An effortless way to get rental yield

Firstly, let’s define “effortless” in the context of rental yield.

Effortless means, without the huge initial capital, the hassle of securing tenants or the renovation costs involved to make a property “tenantable”.

Deep down, which property investor really enjoys managing tenants or is fond of the costs associated with it, such as renovation costs, repairs, etc?

Yet, this is a small inconvenience compared to the potential capital gain an investor can reap in a relatively short time, using the power of leverage.

For more sophisticated investors, they would gravitate towards the passive nature of rental income. Not as thrilling as capital gain, but this still outweighs the pain that comes with tenant management.

If any property investor were to have a magic wand to redefine the ideal property investment, I reckon it would be close to what is written below.

“Perpetual inflation-adjusted rental income and doubling of property value every (insert your desired number) years, with a competent manager to manage all tenancy related matters besides not being entry-cost prohibitive.”

That something “close”  lies in Real Estate Investment Trust (REIT) counters has dropped so much for the past month or so. Seriously.

Here’s a review of what kind of yield you’ll be getting with reference to closing prices on Dec 31, 2013. The actual Distribution per Unit (DPU) or final dividend for most REITs in the financial year 2013 will be published in each respective REIT annual report in two to three months’ time.

Note: Bear in mind – these are gross yields. The net yield is 90% of the gross yield which is the amount which goes into your pocket. The 10% gets deducted at the REIT level as withholding tax.

Retail REITs

Retails REITs are one of the most “defensive” but their profit margin is going to be impacted the most by the hike in electricity tariffs taking effect this year. It is interesting to see how retail REIT managers are managing this by passing on the costs to tenants so that their shareholders still get decent distributions.

Sunway REIT closed at RM1.24 for the year 2013. If its DPU is not less than 8.3 sen in future, the yield is at a minimum of 6.7%.

In relation to Pavilion REIT at a closing price of RM 1.28, its DPU of 6.8 sen will give you 5.3%.

Capita Malls Malaysia Trust will give you a 6.0% yield with DPU of not less than 8.44 sen with reference to a closing price of RM1.40.

If Hektar REIT can maintain its DPU at 10.5 sen, then you as the prudent investor, will get 7% easily at an acquisition cost of RM 1.50 per share.

Office REITs

Let’s look at offices, which are generally less defensive due to oversupply. However, bear in mind that it is mostly the new office buildings that are having difficulty in renting out their units due to this situation. So, I think it is fair that we apply a small “discount” to its last DPU in 2012 due to the overall market performance.

Let’s just assume UOA REIT is able to distribute not less than 10.2 sen per unit going forward, so you would have essentially locked your yield at 7.0% with a cost of RM1.45 per share.

How about Tower REIT? If it is able to declare at least a DPU of 11.2 sen (Its 2012 DPU was at 11.52 sen), then the investor is getting 7.47% return at an entry price of RM 1.50, doing nothing.

If AmFirst REIT is able to declare 6.7 sen DPU going forward, thena  6.7% yield is certain, if your cost of acquisition was at RM1 per share.

Similarly, Quill Capita Trust’s estimated DPU of 8.3 sen (or more going forward) will bring a 7.0% return with an entry price of RM1.18.

Industrial REITs

Axis REIT has dropped tremendously from its previous high to RM2.93 per share. It has enjoyed the reputation of increasing its DPU year after year even during times of economic recession. Therefore, it should be able to declare even a slightly higher DPU than last year’s 18.5 sen – say, 18.8 sen. Therefore, you will be effortlessly getting a yield of 6.41%.

Should the underdog in industrial REITs, Atrium, be able to distribute at least 8.80 sen per unit moving forward, a DPU of 6.77% is certain for cost per share at RM1.30.

The reader needs to understand that the DPU is correlated with rental income, which should increase over time, regardless of a bull or bear cycle. This is absolutely true for REITs with a long proven track record like Axis REIT. Also, there is no reason why quality assets acquired by REIT should outpace inflation in terms of rental income return.

It is true that property investments have made many millionaires in a relatively short time. However, I think it is also true that unsuccessful stories are seldom told, as evident in this article - Completed but empty: Will Budget 2014 help fill up vacant properties? You don’t want to be the proud owner of a luxury condo unit and yet be “bleeding money” internally – hanging on your property in the hopes of selling for a profit.

This is especially true if you do not have the holding power. While laymen investors might not be aware and are eager to jump on the bandwagon, insiders tell us that it is a distortion of the market. Too much money is spent speculating on property, while the main core of the market cannot afford them at these prices.

REIT investment is one alternative to shield ourselves from the hassle and risks associated with direct property investment, especially during times when the property market is hot. It may not be as exciting as direct property investment, but if you ask me, I will always consider the risks first before the potential returns that come along with it. In this case, the risk from direct property investment is quite evident from various independent sources should an investor lack holding power.

