Property slowdown more evident in Johor

CRACKS are starting to show in Iskandar Malaysia’s once-booming property market.

UEM Sunrise Bhd, considered a bellwether to Iskandar, this week slashed its sales target for 2014 to RM2bil from RM3.2bil, citing weakness in the market for homes in the economic corridor south of Johor.

This comes as a slew of high-rise apartments – many of them from the China developers, and many of them on the waterfront – are set to flood the market.

And things could get worse before they get better.

A report in the Financial Times on Wednesday says China Vanke Co, the country’s biggest developer, is offering up to US$325,000 (RM1.02bil) in discounts via e-commerce site Taobao, to entice homebuyers amid slackening demand.

Sluggish sales and an oversupply in the second and third-tier Chinese cities are driving prices lower, Bloomberg reported.

Here, the talk among property circles is that Country Garden Holdings Co, which last year rolled out a record 9,000 high-rise units on the coastline enclave of Danga Bay, could follow suit.

It is believed that about half of the condominiums in Country Garden Danga Bay remain unsold, and the Guangdong-based property giant is now looking increasingly desperate to unload its stock by either hiking discounts of dropping prices, although the exact quantum is unknown.

Company officials did not respond to text messages from StarBizWeek seeking comment.

The Danga Bay project was launched with much fanfare last year at an average of RM900 per sq ft.

Most of the real estate firms in Johor Bahru have been roped in to sell homes for Country Garden Danga Bay, and it is dangling commissions of up to 8% versus the typical 2%-3% as an added incentive, brokers tell StarBizWeek.

In fact, says an agent, three people were spotted carrying sandwich boards near a bank in Johor Bahru last month advertising units in Country Garden Danga Bay. It is not clear who they were representing, but property executives speculate they could be acting for Country Garden’s foreign buyers.

Channel checks with agents reveal that the Phase 2 units are going for the same price for all floors, a departure from the usual practice of pricing the topmost levels at a premium.

Buyers can opt for the promotion price, which in some instances adds up to a 40% discount, provided they pay for the property in cash over several transactions. Doing so will shave RM300,000 off the price of a single-room unit measuring between 400 to 500 sq ft, which would normally cost RM800,000.

Country Garden hasn’t raised its maximum discount beyond 21% since launch day, say agents familiar with the matter, but it may not be long before the company has to dump prices.

Right next door, China’s state-owned Greenland Group will soon launch 2,478 units of apartments and townhouses, according to PA International Property Consultants Sdn Bhd executive director V. Sivadas.

R&F’s Princess Cove project will introduce about 3,000 units of apartments in the first phase, and another 30,000-plus units thereafter.

“There are also a few other projects in the Danga Bay area being prepared for similar types of developments,” he tells StarBizWeek via e-mail.

The problem here is clearly one of mismatch between demand and supply, Sivadas points out.

Demand remains strong for affordable homes costing below RM400,000, yet much of the new supply is heavily skewed towards high-rises.

“Our records indicate that slightly more than 100 high-rise projects scattered throughout Johor Bahru and Iskandar Malaysia, comprising a little over 100,000 units, are expected to come onstream in the next few years.

“One third of that is within the R&F site, and another 10% within known projects at Danga Bay, where Country Garden and Greenland are based.

“We expect more high-rise projects to be planned within waterfront areas in the Danga Bay region, such as Stulang Laut, Bayu Puteri and Puteri Harbour. The proposed Forest City at the Second Link in Nusajaya is another huge project on the horizon,” he quips.

All that has led to a visible slowdown over the past 10 months.

“Many investors, particularly foreigners (the main target for high-rise projects in the waterfront areas), appear to be adopting a wait-and-see attitude.

“We have not helped ourselves by changing policies and the price threshold limits. We, however, do not expect to see a crash in the market unless there is a catastrophic failure at the national, regional and global levels,” Sivadas notes.

“In property development, success is predominantly driven by demand, not supply. There is an urgent need to boost demand and facilitate ease of purchase by locals as well as foreigners.

“There needs to be more employment generators in Iskandar Malaysia and facilitated migration and immigration to ease or solve acute labour shortages across many sectors. There is also a need to seek a balance to ensure controls on speculative activity, which were prevalent for the past few years up to end-2013.

“In the meantime, the question almost everyone is asking is, who will occupy the vast numbers of high-rise, high-priced waterfront units which were mainly purchased for investment?” he asks.

“We are not sure at the moment.”

But there are bright spots, says Landserve (Johor) Sdn Bhd executive director Wee Soon Chit.

“I believe that value-for-money products will still see demand. For example, Botanika@Bayu Puteri (by Tebrau Teguh Bhd) is doing well because their prices range from RM430 to RM500 per sq ft.

“We expect the industrial sector to grow further due to demand from Singapore industrialists, especially the Jurong area. The Singapore government recently announced that the Jurong area will be re-zoned, and the victims will be industrial companies who have no choice but to relocate,” Wee reasons.

A number of recent Iskandar launches, like Sunway Bhd’s Citrine office suites and Eastern & Oriental Bhd’s Avira Terraces, were snapped up.

But sentiment could get worse in 2015-2016, when a large number of the high-rises sold during 2012 and 2013 are handed over, according to Maybank IB Research analyst Wong Wei Sum. The problem is especially acute in hotspots such as Nusajaya, Medini and Danga Bay.

“We welcome foreign direct investment into Johor, but not at the expense of the local players,” laments one industry executive.

“It was going so well until a couple of years ago. Now they seem to have killed the goose that laid the golden egg.”

While the Chinese may be accustomed to building thousands upon thousands of apartments, the Malaysian market simply can’t take that kind of volume, the executive says.

