Giving of rebates to attract buyers

A COUPLE of weeks ago, a bit of controversy arose over the purchase of two residential units in One Menerung, located behind Bangsar Shopping Complex.

For non-city dwellers, Bangsar is an upscale commercial and residential area next to Damansara Heights, one of Kuala Lumpur's most prestigious neighbourhood. The developer is Bandar Raya Developments Bhd (BRDB). It is unclear how much the two units actually cost. There are reports which cited that one of the units cost RM9.8mil and the second unit cost RM6.9mil. For the sake of consistency, let us just put the two units at RM6.9mil each.

Although it was reported that both are condominium units, it is also likely that the units may be landed duplex units as the entire project is known as a condominium project.

According to a previous press report, the Government had given a RM250mil loan to the National Feedlock Corp (NFC) for the cattle business but a portion of this money was instead used to buy two residential units in One Menerung, besides other uses. There are many interesting aspects to this cattle versus property investment episode.

The NFC is managed by the husband of Women, Family andCommunity Development Minister Datuk Seri Shahrizat Abdul Jalil,Datuk Seri Dr Mohamad Salleh Ismail. The rationale behind the diversion of funds from cattle to bricks and mortar was given during a press conference in mid-November.

According to press reports, the investment into these two units is rendering NFC a monthly rental income of RM70,000, or a gross return of about 13%, for each unit. Initially, it seemed quite impossible for a condominium to fetch that kind of rental. Even a bungalow in Damansara Heights does not fetch that kind of rental. Later, it was revealed that the monthly rental is RM18,000 for a unit.

At RM18,000 a month, a year will provide the buyer a gross rental income of RM216,000. Annually, this means a gross rental income of 3.13% (216x100/6.9). But the units come with a monthly maintenance and sinking fund charge. The monthly charges at One Menerung is at the rate of 55 sen per sq ft. Assuming that the unit is 6,340 sq ft, that works out annually to RM41,844, or RM3,487 every month.

The gross rent of RM216,000 less maintenance charges of RM41,844 is RM174,156. This means the annualised net rental income is 2.52%.

Now this is the interesting bit. In a press conference, it was revealed that BRDB gave NFC a cash rebate of 10% of the purchase price of the units. Assuming that both units are priced at RM6.9mil, this means apart from the rental income of RM216,000, the buyer received another RM690,000, or RM57,500 a month from the developer. This works out to the buyer receiving about RM75,500 (RM57,500+18,000) a month. Based on the 10% rebate excluding the rental income, over a 24-month period, the buyer received about RM1.3mil from BRDB for the two units.

But this 10% rebate ends next month, which means come January 2012, the return on investment takes a drastic fall from a return of 13% to 2.52% net, or 3.1% gross. This is the fixed deposit interest rates offered by commercial banks today.

This episode of giving a 10% cash rebate over 24 months raises other questions. Did all the other buyers of One Menerung receive the same 10% cash rebate over a period of 24 months? According to a former staff of the company, different incentives were given at different times to different buyers.

One Menerung was launched in 2006. In the first quarter of 2008, it was reported that One Menerung was doing well with 85% of the units sold. If that project was doing well, why did BRDB give that 10% cash rebate?

A developer who declined to be named says it is possible for developers to provide some form of incentive to push sales. But the quantum must be reasonable. There are also cases of buyers getting bulk discounts when they buy multiple units.

On a larger scale, why would BRDB, a very reputable developer give buyer or buyers a 10% cash rebate which stretches over 24 months? This effectively reduces the price of the properties, and the company's revenue. Normally, it is a one-off thing and is clearly spelled out and given when the property is sold.

When the price of a property is fixed and that price is approved by the Government, the developer cannot increase the price without prior approval. However, there is no issue with reducing the price of the property, although by right, this should not occur as it gives rise to other issues, the developer says.

This leads us into another area, the marketing of properties. Just as there is today, a buy-one-get-one-free in the supermarket and fashion, these purchases are small and for day-to-day use. These purchases cannot be compared to property purchases.

