The property sector, be it commercial or residential, has been hogging the limelight in recent months in terms of its direction and outlook. Last weekend, the StarBizWeek’s Angie Ng and Eugene Mahalingam obtained the views and thoughts of several industry players on the road ahead for the property scene, the measures currently being considered by regulators to stabilise the market as well as the measures they would like to see incorporated in the soon-to-be tabled Budget 2011.
I thought... this would be pretty interesting to see if I would agree, or disagree, and... I might as well comment on them too!
Not Across The Board.DATUK MICHAEL YAM, Real Estate and Housing Developers’ Association president.
The steep increase in property prices is not across the board. A report by RAM stated that elastic supply and normalisation of monetary and financing conditions make a property bubble unlikely to develop and that the tension between over-valuation and affordability will ensure a stable and improving market.
We believe that the steep price increases are only in scattered locations in KLCC and landed housing units in the Greater Kuala Lumpur area. This does not represent a bubble but a short-term deviation from fundamentals due to isolated speculative activities in the KLCC area for high-end condos.
In the case of landed houses – single and double-storey terrace houses and semi-detached houses – there is a shortage of supply especially in good locations to meet real demand. As a consequence of this inequilibrium, the limited existing stocks are commanding good secondary market prices while new launches are being sought after. This is a reflection of actual demand by locals who have to contend with paying a premium for well-located landed properties that are limited in stock and scarce in supply caused by shortage of land particularly in urban areas.
Except for a few selected apartments sold at premium prices in the KLCC areas presumably due to their unique or iconic features, there is still adequate supply in the market at attractive prices especially for owner occupiers. Our view is that despite the uniqueness of KLCC, it is still neither an investment destination for global investors nor for international speculators.
Capital appreciation except for the short period before the 2008 global financial crises coupled with the Government’s drive to attract investors has been relatively unattractive. The perceived inconsistency of policies and knee-jerk reaction to such hearsay (that rocketing prices caused by property speculation particularly foreigners) has exacerbated the lack of interest in our world-class properties. Moving forward, the KLCC area needs an infusion of foreign investment to sustain the present price level.
I would agree that it is not across the board for the steep increase in property prices. A property bubble is also unlikely to develop as the current relationship between affordability and property prices is still considered to be pretty stable. REHDA Present Datuk Michael Yam is an industry veteran - where he single-handedly groomed Sunrise Bhd into what it is today - and I believe he is the perfect person to comment. However, I actually oppose one part of his statement. "Despite the uniqueness of KLCC, it is still neither an investment destination for global investors nor for international speculators..." - for international speculators, Yes. But for the global investors, I would rather disagree though. KLCC should be seen as the next upcoming location to be at - our property prices are still amongst the region's cheapest. So - it is the duty of the industry players to showcase our beauty and properties to the outside world...
It’s sustainable
TAN SRI LEONG HOY KUM, Mah Sing Group Bhd president and group chief executive.
TAN SRI LEONG HOY KUM, Mah Sing Group Bhd president and group chief executive.
We think the property market is sustainable and the current buying pattern is backed by sound economic fundamentals and genuine purchasers. A steady employment market and low mortgage rates are encouraging more first time homeowners to buy property. The market is flushed with liquidity and government tax incentives have also encouraged home purchases. Low deposit rates will also act as a push factor to drive property demand. All these factors have encouraged healthy demand for properties.
We do not see a strong risk of a property bubble happening yet and there is no sign of overheating. The price increase in properties has not been broad-based, but demand driven and rather selectively in prime locations.
The strong demand and price premium reflect a project’s prime location, concepts and exclusive features. To provide for the buyers, there is also cost for research and development activities. Higher construction and land cost are also factors for the premium price charged for some of the projects. New launches are concept and lifestyle driven, and have been designed to fit current market needs. For example, residential properties with large built-ups are popular to house three generations under one roof. Security has become a top priority and that’s why gated and guarded projects are doing very well. In areas like Mont’ Kiara and downtown Kuala Lumpur, residential suites would be the preferred option for singletons, or investors seeking rental returns.
Amongst the property players, Tan Sri Leong is someone whom I admire a lot - he has been instrumental in transforming Mah Sing from a non-player, into amongst the top property players in the country. He thinks the property market is sustainable - I would agree as well. There is some strong demand for selected locations - and hence command a price premium like what he has mentioned. However, do bear in mind that overall cost of development has been on the rise, not just on land cost alone - cost of research and development and higher construction costs are some of the key factors for the premium price charged for some of the projects. As a construction player, I do agree, and also admit - that construction costs have been on a rise and this has been translated in increased property prices.