“I hope the market will cool just enough to make them realise that. The state government also needs to take a good, hard look at the situation.”

Commercial property that isn't completed by Apr 1,15 subject to ‪GST‬

Projects under construction will be valued as of March 31, 2015 and GST will be levied on the uncompleted portion of the project.

For example, a project that is 40 per cent complete on March 31 will see GST imposed on the remaining 60 per cent.

"The bearer of this tax will depend on the agreement between the contractor and the developer, and between the developer and the buyer," said BDO Malaysia advisory executive director Mok Chew Yin at StarLive, a monthly talk by industry experts and columnists hosted by Star Publications (M) Bhd.

Mok said if there was no provision in the agreement for such a tax to be passed on to the buyer, the developer would have to absorb it.

"Ultimately, the implementation of GST is likely to bring about a slight increase to residential property prices in general - perhaps 2 per cent to 3 per cent by my estimation - as developers would not be able to claim input tax as sale of residential properties is exempted.

"The increased cost will either be passed on to buyers or absorbed by the developer or shared, but it wouldn't be as high as 6 per cent," he said.

However, BDO tax/GST executive director Jeff O'Connell said GST would actually lower costs to businesses in some instances as GST input tax could be claimed, unlike the sales and services tax, which was not claimable.

"The Price Control and Anti-Profiteering Act is in place to safeguard against profiteering from the implementation of GST," O'Connell said, adding that Australia's experience when it introduced GST at 10 per cent bore repeating.

"In Australia, where pricing was monitored for 12 months before GST was implemented and up to two years after, we received 51,000 complaints, underwent 7,000 investigations and 11 prosecutions, and returned A$21mil (RM61.7mil) to two million customers," said O'Connell.

"Between May 2000 and May 2001, we experienced an average (upward) price change of 2.6 per cent when GST was introduced," he said. -Asiaone

Bandar Ainsdale

Overwhelming response to Mah Sing’s Lakeville Residence in KL

Mah Sing Group Bhd has formally launched the Lakeville Residence’s sales gallery in Taman Wahyu, Kepong.

The project has a total gross development value (GDV) of about RM1.5bil, comprising six towers of residential and commercial products designed with a lakeside living theme.

Mah Sing executive director and chief executive officer Ng Chai Yong said: “The prime location and well-thought concept of Lakeville Residence received good response, as the first four blocks comprising Tower A, B, E & F with a total of 1,244 units of serviced apartments saw 85% take-up.”

The built-up of the serviced apartment units ranged from 978 to 1,365 sq ft, with prices starting from RM561,800, the company said in a statement.

Additionally, the group opened another two towers (Tower C & D) for registration of interest.

More than 9,000 people turned up for the launch to have a glimpse of the unique concept which is “lifestyle at the heart of city”.

Lakeville Residence is a masterplanned development at the heart of the bustling city, and easily accessible via main roads and public transport.

The development is also well connected via Jalan Ipoh, Jalan Kepong, Duta-Ulu Kelang Expressway and the Middle Ring Road (MRR) 2. It is only 15 minutes away from Kuala Lumpur’s city centre while the KTM Komuter train service will offers easy commuting into the city.

“Further to quality properties, Mah Sing is committed to build communities complemented with premier lifestyle.

“Lakeville Residence brings convenience not just in terms of location and accessibility, but within the development as well.

“For example, residents at Lakeville Residence will enjoy partially furnished units which will come with fully-fitted kitchen cabinets, air conditioning as well as water heaters. Even more, each unit is provided with two parking lots which is considered luxury in today’s space-hungry city limits,” said Mah Sing managing director and group chief executive Tan Sri Leong Hoy Kum, at the press conference after the official launch.

A nature-themed facility podium stands on 3.11-acre of lush landscaping includes 38 different points of view with 38 amenities to cater for all walks of life. The podium is one of the largest sky parks in the city.

In tandem with its tradition of lavish landscaping, Mah Sing has allocated RM3.6mil to beautify the areas and fringes of the lake at Lakeville Residence as part of the initiatives under the River Of Life Project.

Efforts being made to attract innovative companies to Cyberjaya

Did you know that biodegradable implants would one day replace the syringe and needle? Dutch company Bioneedle Technologies Group is developing “bioneedles” and a breakthrough could reduce the likelihood of HIV and hepatitis infection via today’s syringes.

The company, located in Eindhoven, Netherlands, is one of the many interesting startups in a city called one of the most innovative in the world by Forbes magazine due to its “patent intensity”. Eindhoven is one of the many technology hubs that are emerging around the world.

Although Silicon Valley has been the benchmark for startup ecosystems for many years now, other innovation hubs are emerging and gaining ground with non-information technology startups. One example of this is Malaysia’s very own Cyberjaya.

Cyberview Sdn Bhd, which is tasked by the government to transform the 2,784ha of land area in Cyberjaya into a nucleus for the Multimedia Super Corridor (MSC) initiative, is turning the area into a global hub and preferred location for organisations involved in information and communications techonology and other fields.

Cyberview managing director Faris Yahaya says, the company, which was established in 1996, has since turned the former oil palm plantation land where Cyberjaya sits to become home to over 600 technology companies, including 35 multinational corporations.

Last year alone, investments from companies in Cyberjaya totalled over RM7bil, contributing over RM4bil to Malaysia’s GDP while creating over 40,000 jobs for knowledge workers.

Moving on

“We must not rest on our laurels. We need to constantly reinvent ourselves according to the changing business environment,” Faris says.

The next leap forward for the government-owned company under the Finance Ministry is to increase the scope of companies based in Cyberjaya, taking it from a regional cluster of ICT companies to become a full-fledged global innovation hub.

