of Butterworth, such as Juru, Bukit Tambun, Batu Kawan and Sungai Bakap, are getting much attention, also thanks to their proximity to the second bridge.

A view of Penang taken from Komtar Tower

State housing policy and auctions
While the outlook is rosy, a possible roadblock is the state government’s new housing policy to curb speculation. It states that properties priced RM400,000 and below on the island and RM250,000 and below on the mainland can only be sold after the fifth year of purchase. There are also restrictions on the resale of low-cost (RM42,000) and low-medium-cost (RM72,500)homes within the first 10 years of purchase.

Then, there is the 3% levy on purchases by foreigners and 2% levy on the seller of any property within three years of the date on the sale and purchase agreement. The new policy was to have taken effect on Feb 1, but has now been postponed to March 1. However, the 3% levy, on top of the 30% Real Property Gains Tax, on foreign buyers took effect this month.

Geh feels that the new policy will impact the Penang residential market, although it is too early to say by how much exactly.

In 4Q2013, house transactions in the mature residential areas of the island were still strong. According to Geh, this was because people wanted to buy houses that were near their family homes or place of work.

Besides buying on the primary and secondary markets, Geh advises homebuyers to consider auctions. However, this can be a tedious process. “Auctioning is slow because the people who really need a house or want to buy something don’t get the relevant information easily to make a purchase,” he explains. “Information is not easily disseminated, like through a website, and people still need to look through the newspapers. It is still an adventure. When auction information is offered to purchasers efficiently, the market will get off the ground.”

Fourth-quarter performanceThe 4Q2013 Penang housing property monitor shows that the prices of houses in well-established suburbs continued to grow quarter on quarter while in other areas the prices held steady.

The prices of 1-storey terraced houses in Green Lane, for example, rose to RM650,000 for the highest q-o-q growth of 13.85% compared with such homes in the other areas sampled. Development in Green Lane began in the 1960s, transforming the small farming village into a bustling neighbourhood. One-storey terraced houses in other areas that showed price growth include those in Jelutong (+12.31%), Sungai Dua (+7.69%), Bandar Bayan Baru (+6.25%) and Sungai Ara (+4.76%).

Y-o-y, all types of houses cost more in the areas sampled except two. The prices of 1-storey terraced houses in Seberang Perai Tengah dropped 6.25% to RM160,000 while those of 2-storey terraced houses in Sungai Ara held steady at RM750,000.

Demand for houses in Seberang Perai Tengah is much less than that for houses in other areas of Seberang Perai, says Geh, adding that houses to the west of Bukit Mertajam, nearer Perak, are considered hot. The areas to the east of Bukit Mertajam are less developed, he points out, although it is just a matter of time before development reaches there and has a positive effect on prices.

As for Sungai Ara, Geh finds it to be a very stable residential area. “It is like Subang Jaya or Cheras, where property prices don’t go up or down quickly.”

Rents and yields in 4Q2013 remained relatively stable q-o-q and y-o-y. “Market values were at a record high in 4Q, so rents did not go up much on account of affordability. Thus, yields did not increase,” Geh points out. “In some places, yields came down but values went up. Rents cannot be increased in line with capital values because this could lead to tenants moving out.”

Penang’s housing market continues to be strong on the island and mainland. Will it react to the state’s new policy that takes effect on March 1? Only time will tell.


This article first appeared in The Edge Malaysia Weekly, on February 14, 2014.