When it comes to property investment or an outright purchase because of a need, it is a different ball game altogether. Afterall, buying a property is a very big commitment that goes on for years and if the loan tenure is long, for decades. While it is fine to invest, decisions have to be weighed very carefully. Each investor has different needs and wants and for many of us, property investment will be the largest monetary investment many of us are likely to make in a lifetime, apart from a car. Because property prices tend to increase in Malaysia, this does not mean that property prices will not fall. It may fall for a period. Because there is always that risk, it is best to use one's own money to invest in property simply because it is a long-term investment.

As property, be it commercial or residential, is a popular asset class in Malaysia as elsewhere in Singapore and Hong Kong isn't it time that Malaysia set up a sort of regulatory framework under the ambit of some housing related assocation to govern how developers should conduct their business? This framework could include the selling and marketing of properties.

By all means, let there be some form of “inducements to buy” but let this enticement be reasonable. This is an important issue for the simple reason that property development and investment is very closely linked to the banking sector, which is the backbone to any national economy. If one falls, the other falls with it. As we have seen in the West, it was the property sector which rendered the US economy the way it is today.

l Assistant news editor Thean Lee Cheng finds these “cash rebates” very attractive, but instead of giving rebates, why not just price the property lower?  - The Star

Housing supply and demand – are we nearing equilibrium?

Is there any equilibrium point in housing market, considering the many factors influencing demand and supply?

The main determinants of the demand for housing are demographic. Population size and population growth are the core demographic variables. However, family size, the age composition of the family, the number of children, net migration, non-family household formation, the number of double family households, death rates, divorce rates, and marriages are other demographic variables that would influence demand for housing. Other factors such as household income, price of housing, cost, availability of credit, consumer preferences, investor preferences, price of substitutes and price of complements all play a role in determining demand for housing.

Income is an important determinant of demand as shown by a study conducted by De Leeuw in 1971 that showed positive income elasticity of demand in North America ranging from 0.5 to 0.9, meaning the market demand for housing grew as real income rose. The price of housing is also an important variable influencing demand for housing, where in terms of elasticity just like any normal goods it is negative increase in price will result in decrease in demand.

As for supply, the quantity of incoming supply is typically influenced by cost, price of existing stock of houses, and the technology used in the construction, where material costs tend to contribute the largest share of the construction cost, about 30% to 40%. In the short run, supply tends to be very price inelastic increase in cost will have less effect on supply. However, over a longer period, it tends to be very price elastic increase in cost will lower supply.

A study conducted by Fallis in 1985 showed price elasticity of supply was estimated at 8.2, indicating increased in cost would lower supply significantly. The degree of elasticity depends on the elasticity of substitution and supply restrictions. For example, the use of capital intensive technology has been employed to reduce the rising labour cost, thus having less impact on the supply of housing.

As at first half of 2011, Malaysia had 4,466,062 units of housing, an increase of 1.7% from the total of supply in the first half of 2010. About 24,709 units were completed in the first half of 2011, a lower number compared to 50,611 units completed in the first half of 2010. Kuala Lumpur and Selangor accounted for 6,567 units or 27% of the total new stock. Kuala Lumpur and Selangor had 414,436 and 1,285,192 homes, reflecting an increase of 2.0% and 1.7% respectively from the total as of first half of 2010.

Other states which showed significant number of units completed are Sarawak (2,612), Penang (2,507) and Perak (2,184). The incoming supply in the country was recorded at 560,636 units, where Selangor is the largest contributor (134,143 or 24% of the total) followed by Johor (76,429 or 14%) and Negri Sembilan (65,227). Kuala Lumpur has 39,656 units coming on stream.

In terms of transactions recorded as of first half of 2011 for the country, there were 133,984 transactions in the residential category, out of which the largest transacted numbers were priced in the range of RM100,000 to RM150,000, which accounted for 22,857 units, followed by units priced between RM250,000 and RM500,000, which accounted for 21,559 units.

Selangor recorded the highest number of transactions at 38,424 units, followed by Johor (15,015 units), Penang (13,832 units), and Kuala Lumpur (11,522 units). The most popular units transacted in Selangor, Kuala Lumpur, and Penang were for units priced between RM250,000 and RM500,000, while in Johor, the highest transactions recorded were for units priced between RM100,000 and RM150,000.