This will include bringing in non-ICT related companies that are working in fields such as green technology, biotechnology, wearable technology and also smart grids while preserving the ICT companies in the five existing ICT areas of information security, creative content technologies, mobile Internet, cloud computing and data analytics.

Although cloud technology may be growing each day, Faris is not one who believes in plucking ideas out of the sky without thorough study and verification.

“To decide on our next step, we hired a consultancy firm who have experience in doing strategic blueprints for various governments,” he said.

The blueprint involves a comprehensive 10-week study on leading science and technology parks (STP) and start-up city hubs around the world.

The STPs studied include the Research Triangle Park in the US, Cambridge Science Park in UK, Daedok Innopolis in South Korea. Start-up city hubs like Tel Aviv (Israel), Sydney (Australia) were also included.

“From the study we learn the success factors of these STPs and start-up city hubs and try to see how it can be applied to Cyberjaya,” he said.

Some of the factors include close collaborations with industry, academicians and government. Strong networks and communities, including active accelerators and incubators to provide mentorship to start-ups, funding and talent availability, and an entrepreneurial culture are also important factors.

“We have the right foundation and framework in place. Our next step is to approach the relevant stakeholders on how to introduce non-ICT companies to Cyberjaya,” he said.

Greater partnership

The plan for the global technology hub envisions a complete symbiosis of start-ups, small- and medium-sized enterprises and big companies, both local and foreign, from the various technology sectors coming together with end-to-end support for the whole value chain.

“We want to attract more iconic organisations, which will in turn want a strong local logistics chain from research to commercialisation,” he said.

Taking the success factors into consideration, Faris said the four new non-ICT areas were proposed after filtering through over 150 technologies.

He added the four new areas are not strictly ICT related.

Using bioinformatics as an example, Faris explained that the field encompasses both biotechnology and augmented reality and IT. The elements also involve creative multimedia and wearable technologies.

Cyberview is in the process of short-listing leading companies in these new areas from around the world and will approach them with the help of the Multimedia Development Corporation, InvestKL and Malaysian Investment Development Authority.

“We will schedule visits to interested companies in phases, with a customised approach to ensure they are a fit for Cyberjaya,” Faris says, adding that an attractive and well-coordinated incentive package would be offered to attract the companies.

To take Cyberjaya to its next level of growth, Cyberview is planning to spend between RM160mil and RM600mil to strengthen its ICT and non-ICT sectors, including boosting the talent pool, infrastructure and research and development institutions there.

Another RM100mil to RM400mil is needed to improve the overall ecosystem in Cyberjaya, including broadband connectivity, networks and incentives for the companies.

A programme monitoring office will also be established to make sure the day-to-day implementation and progress are on track, he said.

Slowdown in properties across the board for most states (Part 3)

Johor excitement

The state of Johor continues to be “the most dynamic” as a result of the Iskandar-Singapore factor.

While other states showed signs of slowdown a year ago, Johor’s property market rose 10.5% in terms of the number of volume with total value of transactions rising nearly 60% compared to a year ago.

However, transaction volume and value have dropped 4.5% and nearly 35% respectively against October, November and December of last year.

To put things in perspective, in the first quarter of 2013, Johor’s property sales totalled RM4.7bil. It leapfroged to RM11.62bil in the last quarter of 2013. In the first three months of this year, it dropped to RM7.6bil.

Among the different sub-segments, land for development is the second most popular after the residential, an indication that local and foreign developers continue to like that market.

The most popular type of housing continues to be two- and 2.5 storey housing and single and 1.5-storey housing with the number of condominium and apartment units on the rise in Johor Baru. The question is how will Johor fare in the event of a slowdown in China?


Penang market

Last year’s downward trend has continued into 2014, Raine & Horne Malaysia senior partner Michael Geh, based in Penang, says.

“It is a general downward trend in terms of units transacted but prices remain firm,” says Geh.

Across the different segments, the largest decrease is in the industrial sub-segment followed by the residential sector.

Transactions of development land continue to remain robust, particularly in the Bukit Mertajam area and on the north east part of the island.

Transactions for commercial properties continue to have its share of interest.

The Penang market is dominated by both landed and high-rise units with condominiums contributing about a quarter to residential sales value. Most of Penang’s interest continue to remain on the island although there is growing expansion of the market on the mainland side, in the Butterworth area.

Slowdown in properties across the board for most states (Part 2)

Residential transactions make up an average 75% of overall property transactions, according to the NAPIC numbers. All four states recorded a drop in transactions with Kuala Lumpur deals decreasing 15.7% against the last quarter of 2013. The number of deals completed this year is also lower than a year ago, confirming grouses by real estate consultants that the market has been softening since a year ago. Still on the Kuala Lumpur market, the number of properties below RM300,000 is becoming increasingly limited, which explains why transactions for such properties are decreasing.

Siders says there is “room for correction” in the overall high-end residential market.

NAPIC research shows that the greatest number of transactions are for properties priced between RM500,000 and RM1mil. Overall, the total value of properties transacted dropped for all price segments with the exception of properties costing RM1mil and above.

There are a couple of ways how one may read this - people are either holding on to their cash waiting for prices to fall or they may want to buy but have difficulties getting a loan.

Raine & Horne executive director Lim Lian Hong says transactions have been slow since last year, particularly in the secondary market.

“The drop (in overall market) may continue into the second quarter,” says Lim, adding that many properties have moved into the RM1mil and above segment.

Condominium units dominate the residential sector with transactions accounting for 70% of the market compared with 30% for landed units. Increasingly, developers are resorting to building high rise as this is more lucrative. Condo units are being priced about RM700,000 per unit this year compared with about RM600,000 a year ago.