I am obliged to tell you that I am holding long positions in most of the REITs listed above. The above should be construed as an invitation to buy. If you buy, I have nothing to gain and am not responsible for your profit or loss.

Lieu Ching Foo is the founder of the Malaysian personal finance blog – “LCF on Personal Finance” and is the co-founder of the “REITMethod” online educational program. He is also an advisor with the financial advisory firm Fin Freedom. - The Star

The Mews Gallery launched in Kuala Lumpur

KUALA LUMPUR: The launch of the newly-opened gallery of The Mews serviced residences in Kuala Lumpur was attended by representatives of Malaysian premier lifestyle property developer Eastern & Oriental Berhad (E&O) and Japan’s largest developer, Mitsui Fudosan Residential Co. Ltd (Mitsui Fudosan).

E&O and Mitsui Fudosan inked a joint venture in March 2013 to develop The Mews serviced residences comprising 256 custom-designed residential units distributed evenly over 38-storey twin towers sited on 1.29 acres of land just off Jalan Yap Kwan Seng.

The Mews gallery, showcasing fully fitted one, two and 2+1-bedroom show units for The Mews, was officially launched at a Japanese-themed ceremony attended by E&O board members and senior management, representatives from Mitsui Fudosan and close to 100 guests.

A view of the dining area at The Mews serviced residences.

“This gallery brings to life the brand and persona of The Mews. Our appointed team of interior designers have meticulously infused different characters to each show unit, whilst subtly weaving in elements that reflect a refined Japanese style. Each element in the show unit is there to articulate the different lifestyles that The Mews caters to,” said E&O deputy managing director Eric Chan.Mitsui Fudosan residential overseas business department II general manager Ryousuke Uematsu said, “Together with our partners E&O, we are very proud to present our buyers and potential buyers with this elegantly furnished collection of show units that sets a new benchmark for modern urban living, reflecting the essence of The Mews – which is understated stylish simplicity.”

Targeted for completion in 2017, unit choices at The Mews range from built-up areas of 922sq ft to 2,619 sq ft, of which 75% of total units are 1- and 2-bedroom serviced residences. Meanwhile,  20% of the units follow a 2+1 layout, while the remaining four are penthouse units. The positive response to The Mews is evident with its take-up rate already reaching 70%, even at the soft launch stage.

In line with The Mews’ objectives of superior form and function, some of its features include master bedrooms paired with  en-suite bathrooms, a walk-in wardrobe and shoe closet, concealed split air conditioner system, water heaters and a full set of kitchen appliances.

The sixth floor of The Mews showcases the development’s water sanctuary facilities. A lawn and private garden are located on the 37th floor where residents can enjoy a view of the city.

Tapping on E&O’s hospitality and management expertise, The Mews come with E&O’s signature five-star concierge service and emphasis on security systems.

“The Mews is a testament of E&O’s passion in delivering properties that are ever cognisant of our customers’ aspirations. We are fortunate to be working with our highly-esteemed partners at Mitsui to deliver on this promise,” said Chan.

“We are very happy to see how the Mitsui-E&O partnership that began in 2011 has flourished and we look forward to strengthening our collaboration in the future,” said Uematsu. - The Star

KSL Week draws property enthusiasts

Members of the public were given an exclusive view of the property market at KSL Week which was organised by KSL Holdings recently.  KSL Week was held at Canary Garden@ Bandar Bestari, KSL’s 448-acre flagship development in the Klang Valley which boasts a French-inspired garden.

KSL Week’s activities include two talks, a property showcase by KSL Holdings and test drive opportunities by BMW Malaysia.

Visitors and guests during the event received the latest updates on Canary Garden’s development progress for its residential phases, with completion slated for the second quarter of 2014. Also included in the presentation were the details of its 52-acre French garden and images depicting the progress of the first phase, the proposed Canary Garden club, as well as additional news and details of Canary Garden,  dubbed the ‘Commercial City’.

The first talk, entitled “Greater KL Update and Growth Pattern for Klang” was presented by property valuer Ho Chin Soon as part of KSL Week, which featured KSL’s portfolio of residential and commercial properties. The second, presented by TY Teoh International national tax director Richard Oon addressed the property market in light of Budget 2014.

Property expert Ho Chin Soon delivers his talk entitled ““Greater KL Update and Growth Pattern for Klang”.

Ho, a fellow of the Institution of Surveyors and a registered valuer with the Board of Valuers, Appraisers and Estate Agents presented on the connectivity of the MRT project and the growth patterns, showing images of the railway lines that are being developed while discussing rising property prices. Ho also explained the Quick House Price Index, pointing out that Kuala Lumpur house prices have increased by more than threefold in the past 22 years.