This brief analysis gives an indication that the total number of units coming into the market needs to be in line not only with the level of affordability of potential buyers in the area the projects are to be launched but also the demographics of Malaysian population.

As of July 2010, total population was estimated to be 28.25 million and the population is expected to grow at a rate of 2.4% per annum, where about 65% of the population is urban population. Today, less than 4% of Malaysians live in poverty and it is estimated that about 2.0% of the total urban population in Malaysia lives below the poverty line, earning monthly household income of equal or less than RM750. Low income households (earning income equal or less than RM2,000 per month) represents 75% of the median income in Malaysia.

The national average household income is estimated at RM4,000 per month. It should also be noted that about 65% of Malaysia's population is below the age of 35, thus there would definitely be strong demand for housing.

Due to continuous movement in the factors affecting supply and demand for housing, policy intervention is necessary to ensure that the majority of the population has equal access to own homes. Singapore's public housing policy is often cited as the most successful example of affordable housing provision in Asian cities. A study conducted in 2000 estimated that about 85% of the total population lived in public housing with nearly 95% of them owning the flats they occupied.

By centralising its public housing effort under a single authority, Housing Development Board, Singapore has circumvented the typical problems of duplication and fragmentation of duties, and bureaucratic rivalries associated with multi-agency implementation. This centralised function also serves as a mechanism to ensure supply and demand are checked.

It is hoped that the provision of affordable homes as announced in Budget 2012 would achieve its main objective of increasing home ownership among the majority of the population.

Senator Datuk Abdul Rahim Rahman is the executive chairman ofRahim & Co group of companies. - The Star

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省电省水节能环保屋 实达建槟绿色王朝

(槟城23日讯)槟州政府致力打造“绿意槟城”之际，在槟城大展拳脚的实达集团（SP SETIA）也朝绿色建筑目标前进，其中在新港的一个屋业计划相信是开北马首个绿色发展计划先驱，在发展成本(GDC)高达3亿令吉计划中，耗资约2000万令吉相等于8%成本，作为节能减碳用途。
这项绿色计划，可为每个家庭节省高达10%的电源及水供消耗，走向绿色第一步。其实，该公司已先前在海内外，进行多个以绿色生态为主题的发展项目，包括莎阿南生达生态公园屋业(Setia Eco Park)、吉隆坡“生态城”(Eco City)及柔佛州实达生态屋业(Setia Eco)。
逊达拉祖：健康家居
在新港占甲新港(Changkat Sg Ara)的“实达绿色”，是北马首个追求节能、健康并与自然环境交融的绿色屋业。据实达北马区总经理拿督逊达拉祖(Sundarajoo)受访时表示，该公司在槟城新港推展的“绿色实达”不同一般屋业，其构造符合节能、有效循环及打造健康家居的概念。
目前，首阶段3层楼工程已施工中，单位卖价约百万令吉，第二阶段工程相信不久将启动。他提及，实达绿色也将致力追求马来西亚绿色建筑指数(GBI)凭证。该计划下将打造艺术公园(artistry park)，湖上小岛及湖边公园；其中艺术公园主要展示以再循环原料创作的前卫艺术雕塑品。
在计划下，首期计划涉及3层楼合共149个单位以及18个单位的3层楼半独立式，其造价约百万令吉计，其中Dillenia共29单位，建筑面积是2436平方尺；Ehretia(12单位)，建筑面积2465平方尺；Cassia(56单位)，建造面积2785平方尺及Cordia(52单位)，建造面积3212平方尺。
而3层楼半独立单位分为Citrus 1(15单位)，建造面积3553平方尺及Citrus 2(3单位)，建造面积3149平方尺；而在第二阶段的实达绿色计划则涉及打造20个半独立式单位，35间独立式洋楼及434个单位的公寓。
使用冷却性屋瓦
实达绿色的特征，包括雨水收集系统、低挥发性有机化合物(VOC)、有效水流调节系统、及太阳能热水器。
其中，计划中所使用的冷却性屋瓦(cool roof)，是最新工艺打造的符合永续性发展概念，它创造一个自然空调及防热阻隔系统，制造一个冷却的内部系统，最终节省能源及保护环境，据称其可有效将室温调低3度，达致节能及耗电功能。
太阳能热水器省电
而安装在所有楼上的太阳能热水器能进一步节省能源；至于雨水收集系统将收藏在一个储藏水槽，以便作为浇花及洗车用途，节省用水量。
逊达拉祖提及，安装在所有水龙头(除了厨房)包括冲凉房的用水效率配件，将减少水流量，间接节省用水；为防止挥发性有机化合物(VOC)对人体健康及环境的伤害，该计划也使用“低挥发性有机化合物”(VOC)油漆。此外，实达绿色的建筑设计为南北坐向，避免面对日出及太阳西下的曝晒，以自然定律节省能源。
人造湖将成赏鸟站
逊达拉祖指出，绿色发展计划将带来二好，一是长远有利环境，二是节能，同时将使未来计划的管理层节省开销。
他说，绿色发展计划取得积极反应令人始料不及，相信这将有助鼓励其他发展公司也会朝此目标前进。他表示，在此计划下打造的一个人造湖最终将成为一个赏鸟处，目前已有不少季候鸟飞来，而他说，湖公园周边也将安装上太阳能街灯，这些都将使未来自行组织的业主管理机构在接手后，在电能方面省下不少钱。
据公司产业部工程经理阿聂拉叻苏向本报记者指出，在实达绿色计划中，安装冷却性屋瓦(cool roof)约须1万2000令吉，而雨水收集系统、有效水流调节系统、及太阳能热水器，各别费8000令吉左右，至于低挥发性有机化合物(VOC)需费介于8000-1万令吉。
多次获奖名扬海内外
实达打造的Setia Eco Park于2007年赢得全球卓越建设奖(FIABCI Prix d'Excellence Award)，一连33年，即2005至2007年获欧元(Euromoney)所颁发的最佳产业公司(Real Estate Awards)奖，同时接连4年，从2005年至2008年获The Edge财经周刊选为马来西亚最佳发展公司。
创立于1974年的实达，目前在全马及海外有23个发展计划，其中4个已完成，9个施工中及10个即将开展，分别在槟城、巴生港、新山、亚庇、越南及澳洲墨尔本等。- 光华