Prices of double and 2.5 storey terraced housing continue to climb from an average of about RM700,000 a year ago to about RM900,000 in the first quarter of this year. A note of caution is needed here. These prices are average figures, not absolute numbers.

Commercial property transactions also showed a general downward trend in the city.

The softening market is evident in Selangor’s residential market.

“We are seeing a slowing down of transactions in Selangor,” says Lim, with transactions dropping compared with a year ago and against the last three months of 2013.

Volume is concentrated in the RM500,000 to RM1mil range. The indication is that developers are offering housing within this price range.

Most of the high-rise units transactions are concentrated in the district of Petaling although Selangor includes Klang, Kuala Langat, Kuala Selangor, Sabak Bernam, Gombak, Hulu Selangor, Hulu Langat and Sepang.

The pricing of average high-rise units have also risen ranging from about RM280,000 a year ago to about RM330,000 for the first quarter of this year, an increase of about 17%. This has to be read with the big picture in mind as units in Petaling are considerably higher.

Slowdown in properties across the board for most states (Part 1)

And so it is true. Property consultants’ laments about the property market consolidating and transactions slowing down have now been confirmed by the National Property Information Centre (NAPIC) in their first quarter numbers for this year.

Although the findings are six months backdated as it is already August, the government agency’s figures are about as accurate as one can get about the state of the sector, down to how many transactions being done.

Most states recorded overall drop in the number of property transactions for the different sub-segments, namely, residential, commercial, industrial, agricultural, development land and others. The trend of decrease is definitively evident.

The president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Siders Sittampalam says he is not surprised.

“It confirms what I said, that the Malaysian property market is consolidating. It is not a slump which is characterised by oversupply and declining prices,” says Siders. He is also PPC International managing director.

Based on the NAPIC report, the temperature for Kuala Lumpur, Selangor, Penang and Johor is distinctly cool.

In a nut shell, all four states recorded an overall drop in transactions with Kuala Lumpur seeing a 13.4% dive compared to the last quarter of 2013.

Penang recorded a marginal 0.3% drop while Johor, which enjoys one of the most buoyant market in the country as a result of Iskandar Malaysia, saw a 4.5% drop in transactions. Selangor had a 10% drop for the period under review.

Considering the interest in the property market the last couple of years, it can be concluded that this may be the first significant quarterly nosedive in the last four years.

NAPIC is currently analysing the second quarter numbers. Siders is not too hopeful.

“The market is not going to change a lot. The consolidation process is expected to remain for some time as there is no impetus. Positive economic conditions does not mean an immediate return of confidence in the property market. There is always a time lag,” says Siders.

Mah Sing enters Seremban in maiden foray into Negri Sembilan

Mah Sing Group Bhd is continuing its land acquisition spree, this time in Negri Sembilan, involving 425.3ha (1051 acres) in Mukim Rantau, Seremban for a cash consideration of RM359.56mil (RM342,112/acres)

The proposed acquisition by Mah Sing’s wholly owned unit Grand Prestige Development Sdn Bhd will mark the group’s maiden foray in the state.

In a filing with Bursa Malaysia, Mah Sing said it was planning a mixed-development project with an estimated gross development value (GDV) of RM7.5bil on the site.

“With this acquisition, the group will have about 566.5ha (1400 acres)  of land south of Kuala Lumpur and will be better positioned to reach out to a broader range of customers by offering products suitable for the mass and upgrader markets,” Mah Sing said in a statement.

The development will be Mah Sing’s biggest in the south of the Klang Valley.

The group expects to complete the land acquisition in the first half of 2015.

It said the planned township in Seremban, spanning between seven and eight years, would replicate its Southville City in Bangi and will comprise two-storey terrace and superlink units, semi-Ds, bungalows and commercial properties.

“Traditionally, developments along the North-South Expressway have always done well.

“We see (many) similarities between this new project and our well-received Southville City project which is also sited and has a long frontage along the North-South Expressway,” said Mah Sing group managing director cum group chief executive Tan Sri Leong Hoy Kum.

The land is located further south from Southville City along the North-South Highway, with a 2.5km frontage along the highway.

It is located 8km from the Senawang toll plaza and 2km from the Sungai Gadut KTM Komuter Station, which has more than 50 daily trips connecting directly to KL Sentral and Rawang. Mah Sing said it would be building a proposed interchange with direct access to the land to complement the group’s overall master development strategy.

The group said the proposed interchange will be the first interchange after the Pedas toll, linking those who travel from the south of Peninsular Malaysia to Seremban.

“It will also enable residents to access the newly-proposed Senawang-KLIA Highway which will cut the travelling time to the Kuala Lumpur International Airport (KLIA) and the new low cost terminal, KLIA2 by half,” Mah Sing said.

With the acquisition, Mah Sing’s landbank would increase by more than 35% to 1,485ha (3670 acres) worth more than RM41bil in GDV.

As at 31 March, the group has remaining GDV and unbilled sales of approximately RM33.5bil, which are spread out within the Klang Valley, Johor, Penang and Sabah.

Mah Sing plans RM3.4bil projects in KL and Penang

Mah Sing Group Bhd will develop RM3.4bil worth of residential projects in Penang and Kuala Lumpur over the next five years.

Group chief executive officer Ng Chai Yong told StarBiz two of the projects would be located in Penang, while another two would be in Kuala Lumpur.

In Penang, Mah Sing plans to develop The Coastal for the RM320mil Southbay City in Batu Maung and the RM750mil Ferringhi Residence Precinct 2 in Batu Ferringhi.

The projects, opened for registration now, will be launched in October and November respectively.