He also spoke on Canary Garden being situated on the last freehold land in Klang and its position as the next growth corridor, seeing that the township is aligned to many highways such as the  South Klang Valley Expressway (SKVE), Federal Highway, KESAS, the North- South Expressway Central Link and the proposed West Coast Expressway.

During the post-budget talk, Oon highlighted topics such as special relief for middle income tax payers and the decrease in individual income tax rates, also in view of the Goods and Services Tax (GST) that will implemented in 2015.

TY International national tax director Richard Oon.

Stating that “property investment is still a lucrative way of making money,” Oon said that the implementation of GST would affect investors during property transactions, and in relation to commercial properties prices as well as SOHO(Small Office/ Home Office) and SOVO (Small Office/ Versatile Office) units, depending on whether the units fall within the residential or commercial sector. Oon is attached to TY Teoh International,  a leading consulting service provider, a member firm of MSI Global Alliance with more than 20 years’ experience in taxation and business advisory.

Visitors at KSL Week were also invited to test drive various models of BMWs courtesy of KSL Holdings’ collaboration with BMW Malaysia, with interested buyers being offered rebates of RM150,000. - The Star

Ewein has value in mind

PETALING JAYA: Ewein Bhd’s joint venture with Consortium Zenith BUCG Sdn Bhd to develop a 3.67-acre freehold plot in Penang will be a mixed development which will provide high yields for purchasers.

Datuk Zarul Ahmad Zulkifli (pic), who is the chairman for both Ewein’s wholly-owned subsidiary, Ewein Land Sdn Bhd, and Consortium Zenith BUCG, said the planning for the project was still at a preliminary stage.

He pointed out that the joint venture would want to “do one thing at a time” and focus on establishing the Ewein Zenith brand first.

“Whatever we do, we will consider the buyers’ needs and will ensure that the properties we develop are able to provide high yields for them.

“Some of the value-adding features for the houses might include private lifts to apartments as well as medical facilities within the development to enhance response time,” he told StarBizWeek over the phone.

Ewein Land and Consortium Zenith BUCG’s 60:40 joint venture Ewein Zenith Sdn Bhd, had bought the land in Bandar Tanjong Pinang for RM133mil as part of Ewein’s intention to diversify its business. Ewein’s core business had been metal fabrication.

The land is the Penang state government’s payment to Consortium Zenith BUCG for its works for the multi-billion ringgit undersea tunnel project.

Zarul said: “As the consortium does not receive money upfront, we need to get the developer (in this case Ewein) to fund part of the construction works of the tunnel.”

Ewein is paying close to RM80mil for its 60% stake in this development project.

He explained that the consortium would be paid by the state government based on work completed and anticipated the milestone deliverable claims to be completed by March.

“However, we cannot wait for that as it will impact the developer’s cashflow. Hence, we are already planning while waiting for the land title,” he explained.

Once approvals from authorities are obtained, Zarul said he expected the project to be completed in two-and-a-half years.

Commenting on the property market, he said the economic growth in the northern region as well as the connectivity, which would in turn help to disperse traffic in the Pearl of Orient, would support the housing prices in Penang.

Asked if Ewein would get a share in the construction works of the third link, he said Ewein would be the partner for the property development but it would not be involved in the direct construction of the tunnel. The Star

Property's hazy outlook

Last weekend, about 1,600 participants attended a property seminar calledProperty Outlook Conference 2014 in Kuala Lumpur.

Organised by an event organiser, speakers comprised property consultants, developers and property gurus. Participants comprised largely investors and investor-wannabes, property professionals from companies and real estate agencies, a sprinkling of analysts and the media.

One of the speakers says it was one of the largest groups he has ever spoken to when it comes to a local property seminar. Usually, the turnout hovers between 600 and 800, he says.

An executive director of an international property consultancy who was there says he felt as though he was attending “a multi-level marketing seminar.”

The fact that an event manager organised the seminar single-handedly, albeit with developers as sponsors, underscores the leverage offered by the property sector.

Secondly, the turnout underscores the investing public’s hunger for information, says two property professionals. Early bird registrants paid RM200 per pax, a couple paid RM499 while latecomers paid between RM800 and RM1,000 per pax. They were “hungry” because since the introduction of the cooling measures in October, coupled with the various price increase involving toll charges, petrol, electricity tariffs, cut in sugar subsidy, the sector has become rather opaque.

 

Says Malaysia Institute of Estate Agents (MIEA)president Siva Shanker: “Both developers and investors did not know what hit them post-Budget 2014. The last three months of 2013 were bad. The sector went into a tailspin.”