‘Sick’ road widening project given until July to wrap up

IT is still work in progress for one of the ‘sickest’ road projects in Penang — the upgrading of the road from Teluk Kumbar to Pekan Genting in Balik Pulau.

The authorities have again extended the completion deadline, which expires this month, to July next year.

This is believed to be the third extension for the new contractor after two extensions given earlier to the original contractor who later abandoned the project.

State Public Works, Utilities and Transportation Committee chairman Lim Hock Seng said the Public Works Department (PWD) granted extension to the contractor to complete remedial works.

Work in progress: A new section of the road under construction.

“There are several works that need to be carried out to remedy the leftover job by the previous contractor,” Lim said when contacted.

He said the current contractor had to conduct treatment works on the hillslope, perform underpinning of the retaining wall and also replace the anchoring bars which had been stolen.

He said 1.6km stretch of the road was opened to the public on Sept 20.

“The remaining 1.7km is scheduled to be completed by July next year,” he said.

The completed section opened to motorists, offering more lanes for a comfortable and safer ride

It was reported that there had been repeated delays in the completion of the RM57mil project which is funded by the Federal Government.

The project started in April 2005 and was supposed to be completed in two years.

But the original contractor abandoned the project in March 2008 citing escalating costs of building materials and shortage of labour.

The authorities then appointed Sarahon Construction Sdn Bhd, a Class A bumiputra contractor from Sarawak, to complete the project in May last year. The cost of the revived package is RM42.05mil.

The project is aimed at halving the travelling time of 30 minutes between Teluk Kumbar and Pekan Genting with the 4.5km distance being reduced to 3.3km.

Six bridges are being constructed to cut off road bends that will make the passage safer and shorter. - The Star

Councillor: Most Bayan Baru folk want sPICE project

GEORGE TOWN: A Penang Municipal Council (MPPP) councillor has claimed that most of the residents in Bayan Baru support the controversial subterranean Penang International Convention and Exhibition Centre (sPICE) project.