In Kuala Lumpur, the group will launch the RM1.5bil Lakeville Residence in Taman Wahyu, Jalan Ipoh, and the RM900mil D’sara Sentral in Sungai Buloh soon.

“The projects in Penang are competitively priced at around RM800 per sq ft and RM900 per sq ft respectively for The Coastal and Ferringhi Residence Precinct 2, as they are located near the sea, with accessibility to the main trunk road and expressway leading to George Town.

“The Coastal comprises 156 professional suites and 100 residential suites, with built-up areas ranging between 575 sq ft and 1,300 sq ft.

“The projects in Kuala Lumpur are attractively priced at around RM550 per sq ft for Lakeville and RM660 per sq ft for D’sara Sentral,” he said.

To add value to the Southbay City project, Mah Sing plans to develop a 750,000 sq ft shopping mall in 2016.

“The mall will take about three to four years to complete.

“We are currently constructing a 424,000 sq ft shopping podium trends@southbay city for Southbay Plaza, which is expected to be completed in 2016,” he said.

Despite the stringent bank loan conditions which had caused the property market to slow down in the country, Ng said the group’s sales had remained buoyant.

“We don’t expect the pricing of our projects to soften, as they are all located in prime and strategic locations like the Southbay project, which is a stone’s throw from the first and second links in Penang and the Tun Dr Lim Chong Eu Expressway, leading to town,” Ng said.

From Penang, the sales contribution for 2014 fiscal year is expected to increased to RM371mil compared to RM326mil last year.

“From Greater Kuala Lumpur, the sales contribution is projected to increase to RM2.217bil in 2014 from RM1.563bil in 2013.

“From Johor, the group is targeting to achieve RM831mil in sales this year, compared with RM959mil last year.

“We set a lower sales target for Johor this year as we have already launched most of the key projects in the state last year,” Ng said.

According to Ng, the Southbay project in Batu Maung has achieved sales of about RM811mil as at March 31.

“To date, the take-up rate is over 90%. The value of Southbay properties has risen by 100% in terms of capital appreciation since completion four years ago.

“A terraced unit at Residence@Southbay had risen from RM780,000 to RM1.45mil in the secondary market,” Ng said.

Mah Sing’s focus for this year is to ensure that its products stay affordable.

“Over 80% of our planned residential product launches will be priced below RM1mil,” he said.

The group’s main focus is still on the Klang Valley, where the projects are expected to contribute 60% to sales this year, followed by Johor Baru (23%), Penang (10%), and Kota Kinabalu (7%).

“The prospects of the property market in this country continue to be positive in the middle to long term as the population is projected to grow, especially in the Klang Valley, which is expected to increase from seven million now to 10 million in 2020.

“The key infrastructure projects such as the mass rail transit lines and the proposed high speed rail connecting Singapore to Kuala Lumpur will continue to spur interests in the Klang Valley,” Ng added.

In Johor Baru, Mah Sing plans to launch the RM5bil Bandar Meridin East project in the second quarter of 2015.

The projects for Bandar Meridin East will be previewed end of 2014.

“The design for the master plan will take advantage of the natural terrain of the site and incorporate several lifestyle communities comprising terraced, semi-detached and bungalow dwellings.

“Focus will be on creating a living lifestyle with particular emphasis on community participation, and security and sustainability in guarded and gated environments.

“To enhance safety further, traffic calming devices will be incorporated to control speeds and provide safe environments for cyclists and children,” he said.

Tropicana, Selangor amend terms of land sale

Tropicana Corporation Bhd and the Selangor state government had entered into a supplementary agreement to amend and incorporate additional terms and conditions with regards to the sale of a piece of land in the vicinity of Kota Kemuning previously known as the Canal City.

Among the salient points of the amendments are that the state will receive accelerated payment amounting to RM173mil instead of RM85mil for a portion of the land that Tropicana had sub-sold to Prominent Stream Sdn Bhd, a subsidiary of Eco World Development Group Bhd.

According to a statement by Tropicana last Friday, the other matter in the amended agreement is that the Menteri Besar Selangor (Pemerbadanan) (MBI) has appointed Permodalan Negeri Selangor Bhd (PNSB) as the agent and project manager to manage its interest subsequent to the new agreement.

The deal between Tropicana and the state can be traced to April 15, 2013 when the property developer’s subsidiary, Sapphire Index Sdn Bhd (SISB), acquired 1,172 acres of leasehold land in what was previously known as Canal City for close to RM1.3bil.

The bulk of the amount is to be paid over 20 years as Tropicana develops the land.

In March this year, the embattled Selangor Mentri Besar Tan Sri Khalid Ibrahim had a change of mind after SISB sold a portion of the land, measuring 308.72 acres to Prominent Stream Sdn Bhd (PSSB) for RM470.7mil cash.

Subsequently, in April, MBI has made fresh offer to Tropicana to pay up-front RM844.3mil, a valuation derived on a net present value basis, compared with RM1.3bil previously.

In the latest development, Tropicana said that the accelerated payment was with regards to the sub-sale of the parcels sold to PSSB on the basis of developable area instead of gross land area.

“The accelerated payment amounts to RM173mil instead of RM85mil. As a result, there will be a waiver in interest for the amount paid,” it said.

Selected Condo Price & Rental Rates

Highest Condo Price Transacted in KLCC Area

Subsidiary Management Corporations – A Panacea?

This is the fifth article on in a series contributed by the National House Buyers Association which is focused on strata management. The first article introduced the Strata Management Act, 2013 (SMA) and submitted that the Strata Management Bill (SMB) which aims to provide an improved legal framework for strata management is a welcomed new law.

The second article highlighted the terms of the SMA, covering what a management body and management committee are in particular. The stringent conditions for the election of the management committee were also discussed.