Siva says in the last four years, prices in some areas went up 30% to 35% in the span of a year - an unhealthy situation because the fundamentals were not there. On a national basis, the issue of house prices is not an issue, it is only in certain areas that prices have gone up multiple times in relation to annual household incomes, he says. He likens the property market before the budget to a car about to crash as it careens downhill, if the cooling measures were not introduced.

“If the car does not slow down, it will crash,” he says.

Siva says of all the sub-segments in the property sector, he is most concerned about the residential sub-segment, the main driver of the sector.

Siva says there is a huge oversupply in Kuala Lumpur, Penang and Iskandar Malaysia in Johor, including serviced apartments which are developed under commercial status.

The 2013/14 slowdown

Siva says not many may have realised it, but the property sector slowed down in 2013. “We think 2014 will see a slowdown of the sector, but that actually started in 2013.

“Sales are expected to be slow for the first two quarters. We expect to see sales going up in the second half of this year and find its own level, barring external factors. Sales will not be great, but it will not be as bad as first two quarters of this year,” says Siva.

“The goods and service tax (GST) due in April 2015 will create another bout of uncertain. Although most of the countries in the region - with the exception of Brunei and Malaysia - have some form of GST or value added tax (VAT), we have yet to experience its effect. We expect some knee-jerk reaction which will result in a price increase but it is 2016 that I expect prices to climb,” he says.

But before 2016, there is 2014 to deal with.

“2014 will be Iskandar Malaysia’s tipping point. (But) there is also a huge oversupply in Penang and the Klang Valley, especially high-rise projects, be there condominiums or serviced apartments,” he says.

Stocker Roberts & Gupta Sdn Bhd valuer Das Gupta who runs a firm about 10 minutes walk from the Petronas Twin Towers says the slowdown actually started in 2012.

 

“Many missed the signals,” he says. “Land and property prices around here (Kuala Lumpur City Centre) have been stagnating since 2012.

“That was a slow year. High-end properties around the KLCC and in Mont’ Kiara stopped moving forward the past one year in terms of both capital appreciation and rental.

“In some cases, rental and prices have dropped a notch or two,” he says.

How does one account then for the sale of a parcel of land sandwiched between Wisma Central and a Chinese temple fronting Jalan Ampang sold to Singapore-listed developer Oxley Holdings Ltd by Loke Wan Yat estate?

The 1.25 hecatres (3.1 acres) parcel was sold in December for a record RM3,300 per sq ft or RM446.7mil.

“That was an exceptional parcel because of its location and size. It is not the market norm and should not be used as a measure of overall property sector performance,” he says. Das says while land deals belong to the big boys’ arena, it is the ordinary people that he is most concerned about. “Nothing hits the rich,” he says.

Das says suburban vacant land with demand potential have become exorbitantly high. Some of these owners are second or third generation owners. They have no liabilities on these real estate. “Developers have to price their end products very high in order to justify paying such high prices. (So) they rather walk away.”

The retail story

Royal Institution of Surveyors Malaysia (RISM) vice president Adzman Shah Mohd Ariffin says the market is evolving. “There are a number of developments in the United States and in Asia. All these events will impact Malaysia.”

Adzman highlighted Indonesia’s rupiah weakening last year and Thailand political demonstrations, now in its second month.

Adzman says the weak rupiah may attract companies to invest there. That will impact Malaysia.

“We seem stable when compared to our neighbours but we have our own issues to settle,” he says.

Adzman, who runs a property and retail consultancy Exastrata Solutions Sdn Bhdsays businesses are recalculating their margins with the various price increases involving electricity tariffs, sugar, possibly toll rates and petrol prices.

He draws attention to the recent inflation figures by Standard Chartered Bank South-East Asia regional head of research Edward Lee. Lee says Malaysia’s inflation rate is expected to increase to 3.4% for the first nine months this year from 2.1% in the same period last year. The jump reflects one of the biggest in Asia; it is also the fastest acceleration in almost two years.

Adzman is helping three malls with retail tenancy. Two of them are new while the third is an existing mall.

“Retailers today are cautious about location, their catchment areas and overall expansion. They have been cautious since the middle of last year. There is a lot of focus now on tourism to help bring in revenue but this is limited to cities and tourist areas. Suburban malls are dependent on their respective catchment areas,” he says.

“Most businesses are waiting for first half year figures. This will be a good indication (where we are heading),” he says.

Adzman says retailers are feeling the heat because consumers are not buying.

“Retailers are clearing stock by cutting prices to ensure they are not stuck with old stocks when the market slows. They release space for new stocks in order to create demand,” says Adzman.

The raise in toll, petrol and parking charges may result in people heading to the mall closest to them instead of heading downtown which means downtown malls will be tourist-dependent, he says.