Councillor Mohd Rashid Hasnon said sPICE could help revive the Penang International Sports Arena (PISA), which is now suffering from a negative public image because infrastructure such as its indoor swimming pool could not be used.

“The sPICE project includes repairing and upgrading PISA. If the upgrading is to be halted, it would hinder the development of Penang. With a facility like sPICE, activities can be held to lure more investors,” he told a press conference yesterday.

Mohd Rashid, who is also the Bayan Baru PKR division deputy head, said this in response to four ratepayers here who filed a class suit against the state government in a High Court here on Monday.

The four are challenging the validity of the sPICE and whether there was an abuse of power.

Mohd Rashid claimed that MPPP had undertaken the proper procedures in handling the project although his view contradicted the stand of fellow party member and councillor Lim Boo Chang who opposed the approval process of sPICE last month as the deal was allegedly bulldozed through the full council meeting.

“The project was announced by Chief Minister Lim Guan Eng in January. Later, there was a public viewing of the plans for two weeks. There was also a public dialogue here with Lim in February,” Mohd Rashid said.

Another councillor Felix Ooi Keat Hin was also on hand to pledge support to the pro-ject. - The Star

Reps appointed to sort out apartment’s accounts

TWO Penang state assemblymen are believed to be among the first elected representatives to be appointed as managing agents for a high-rise property in Penang.

Also appointed by the Commissioner of Buildings (COB) of the Penang Municipal Council (MPPP) was a chartered accountant.

The trio — Komtar assemblyman Ng Wei Aik, Paya Terubong assemblyman Yeoh Soon Hin and chartered accountant Ong Lin Teong — were appointed by COB president Patahiyah Ismail on Monday to manage the accounts and expenses of the Green Garden apartment in Paya Terubong.

Ng said the appointment was legal under Section 25 (1)(b) Building and Common Property (Mainte-nance and Management) Act 2007 where the council can appoint one or more individuals to be a managing agent should the council observe that the developer or the joint management bodies (JMB) are under-performing.

He said that there is no clause which prohibits assemblyman from becoming a managing agent.

Ng added that they would represent COB to manage the Green Garden after its JMB failed to perform since they were elected on Nov 7 last year.

“The Komtar and Paya Terubong service teams will set up a booth to collect maintenance fees every Wednesday and Sunday from 8pm to 10pm,” he told a press conference at Komtar.

Ng said that they would stand-in on behalf of the COB for a period of six months until May 20 next year and he hoped that the financial status of the property could be stabilised by then.

“We hope that within six months, we would be able to settle the problems faced by the residents there. If there is a need, we are willing to extend our tenure.”

Green Garden residents are facing a debt of RM354,781.85 after the project developer was declared bankrupt by the court on March 4 last year.

Ng said COB had also obtained consent from the public prosecutor office to charge the property manager, under Section 20 (1) Building and Common Property (Maintenance and Management) Act 2007, for collecting maintenance fees despite the developer having gone bust.

“The property manager should not operate unless they obtain approval from the Malaysian Insolvency Department.”

Yeoh said they had been appointed because the maintenance condition at Green Garden was critical, adding that he believed they were the first assemblymen to be accorded such a responsibility.

However he said that this concept should not be a practice for other high-rise flats or apartments.

Ng said a total of RM87,195 was collected from about 600 residents on Nov 16, 17 and 20 .

The two-blocks of Green Garden apartment on Jalan Paya Terubong consist of 2,255 units. - The Star

290 face bankruptcy over abandoned housing projects

KUALA LUMPUR: About 290 house buyers are in the process of being declared bankrupt by banks after failing to pay their loans on houses in projects that have been abandoned.

Malaysia Muslim Consumers Association (PPIM) adviser Tunku Azwil Tunku Abdul Razak said 19 house buyers had already been declared bankrupt.

“These are the buyers who had forwarded their complaints to us, but we believe many more are victims.