The third article explored the power struggles within the management body. It was submitted that opposing groups of parcel owners would emerge when the management body’s actions lack integrity. These groups attend the annual general meetings (AGM) of the management body and their presence may culminate in open hostility or even manipulation of the election process to retain their office. The way in which the SMA resolves this hostility and/or power struggle was discussed.

The fourth article discussed what the management body must inherit from the developer, focusing particularly on the documents to be handed over to the management body after the body is formed and highlighting the relevant sections of the SMA providing the list of the documents.

This article discusses the subsidiary management body which is formed in a mixed-use development where residential, office and retail buildings are part of one large development at the management body’s discretion.

Mixed-use Development Issues

In a mixed-use development, the management body would comprise a variety of parcel owners who own residential, office and/or retail parcel units in the development. These owners pool their funds to maintain and manage the different buildings in the development and share the use of the common property.

Due to the mixed-use nature of the buildings, issues usually arise regarding the management and maintenance of the buildings as well as the use of the common property. For example, should the residential parcel owners have free access to the common property used by the office or retail parcel owners, or should the retail parcel owners pay more charges such as maintenance charges and sinking fund compared to the residential or office parcel owners?

Additionally, proper use of the maintenance funds implies keeping organised records of accounts. One issue which will undoubtedly crop up is whether the management body can use money from the maintenance fees paid by the retail parcel owners to pay the expenses incurred to maintain the common property of the residential or office buildings and vice versa.

The parcel owners can argue stubbornly about these issues. When they reach a deadlock, hostile AGMs or power struggles among the owners will likely happen.

Subsidiary Management Corporations

Under the SMA and the Strata Titles Act (Amendment), 2012 (STA), the management corporation (MC) has the option to form a subsidiary management corporation (subsidiary MC) for the different buildings in the strata development. The subsidiary MC enables the parcel owners of the respective buildings to form their own distinct and separate management corporations which would independently manage and maintain their own building and the common property serving the building.

However, it is noted that the parcel owners during the period of the Joint Management Body (JMB), which is the management body formed before the MC is formed, lack the power to form a subsidiary JMB.

Separate Accounts and Funds

Similar to the MC, the subsidiary MC is a corporate body with perpetual succession and as such can sue and be sued. It is empowered to collect directly from its members the maintenance charges and sinking fund.

The subsidiary MC’s members comprise the parcel owners of the respective buildings. For example, the residential subsidiary MC’s members comprise the parcel owners of the residential building, the office subsidiary MC’s members comprise the parcel owners of the office building and the retail subsidiary MC’s members comprise the parcel owners of the retail building.

Each subsidiary MC must maintain its own maintenance charges and sinking fund accounts for its building, all of which must be audited annually by an independent auditor. All these accounts would be consolidated to form the MC’s accounts which are then presented at the MC’s AGM.

The Formation of Subsidiary Management Corporations

As stated above, the parcel owners of a mixed-use development have, through the MC, the option to form a subsidiary MC. The process to achieve this starts when the MC calls for a general meeting and procures a comprehensive resolution to form the subsidiary MC.

Section 2 of the SMB defines ‘comprehensive resolution’ as a resolution which:

a) is considered at a duly convened general meeting of the management corporation of which at least 30 days’ notice specifying the resolution has been given; and

b) at the end of the period of 60 days after the general meeting in paragraph (a) is convened, on a poll, the total of the share units of the parcels for which valid votes are counted for the resolution is at least two-thirds of the aggregate share units of the parcels of all the proprietors who constitute the management corporation at the end of such period.

Limited Common Property

An interesting point about the subsidiary MC is that it can designate limited common property for its own use.

Section 17A (2) and (3) of the STB provide that:

(2) Limited common property designated by a comprehensive resolution passed by the management corporation shall –

a) describe, identify or define the boundaries or area of the limited common property in the special plan;

b) specify each parcel comprised in that special plan whose proprietors are entitled to the exclusive benefit of the limited common property; and

c) conform with any other details as may be prescribed by the Director of Survey.

(3) The management corporation shall make an application in Form 9 for the approval of the Director for the issue of certificate of subsidiary management corporation for the designated limited common property and shall be accompanied by –

a) such fee as may be prescribed;

b) a copy of the comprehensive resolution together with a certificate signed by the Commissioner certifying the receipt of the same filed with him by the management corporation; and

c) a special plan prepared under subsection (2) and any approved amendments thereto.

Although the subsidiary MC can designate limited common property for its own use, the limited common property must be identified clearly. Similarly, the parcels whose owners will enjoy exclusive use of the limited common property must be identified.

Conclusion

Generally, in a mixed-use development comprising residential, office and retail buildings, the MC has the option to form three subsidiary MCs, namely, a residential subsidiary MC, an office subsidiary MC and a retail subsidiary MC. It is submitted that through the subsidiary MCs, the interests of the parcel owners regarding the maintenance and management of the mixed-use development can be resolved in a more formal way.

However, the formation of the subsidiary MC is a huge matter. It involves getting the consent of at least two-thirds of the aggregate share units of the parcels of all the parcel owners who constitute the MC as well as the land office.

In the absence of a subsidiary MC, parcel owners in a mixed-use development would have to co-exist harmoniously as well as practice mutual respect and cordial behaviour towards the varied interests in the development.

Developments in Cheras & Kajang

Hidden gems in the spotlight

In recent years, the limelight on developments has been mainly on Pandan Indah but there have been noticeable stirrings of a next great growth for its sister township, Pandan Perdana in Kuala Lumpur.