Retail Group Malaysia MD Tan Hai Hsin in a January 2014 report based on interviews with members of the Malaysia Retailers Association says the industy reported a sluggish third quarter for 2013. The July-September quarter grew 3.1% compared with 4.6% in the preceding quarter, and 4.8% for the same period in the preceding year.

Ramadan and Hari Raya, which fell on the third quarter of 2013, failed to lift overall retail sales, he says. This confirms Adzman’s views that on the Malaysia retail industry has been slow since the middle of last year.

In many ways, the retail sector and private consumption are good indicators for the overall economy.

The consumer sentiment index, according to Tan, dropped from 122.9 in the first quarter of 2013, to 109.7 (Q2) and 102.0 (Q3). The next batch of numbers to look out for will be National Property Information Centre (Napic) figures on transaction volume and transaction value.

This is expected to be released in March/April.

The jump in property prices at 30% to 35% a year in some areas since 2010 has changed the sector’s profile and has resulted in an equally stratospheric jump in interest among investors, with 20-somethings piling in.

In many ways, this is reminiscient of the 1990s stock market super bull run when college students and 20-somethings diligently applied for initial public offerings with the hope of a gain. They trotted a similar path in the recent bout of interest in the property sector.

Siva says “these young people are shielded from the international highs and lows of the global economy, and the national ups and downs, and whose trickle down effect is yet to be felt.”

“The introduction of developers interest bearing scheme (DIBS) enabled many to buy properties they cannot afford and don’t need. The question is: Will they be able to get tenants? If not, will they be able to pay the mortgage when payment kicks in?”

The introduction of cooling measures may also result in a shift in interest from the primary back to secondary market when buyers turn to sub-sales instead of buying directly from the developers. In an earlier report by Elvin Fernandez, managing director of Khong & Jaafar group of companies, he said in 2009 and 2010, primary transactions comprised about 12% and secondary market transactions about 87% of total residential transactions of 211,600 in 2009 and 226,874 (2010) respectively.

In 2011 and 2012, primary transactions went up to about a fifth of the total number of residential transactions whereas the secondary market accounted about 79% (or 214,044) and 77% (212,428) respectively. There was a drop in secondary market sales from 214,044 in 2011 to 212,428 in 2012.

Says Elvin: “This means there was a run-up in the primary sector of the market by about 35,000 units a year or close to 3,000 units a month.

The question today is, where will these group of ‘speculators’ turn to in their search for alternative investments?”

With fixed interest rates at about 3% per annum and volatility in the share market, will interest in the property market return to the secondary market? Will all the euphoria of the last several years mark a return to the days before 2009 when property investments were dull and boring? This lack of clarity is the reason why property seminars attract a full house. - The Star

How will property fare in 2014?

THE year 2013 was a bad one for gold. Bond market is risky and equities are volatile. Real estate investment trusts (REITs) are subdued compared with 2012 and 2013.

Fixed deposits are hovering about 3% while inflation rate is expected to increase to 3.4% for the first nine months this year from 2.1% in the same period last year. Tangible physical properties may be, will they remain as good a hedge against inflation has many have hoped? Here are some anaecdotes from property consultants.

Das Gupta
Stocker Roberts & Gupta Sdn Bhd valuer

Bangsar, Damansara Heights and landed units will be little affected in the event of an economic downturn but the peripheral areas like Rawang, Meru and Semenyih are not expected to have the great increases in price anymore.

Datuk Steward Labrooy
Axis Reit Managers Bhd CEO

Consider industrial properties. Entry cost is lower by comparison. You pay less for buildings and land and tenancy is long term compared with residential/commercial properties. But buy with roads, gas, broadband, water and electricity supply.

Veena Loh 
Malaysian Property Inc general manager

Penang will not be so hot this year, KL will be better while Iskandar Malaysia will very good in the very, very long term.

Local and foreign buyers will take a wait-and-see attitude in the first half year of 2014.

Elvin Fernandez 
Khong & Jaafar managing director

For many, houses and shophouses will remain a perennial favourite. Interest rates may go up this year. I don’t think there will be a drastic fall in property prices, more likely a fall in volume which makes it difficult for developers and increases competition in the housing industry.

Do not compare the Malaysian market with Singapore’s. We may appear cheap and Singapore expensive but every city has an unseen hand that fixes the rent in the market so it is wrong to say we are cheap. Do not make country-to-country comparison. Prices is determined by rental. Our office rent is about RM7 per sq ft while Singapore’s office rent is more than RM25 per sq ft (S$10 to S$15 psf).

Rent is a function of profitability of a company.

During an external shock, weaknesses in the sector is exposed.