Target the speculators
ELVIN FERNANDEZ, Khong & Jaafar Sdn Bhd managing director.
The residential market this year has been fairly stable. However, on account of the unusual financing packages that we have (e.g. 5/95), interest rates are still low and banks are still giving out loans. There has been a “run-up in prices” in a few selected areas and this is cause for concern. This is the reason for the lower mortgage loan-to-value ratio (LVR) that’s currently being studied by Bank Negara. You need to tame the real estate cycle. (When property prices go up) it is good for the house owner and for the developer. But it is not good for the country when prices run ahead of fundamentals.
The LVR is a good move. The authorities should be constantly vigilant of house prices running ahead of the fundamentals. You need specific mechanisms to control the real estate market. In the past, tools used to tame asset bubbles were only monetary in nature, such as interest rates. But when you raise or reduce interest rates, it has a broad effect (and not just specific to real estate). These policy measures must be such that first-time house buyers are not caught by it while the speculators are targeted.
Like what Mr Elvin has said - interest rates are still considerably low - and most importantly, banks are still giving out loans. He commented a word of caution - "When property prices go up it is good for the house owner and developer.. but it is not good for the country when prices run ahead of fundamentals..." - I agree with this part too. The government should not do anything to slow down the market - but instead, 'tame it'. I also feel that developments should concentrate within the Klang Valley region - or specifically, central Klang Valley only. As developers and the Government keeps on promoting the Greater Klang Valley or rather, outskirts of KL or PJ... it does not justify with property trends anywhere else around the world.
Looking good for next two years
CHRIS BOYD, CB Richard Ellis Malaysia Sdn Bhd executive chairman.
The property market is going strong this year. There will continue to be challenges, especially in the high-rise residential market because of large supply in some localities. The landed residential sub segment is strong and will continue to remain this way. The retail sub segment is stable. The (retail) market successfully digested the supply that came in when the Pavilion mall was completed (in 2007).
Even hotels are experiencing excellent business at the moment and will continue to do so. The property market in general is looking good for the next two years. Finance is still cheap and readily available, which is critical to the residential sub segment. Historically, the residential market has shown that its capable of self-regularisation and can easily correct itself without external intervention. (On Budget 2011) It would be nice to see more financial incentives for green buildings. It’s on the radar but didn’t get realised in the last budget. It would be nice to see more measurable steps towards sustainability. (However) it is a mistake to rely solely on the Government to make the property sector more attractive.
Property market going strong etc etc... Agreed. High-rise residential market... Yes we all love it!!! Retail segments... mmm... the market has successfully digested Pavilion. But - my concern is... look at some of the newer ones, or the smaller ones. We have Fahrenheit88 re-launching again, and then there are plenty of other smaller ones coming up too. How is our small population going to take up all the different malls this time around? Perhaps, Mr Chris Boyd should answer on the outlook for the retail market. I am neutral on this really. =)
Still promising
KUMAR THARMALINGAM, Malaysia Property Inc CEO.
The Malaysian property sector is looking promising across the board. The mood is that construction costs are going up and this is spurring people to buy property quickly. Banks are also cautious. They always to their due diligence on the buyers. They may only give a 70% loan if they think that is all the purchaser deserves. The industry as a whole is stable. This positive trend will continue for the rest of the year.
If there is a 0.5 percentage point increase in interest rates, I don’t think it would make a difference to the average consumer. We won’t see any impact if the West goes into a double dip recession because our regulatory system and our banks are stable.
Very optimistic, and very positive. I believe there are a lot of property investors out there who are listening to his words and advice - thats why the market is still booming. I would love it if there are more veterans like Mr Kumar Tharmalingam out there - who would speak to the international and global investors - be it from Hong Kong, Indonesia, Middle East or wherever it may be - to look at Kuala Lumpur deeply. Come and put money in KL!!!
Mini-boom seen
PREVINDRAN SINGHE, Zerin Properties CEO.
PREVINDRAN SINGHE, Zerin Properties CEO.