The Pandan Perdana township is strategically located between Ampang Jaya, Cheras and Taman Shamelin in Kuala Lumpur. It would seem that this hidden gem is receiving plenty of attention from developers looking to rejuvenate this mature residential area.

After all, Pandan Perdana comes with amenities such as restaurants, coffee shops, grocery and convenience stores, clinics, banks, primary and secondary schools. Within close proximity are entertainment and F&B (food and beverage) outlets, shopping, health care and educational necessities at the Pandan Indah and Taman Shamelin neighbourhoods.

This cuts down on lengthy commutes that plague new townships, enabling the convenience of a five minute drive for food or to the dry cleaner’s.

It’s no surprise then that Pandan Perdana, located a mere 6km from the Kuala Lumpur city centre, is set to grow as a neighbourhood with its well-connected accommodation supported by the convenience of urban amenities. Being strategically located, travelling to and fro from the city centre is easy.

The township is highly accessible by virtue of the MRR2 (Middle Ring Road 2) highway, Besraya highway and the LRT (light rail transit) station.

Should you want to be in the thick of the action, you will find that popular destinations such as the swanky Pavilion KL shopping centre located in the heart of Bukit Bintang is a mere 4.5km away while the iconic Petronas Twin Towers is just 5.8km away.

For a touch of nature, Pandan Lake offers recreational activities among greenery. In the cool mornings and evenings, the lake offers a great way to commune with nature and relax with spectacular sunrise and sunset vistas.

Pandan Perdana has hit its first phase of maturity with link houses developed two to three decades ago which means that no residential developments have come about for quite some years now.

However, the introduction of high-rise residential projects in the surrounding townships indicates that this area has become very much in demand for its excellent connectivity, strategic location and comprehensive range of amenities.

Neighbouring developments include Residence and Sentrio in Desa Pandan, Bayu Pandan Jaya in Pandan Jaya and Shamelin Star in Taman Shamelin – launched in 2012 and 2013 – which were priced between RM450,000 and RM1mil for an average unit size of 1,000sq ft.

Back in 2010, projects such as Axis Residence, Axis Crown in Pandan Indah, Shamelin Bestari in Taman Shamelin and Pandan Mewah heights in Pandan Mewah, Kuala Lumpur, were launched between RM150,000 and RM350,000 for an average unit size of 1,000sq ft.

This simple comparison shows that the prices of property in this area are going up with no way of coming down. The good news is, prices within the area are still within the affordable bracket.

With the MRT (mass rapid transit) line coming up, there’s plenty of positive sentiment surrounding Pandan Perdana today. One of the most exciting projects is an integrated development known as 28 Boulevard by the Beverly Group, the same developer for the award-winning Marc Service Residence at KLCC.

The group sees the area’s potential and has designed an iconic 45-storey development which is modern yet affordable for the new generation of residents at Pandan Perdana.

Beverly Group has teamed up with Mapletree Investments Pte Ltd, a subsidiary of Temasek Holdings (Pte) Ltd, Singapore. Both these entities have enviable track records of successful projects. 28 Boulevard looks set to be another feather in the cap.

This project, integrated with Pandan Lake, enables residents to enjoy pristine lake views and a bird’s eye glimpse of the city, including the KLCC Twin Towers.

Comprising a mix of leasehold Soho (Small office home office) units and serviced apartments, 28 Boulevard comes with a full range of facilities and is priced from RM270,000.

Need for review of commercial projects to space out supply

The high number of ongoing commercial projects in the Klang Valley is causing some jitters in the market, leading property consultants to call for a review of project plans including the need to phase out projects to avoid a glut and high vacancy rate.

VPC Alliance Malaysia Sdn Bhd managing director James Wong says there is already an oversupply of office space in the Klang Valley, as demand is not keeping pace with supply, and with another additional 18.61 million sq ft office space expected to be completed by 2016, the supply situation “has indeed reached a critical stage”.

“It is more alarming as some of the mega projects such as Warisan Merdeka and the Tun Razak Exchange developments are not included in the incoming supply as building plans of some of these mega project developments have not been approved and hence not included in the incoming supply statistics,” Wong tells StarBizWeek.

Wong says there should a central planning authority for the 10 local authorities in the Klang Valley to provide planning guidelines and a “master record” of what has been approved “so that supply and demand of the commercial projects can be better regulated.”

Between 2014 and 2016, the projected office supply completion in Kuala Lumpur and Selangor is 18.61 million sq ft of which the bulk of the new supply will be in 2014 and 2015 accounting for 87.4% or 16.25 million sq ft. Meanwhile, occupancy rate this year is estimated at 79.9% and in 2015 at 78.5%, he discloses.

The projected new retail space in Kuala Lumpur and Selangor these two years will be 5.89 million sq ft of which 52% of the future supply will be completed this year, with occupancy rate estimated at 79.4% this year and 78.4% in 2015.

Knight Frank Malaysia managing director Sarkunan Subramaniam says that with the high number of ongoing projects, the gap between demand and supply will continue to widen and there will be growing pressures on rental and occupancy as competition heightens.

“As at the first half of this year, purpose-built office space in the Kuala Lumpur city centre was around 48.6 million sq ft with another 21.5 million sq ft in the city’s fringe, bringing the cumulative supply to 70.1 million sq ft. In the retail sector, there are some 46.5 million sq ft of retail space in the Klang Valley currently,” he says.

Sarkunan says the market is expected to become more challenging going forward and several developers are reportedly reviewing their proposed developments to ensure the viability and marketability of their projects to commence construction only when the key or anchor tenants are secured.

He says development projects on government land that offer a high commercial component of office and retail space are also competing with those by private developers.