Today, globally, we are getting more and more skittish (about that situation). There has been a small tapering in December, 2013. How that is going to work out as far as the money outflow from the region is concerned is a big question. This is an external event but it will impact on the property, bonds and equities market. The opacity is real.

Siva Shanker 
Malaysian Institute of Estate Agents president

The measures instituted by the government may result in short-term pain but this is good for the sector in the long-term.

When people are rushing to sell, that’s the time to buy. There are many who bought in Cyberjaya who are now rushing to sell. This will continue throughout 2014.

Property is not a short-term play and vary your portfolio. Location is no longer everything. Things have changed. Pricing, affordability and concept are factors to be considered in addition to location.

The condo market is slow and will consolidate. If you have invested in a commercial or industrial property, you will be shielded and I don’t mean serviced apartments disguised as a commercial unit.

Young people who bought into shoebox-sized units have not done themselves a favour, unless they plan to stay there.

They may have problems renting the unit out.

James Wong
VPC Alliance Malaysia Sdn Bhd managing director

The commercial property market is affected by the oversupply in the office market and the slower take-up rate expected in 2014. For Kuala Lumpur, the new assessment hike and increased electricity tariff will reduce the rental income and yields of office buildings, making it even harder for them to be sold because of lower yields. Hence, we expect fewer office buildings transactions in 2014.

Likewise, for the retail shopping market, there is also an oversupply.

With inflation and the hikes in electricity, petrol, toll charges without a proportionate increase in wages, consumer spending for luxurious and non-essential goods will be affected.

Retailers experience lower sales turnover during the year-end festive holidays and this trend will is expected to continue during the year. However, shopping malls in city centres will do better this year.

Paul Khong
CB Richard Ellis Malaysia executive director

In the Klang Valley housing market, Damansara Heights, Desa Park City, Hartamas, Bandar Utama, Mutiara Damansara and Bangsar would be the evergreen locations which cannot go wrong. However, landed properties in these locations are at a premium. MRT will continue to attract investors/purchasers and properties around the stations will obviously benefit. Gated and guarded projects within the landed segments will continue to excel in good areas. Commercial markets will continue to trade reasonably well and the shophouses/shopoffices segments in good locations will still see appreciation this year, especially those with good rental returns and secured tenancies.

The Star

Andaman upbeat on property market

PETALING JAYA: The local property market will pick up in the second half of the year, following further announcements from the central bank on lending guidelines, said Andaman Property Management Sdn Bhd managing director Datuk Seri Dr Vincent Tiew.

“From my observations of the industry in the past, I anticipate further announcements following these five months or so post budget 2014.

“People are somewhat confused and prefer to wait this period out. Once buyers grasp a better understanding of all the guidelines, many will want to keep investing,” he said at the sidelines of Andaman Group’s Loyal Buyers Reward Programme ticket distribution ceremony for its Property Outlook Conference 2014, which took place over the weekend.

To recap, Bank Negara had set the brakes on interest capitalisation schemes and the developer interest bearing scheme last year in an effort to cool speculative activities in the property sector.

Among other guidelines announced during the Budget 2014 included the use of the net selling price of a property – which excludes rebates and discounts – to obtain bank loans , as well as the reimposition of the real property gains tax (RPGT) of 30% for the first three years upon disposal.

“Further announcements by the central bank will not necessarily be negative news to investors. They could be measures to curb or better manage certain classes of property assets in terms of loan financing,” he added.

Tiew speculated that sub-urban areas will perform better in 2014 as small-town residents still had cash to invest.

Andaman Property started in 2005 with its first residential condominium project in Subang USJ, worth RM150mil in gross development value (GDV).

To date, Andaman Property manages more than 15 projects in the residential and commercial market in the peninsula totalling RM3bil in GDV.

Andaman currently owns land in Kota Damansara, Ampang and Subang, which will be developed and launched over the next few years as mixed developments.

The property player is targeting to achieve above RM1bil in sales from all its projects in 2014.

On the RPGT, Tiew said the 30% levy on a profit amount was fair.

“It would affect property holders in the first half of the year to hold on longer to their real estate but to me, it’s an acceptable amount to pay compared with Singapore,” Tiew said.

Currently, the challenge for property developers was to manage the consistency of business flows and billing, Tiew said.

“I expect prices to increase by 10% as more development charges are being imposed on new projects,” he said. “As such, property prices will not fall except in the event of a world economy slump.”

In view of cautious consumer sentiments in the face of rising costs, Tiew urged investors to hedge their financial portfolio by investing into real estate.

“Property players targeting the middle income group will have to restrategise because that market is suffering. Seeing as the affluent are not affected by new rulings and guidelines, the middle income group – whose household income sits between RM2,000 and RM10,000 – needs a lot of reasoning,” Tiew said. - The Star

Cautiously optimistic outlook with property developers in Iskandar expecting tough 2014

JOHOR BARU: The “feel-good” factor that was prevalent in 2012 and 2013 for the property market in Iskander Malaysia is unlikely to continue this year following property cooling measures introduced by the Government in the last quarter of last year.