The outlook (for the property market) is stable and we expect prices to continue rising. We expect a mini-boom in the second quarter of next year. (On the possibility of raising the quantum of real property gains tax) It would defeat the Government’s intention of making Malaysia a real-estate destination. (Hopes for Budget 2011) We’d like to see the removal of taxes for real estate investment trusts and more efficiency in the Government department on the real estate side.
Mr Previndran Singhe is hoping that the Government wont raise the RPGT quantums - same here. It will definitely be a 'shooting-ourselves-in-the-leg' situation if they were to do that. I am hoping that they will be more incentives in the Budget 2011 for the property sector - make Malaysia a real-estate destination!
Banks not holding back loans
JAMES WONG, VPC Alliance (M) Sdn Bhd managing director
The Malaysian property market in the first half of 2010 has improved significantly compared to the first half of last year. This is because a lot of developers are launching new projects and are offering easy payment schemes, such as 5/95. This has attracted a lot of buying interests, especially in places where homes are more affordable. We still expect to see a hike in prices for landed residential properties. This is partly because banks are not holding back on their lending policies.
In countries such as Singapore, Hong Kong and China, their central banks have come up with pre-emptive measures to cool the property market. When Bank Negara announced it was studying the LVR, there were a lot of protests, but I feel this a good move for the market. Perhaps they should exclude certain buyers from the cap of 80% (loan), such as first-time buyers or make it applicable for properties above RM500,000 only.
Lowering the LVR would seriously tame the market - but I think it will only a short glitch in the property market. It would create a more refined investor base - those who can really afford, rather than speculators. This way, there would be lesser risks for bankers - and it would be a good move for the market.
Make it easier for first-time buyers
CHANG KIM LOONG, National House Buyer’s Association honorary secretary-general
There are a lot of young professionals (lawyers, architects, engineers) coming into the market today and many of them can’t even afford homes. In Kuala Lumpur, you can’t get a bungalow for RM250,000. The rates of houses are increasing by leaps and bounds every year. It is surpassing the average annual income increment. Unless you have a rich father that can pay for you, the affordability of houses is seriously becoming an issue.
I understand that you have terrace houses within Desa Park City (Kuala Lumpur) that are going for RM1mil. It’s ridiculous! How to afford? The Government has to come up with some kind of a price-control mechanism for houses. With prices like these, it’s only the rich that can buy, especially foreigners.
(On LVR) There should be a threshold to help curb speculation. For first-time buyers, 90% and onwards loans are fine. But for subsequent purchasers, the quantum should be less. Alternatively, a higher loan quantum (90% and above) should be given for homes that cost less than RM500,000.
Mr Chang here seem to be a little pessimistic about the market though based on his remarks. I would rather not comment - however, in some ways, Mr Chang is correct. From the young professional point of view - property prices are really getting too high. As our Prime Minister has been wanting the country to grow into a high-income nation - perhaps higher income first before the sharp increase in property prices?
No cheap house
MELISSA RAM, Virgin Properties Sdn Bhd chief operating officer
The local property market is certainly on an uptrend and prices have been escalating. Even when there’s a slight downturn, property prices just don’t seem affected. You just can’t seem to find a cheap house at the moment. (On LVR) I think it’s a good move as it will only encourage people that have the means to purchase property to apply for loans. You should only buy a house if you have the funds. On the downside, it would mean that poorer people would not be able to afford houses. However, this measure could encourage people to save up before buying a home.
Another pessimistic comment. I believe that as long as the banks still give out loans, chances are the markets would remain good. Perhaps they need to loosen up a bit for the 1st-time buyers though.
Okay - we've seen what the industry players have to say. How about my say?
I have had quite a number of people and friends asking me where to invest - where is the property hotspot in Kuala Lumpur right now. From my point of view - I believe that the Malaysia property market is still very bullish right now. Premium locations - such as the KLCC area, Bangsar, Damansara Perdana and most parts of Petaling Jaya would remain as the hotspots to invest in. Dont forget Mont Kiara - although there is some major traffic congestions in the area - but it is still the darling of the market.
One thing that the property market is experiencing undeniably is that fact that rental yields are dropping. Since the recent financial market slowdown, a lot of expats have been sent back to their countries as large corporations are downsizing. We no longer hear of sky high rental prices anymore paid by all these MNCs - however, from what I see - the market is getting its rebound now. Lower rental yields should not deter investors/buyers from investing in property - it is becoming the norm already. If you are still expecting between 9-10% yields like 5 years ago - perhaps it is time to get updated!