“The association will take action, including using legal means and referring the matter to the Malaysian Anti-Corruption Agency, to assist them in getting justice.

“We found that some of the cases involved elements of cheating,” he said.

Ahmad Zaki, 43, a victim of an abandoned housing project in Klang, said the project was developed in 1999 but had stalled since 2001.

“I have to repay the RM93,000 bank loan taken although only pillars of the promised house have gone up. The status of the project near Pulau Indah is not in the records of the Klang Municipal Council,” he said.

A victim of a car loan cheating case, who has been blacklisted by a bank, has also sought the help of PPIM.

Zilah Mahmood, 34, said the bank sent a statement as proof that he had taken a car loan purportedly with his “wife” as the guarantor when he was unmarried at that time and did not even know the “guarantor”.

“I was shocked to receive the bank loan statement as my monthly income had not even reached RM1,000, so how could I afford a car?” he said.

Zameri Zakeria, 47, is facing a similar situation as his name was blacklisted in 1997 after he was claimed to have owed RM29,136 in 48 monthly instalments for a Proton Saga car which he has never owned.

“My name appears in the bank statement issued but the signature is not mine. I have gone to the Forensics Department which has also confirmed that the signature is not mine,” he said. — Bernama

Charge errant builders only, ministry urged

PETALING JAYA: While supporting the move to charge errant developers, Real Estate and Housing Developers Association Malaysia (Rehda) has urged the Government to also take into consideration the reasons why projects were delayed or abandoned.

Developers who are genuinely affected by poor economic or market conditions should not be penalised, said its president Datuk Seri Michael Yam.

“There are circumstances where economic conditions affect the development of a project. The authorities must consider this and only charge the errant developers, not the genuine ones,” he said yesterday.

Rehda represents about 1,000 housing developers in the country.

“However, those involved in fraud or dishonest dealings should be dealt with severely.”

Yam said lawyers and architects who came across developers involved in unlicensed projects should report to the relevant authorities. “Most of the time, we only find out that the project is unlicensed after it is abandoned,” he said.

National Housebuyers Association honorary secretary-general Chang Kim Loong applauded the move to criminalise errant developers.

He also urged the Government not to let the “old criminals” get away.

“Laws are not retrospective in nature. It would only allow for developers who abandon new projects which are undertaken after the amendments come into force, to be penalised.”

He said it was important for the Government to ensure that developers of currently abandoned projects were also penalised.

“While seeking to deter new criminals, we should not allow old criminals to get away scot-free,” he said. - The Star

Errant developers and directors can be jailed and fined from March

PETALING JAYA: Nearly 5,000 directors of housing development companies and over 1,000 developers have been blacklisted for various offences, including for delaying and abandoning their projects since 2007.

However, from March, those found guilty of these two offences may not only be blacklisted, but will also face jail sentences and fines.

Amendments to the Housing Development (Control and Licensing) Act 1966, which are expected to be passed by the end of the current parliament session, propose a maximum three-year jail term and RM500,000 fine for developers who abandon their projects.

As of Nov 15, 1,308 developers and 4,703 directors of the companies concerned have been blacklisted by the Housing and Local Government Ministry.

The amendments, however, will not be retrospective and only those who commit new offences will face criminal charges.

Housing and Local Government Minister Datuk Chor Chee Heung said: “We hope the amendments will be passed by the end of this parliamentary session for us to enforce them by March.

“The directors are also blacklisted to make sure they cannot set up another company and start a new project under a different name,” he told The Star yesterday.

The offences fall under four categories - failure to pay compound fines, abandoning of projects, involvement in “sick” or problematic schemes and non-compliance with the judgment of the Tribunal for Homebuyer Claims.

Chor said blacklisted developers would not be issued a licence for any other project.

“However, they will be taken off the list once they salvage their project or settle whatever issues they face,” he said, adding that the list would be constantly updated to keep housebuyers informed.

It has been reported that the ministry had revived 83 of the 167 abandoned housing projects as of Oct 31, benefiting 9,278 buyers.

Chor said efforts were underway to rescue 62 abandoned projects.

Under Budget 2012, RM63mil was allocated to revive projects involving 1,270 houses. - The Star