Property developers are rather cautiously optimistic on the market outlook for 2014 and are anticipating it to be a tough year for many.

Johor Real Estate and Housing Developers Association (Rehda) branch chairmanKoh Moo Hing said the Year of the Horse would be more challenging and that developers must be well-prepared to face the worst.

“I assume that many of our members will adopt the wait-and-see approach in the first-quarter of 2014, to see the real impact from the (property cooling) measures,’’ Koh told StarBiz.

He said the measures were not something new as other countries would also resort to similar measures to ensure locals were not sidelined and denied from owning houses.

Koh said 2013 was the best year for 30 odd members of Johor Rehda who participated in the Malaysian Property Exposition (Mapex) held here in May and November.

He said these members raked in a combined RM3bil in sales over a one-month period.

“It would an achievement if they could repeat the sales figure again for this year’s events,” he added.

The 30-day period starting from the first day of Mapex is the benchmark used by Rehda to determine the value of sales by participating developers.

“Johor Mapex to be held in April will give a clearer picture on the Iskandar property outlook and how developers are coping with the uncertainties and challenges,’’ said Koh.

He said developers would be ready to face the tough year ahead and adapt well as they had experienced the ups and downs in the industry over the years and emerged stronger. Koh said that speculators would be phased out gradually from the property market with the implementation of the measures with owner-occupier buyers dominating the market. “This year’s launches will see between 100 and 200 units with more developers opting for landed houses as demand for them is still strong in Iskandar,’’ he said.

KGV International Property Consultants (M) Sdn Bhd director Samuel Tan Wee Cheng concurred with Koh that the market would see more serious buyers.

But he said buyers would be more cautious on the new policies – the real property gains tax (RPGT) and the hike in ceiling price from RM500,000 to RM1mil for foreign property buyers.

“Prices of houses will continue to go up this year, determined by the policies and escalating costs of labour and building materials,’’ said Tan.

He said it was matter of time buyers especially first-time house owners decided whether to continue waiting or make the kill before the prices move up north.

Tan said if the prices continued to go up, more buyers would go for the secondary market where prices were between 20% and 30% cheaper compared with new launches.

“For instance, the average selling price for a new double-storey link house in Iskandar is RM800,000 per unit, but if you look around in the secondary market, you’ll be paying RM600,000 for it,’’ he said.

Tan said landed houses in the secondary market came with generous land size and bigger floor area plus ready amenities and facilities within the neighbourhood or the development.

He said if this could prompt developers to lower the selling prices of their new launches to attract potential buyers and also offer no-frills houses to cut costs.

Tan said foreign buyers would continue to buy properties in Medini, Nusajaya as there was no restriction to foreign ownership in the area and they were not subject to the RPGT regime.

SP Setia Bhd divisional general manager Hoe Mee Ling said many uncertainties in both global and domestic market might affect the property market in the first-half of 2014.

She said among the issues were the pressure of increasing costs as a result of skilled labour shortage, reduction in subsidies beginning with petrol last September and electricity tariff adjustment in 2014 and policy changes.

“However, challenges always come with opportunities and there are still positive factors in the Iskandar property market,’’ said Hoe.

She said the fundamental demand for properties in Iskandar would remain high and strong as long as developers could adapt to their products to suit this demand.

Hoe said the outlook was still good as properties fetched good yields and were the best hedge against inflation. - The Star

Slowdown in property launches in M'sia

PETALING JAYA: Property launches and sales will soften this year, as the market gravitates towards the actual impact of the 2014 budgetary measures, property consultants concur.

Managing director of property consultancy VPC Alliance Malaysia Sdn Bhd James Wong said with the cooling measures in Budget 2014, sales volumes would drop and the property market would soften, particularly the sales of condominium prices ranging from RM750,000 to RM1mil, which are targeted at foreigners.

He said property launches were expected to slow down compared with 2013 and some launches might even be delayed or scaled down, if effective demand was not there.

Wong expected more affordable homes to be introduced this year, with properties near the proposed mass rapid transit and light rail transit extension lines set to be popular.

“Although the landed residential sector is expected to be resilient with stable growth, especially property within gated and guarded enclaves, sales of residential properties to foreigners would be slow as a result of the budget measures. Transactions in condominiums would slow down, with a possible price correction.

“The abolition of the developer interest-bearing scheme (DIBS) and other freebies is expected to reduce the volume and value of the transactions in the primary market, and new property launches may be affected, as without the DIBS, many potential housebuyers may not be qualified to purchase houses. Overall, the housing market would moderate, with a reduction in property transactions and prices,” Wong said.

According to CB Richard Ellis Malaysia executive director Paul Khong, the minimum RM1mil limit for foreigners would affect the mid-range residential sector, and potential buyers would tend to defer their decision to buy. The imposition of the full real property gains tax will have a blanket effect on curbing speculation across all sectors and impact the take-up rate.

“It has been a quiet start this year and most developers are deferring their launches till the later part. With the Chinese New Year coming up end-January, it is traditionally a quiet period for the property sector. More project launches are expected to come through in or after the second quarter,” Khong observed.

After a relatively quiet first-half and the market finding its equilibrium, he said more action was expected in the second half of the year.

He pointed out that developers would have to work harder this year to attract sales, and many might consider marketing their projects overseas and incorporating innovative and lifestyle concepts into their projects.

“Good and innovative packages plus value-for-money features in property projects would go far in 2014,” Khong conceded.

He said one of the property hotspots would be Medini@Iskandar where new projects like I Medini Walk (by Singapore’s Tang Group of Companies) and Avira (Eastern & Oriental Bhd) both near Legoland would be entering the market soon.

Many developers will be looking at the Medini area, as it is a special international zone with various taxes/benefits, including an exemption of the RM1mil minimum price limit imposed on foreigners. - The Star

Malaysia's property market to take a breather this year and next

PETALING JAYA: The property market might need at least two years to digest and recover from the various cooling measures that came into effect this month, but expect it to surge again in 2016, say industry officials.

According to Malaysian Institute of Estate Agents president Siva Shanker, 2014 is expected to be a tough year for sales, but the market will find its footing next year and catch the next upcycle in 2016.

“The market ground to a standstill after Budget 2014. There was a knee-jerk reaction in sales.

“It will probably stay in the doldrums for the first half of 2014. The second half may be better,” Shanker, who is also CEO-Agency of property consultancy PPC International Sdn Bhd, told StarBiz by phone.

Shanker believes that speculation over the past few years in the primary market, resulting in “far more properties bought than needed”, had been put to a stop by the new curbs.

“The days of 20%-40% appreciation in property prices after only a few years is over, ” he said.

Even so, Shanker sees the secondary market, which he said had languished for years, regaining its lustre.

“A new launch in Bangsar could set you back RM1,500 per sq ft, compared to RM800-RM1,000 per sq ft for an existing property. The discount goes up to 50% in some prime areas,” he said.

An analyst with TA Research said that unlike previous years, many listed developers have held back on their 2014 sales targets – a departure from their usual forward guidance in December – until a clearer picture emerges from the effects of Budget 2014 and other tightening measures.

The exception is Mah Sing Group Bhd, which is aiming for a 20% increase in sales this year to RM3.6bil.

According to the analyst, policy uncertainty on several fronts – such as whetherIskandar Malaysia’s Medini is exempt from real property gains tax, or the pricing of bank loans using the net selling price of a property – remains an overhang on the market.

“The sector’s fundamentals are intact, but in terms of share prices, the catalysts are lacking,” she said.

Property players have noticed a marked slowdown in sales since the various curbs were put in place, although it is unclear by how much.

A number of high-end launches were also shelved, as developers switch their focus to the affordable segment of the market, where demand is more resilient.

Some of the projects launched post-Budget 2014 include block B of YTL Land & Development Bhd’s Fennel@Sentul East condominiums, which saw a take-up of 80% soon after it was opened for sale in mid-November, while tower A and B of Sunway Bhd’s Geo Residences were 85% sold within two weeks, HwangDBS Vickers Research noted.

In Iskandar Malaysia, however, the response to UEM Sunrise Bhd’s Almas Suites and WCT Holdings Bhd’s Medini Signature Tower 2 have been lukewarm,Maybank Research said in a report last week.

The brokerage’s only “buy” call is Glomac Bhd, even though the firm has cut its own sales target for the year ending April 30, 2014 by 18%.

CIMB Research is more upbeat. It expects buying interest to return in the first half of this year, albeit gradually, when potential homeowners realise that prices are unlikely to fall, and that inflationary pressure from the impending goods and services tax, along with other subsidy cuts, leads to higher prices.

“As these macro prudential and policy measures are meant to curb speculation and not restrain genuine demand, the impact (though negative in the short term) should be positive over the longer run because they should help to remove froth from some segments of the market.

“Also, affordability remains close to its highest ever. Robust sales by developers should provide impetus for a re-rating of property stocks,” the research house told clients earlier this month.

Hong Leong Investment Bank Research, which believes the market will stage a recovery in the second half of the year, advocates a buy-on-weakness strategy for shares amid trough valuations. - The Star