“Stakeholders should be prudent in the planning, approval and construction of these developments as they may lead to overbuilding and oversupply. As an alternative, government land within the Klang Valley could be better utilised by building affordable housing to cater to the demand of the masses,” Sarkunan notes.

Echoing Sarkunan’s views, Wong says: “As the development projects on government land in the Klang Valley are skewed towards high commercial components and there is already an oversupply of office and retail space, the government should reallocate some of its land for residential development, including affordable housing. However, this will only be applicable on government land of township development such as Kwasa Land at Sungai Buloh where land prices are not so high.”

Wong opines that for Kuala Lumpur to be a world-class international city that is liveable, there must be a balance of commercial and social developments, and the planning authorities should encourage developers to promote arts, culture, performing arts, and green landscapes with parks, incorporated within their developments.

Sarkunan concurs saying some of the land available for development could be designated as public spaces to promote arts, cultural, sports and other creative uses to help keep social ills at bay.

Stressing the importance of proper planning in terms of development consultancy, Sarkunan says design and layout, market analysis on the demographics of the target catchment, trade and tenant mix, and proactive marketing campaigns are crucial in determining the success of shopping malls. As for office developments, pre-leasing is the key.

Well located, good grade modern office buildings that are dual-compliant will continue to be in demand while secondary and dated buildings will feel growing pressure to undergo asset enhancement initiatives such as refurbishment, redevelopment or even conversion to other alternative uses to optimise returns on the properties.

“Occupancy and rental rates will face increasing pressure and will likely decline due to a widening gap between supply and demand as well as further market dilution. In the short term, rental rates are expected to remain fairly resilient due to existing lock-in tenancies although there will be growing pressures on occupancy due to the high supply pipeline.

“The overall vacancy rate will increase due to heightened competition between commercial buildings (office buildings and retail malls) as a consequence of a mismatch between supply and demand. Also, the pace of rental increases (if any) is expected to slow down,” he says.

Landlords of office buildings may need to offer longer rent free periods and attractive rental rates to retain and attract tenants. Similarly, for the retail segment, owners and operators of shopping malls may see decline in their revenue due to weaker sales as a result of market dilution and growing competition, as a vast majority of tenants have a provision in their lease for payment of a turnover rent in addition to the base rent.

Sarkunan says the commercial property market is expected to become more challenging.
While well-located good grade offices at both KL City and KL City Fringe as well as well-managed prime and suburban shopping malls are expected to maintain their position (in terms of both rental and occupancy levels), others that are under-performing may be forced to close or undergo redevelopment due to low occupancies and rental income amid high maintenance costs.

In the retail sector, prime and established shopping malls will continue to perform well in terms of rental rates and occupancies (at more than 90% occupancy), while those not in the same league are under-performing. Amid growing competition with a high existing and impending supply pipeline, the retail market is also set to become more challenging.

“In the tenant-favoured market, landlords are offering attractive tenancy terms to retain existing tenants and attract new occupiers. Landlords need to continue to strive to maintain the exclusivity of their malls to attract consumers,” he adds.

CB Richard Ellis Malaysia group executive director Paul Khong expects to see some compression in rent when lots of new space comes on stream.

“Many developers are willing to take lower yields in the initial term or even give away some rent free incentives to attract tenants to their buildings. During preleasing periods, the packages would be more attractive as developers minimize their leasing risks and reduce the void periods if tenancies are secured early. In certain buildings, fit-out packages are also offered to anchor tenants,” Khong says.

On the risk of a supply glut, he says developers are generally sensitive to the demand and supply situation of commercial space available.

“When the equilibrium point is breached, developers will automatically exercise the necessary caution to safeguard themselves financially. However, many will try to push the limits but will review plans to slowdown projects accordingly and will keep their land banks intact till demand returns,” Khong says.

Moving forward, he says larger number of strata projects with high commercial components will be built within the city limits. Given the high land costs, the current trend in many of the major development projects is to build mixed development which comprises residential service apartments, mall, hotel and office space within the same site.

“There are a lot of approved development projects on government lands with good products planned in the pipeline. But based on market conditions, many of these phases could be postponed indefinitely if demand is not forth coming,” Khong says.

Keep DIBS for first-time buyers

Real Estate and Housing Developers Association (Rehda) president Datuk Seri FD Iskandar Mansor (DSIM) speaks on the local property market.

Q: What is your view on the various measures announced by the government to curb speculation, such as a rise in the real property gains tax (RPGT), the removal of the developers interest bearing scheme (DIBS) and foreign ownership threshold?

On RPGT increase

DSIM: The increase may help curb speculation to some extent, but not in all locations, especially prime areas. We do see an impact in the primary and secondary markets following the RPGT increase, particularly genuine buyers who may want to upgrade or relocate within the first five years of acquisition.

You can see a downward trend now. I have no problems if the government wants to penalise speculators, but don’t do it at the expense of genuine buyers. Don’t penalise first-time house buyers or real home purchasers and also investors. I would like Bank Negara Malaysia and the government to re-look the RPGT on a case-by-case basis. It is in our culture to own a few houses to pass down to our children and as an investment for their education.

On DIBS removal

DSIM: The real reason for the DIBS home financing package by some developers was to facilitate home buyers in their acquisition cost during the initial stage of a purchase.

We believe that removing DIBS will hurt genuine buyers, especially first-time home buyers. I believe it is unfair to remove the DIBS. It is difficult for first-time home buyers to come up with a 10 to 20 per cent downpayment.

I hope the government will allow DIBS to be continued, at least for first-time house buyers and not limit it to properties worth RM400,000 and below.

On the higher foreign ownership threshold

DSIM: I don’t think there will be a major impact on the property market as houses currently are already worth that much, especially in prime locations in the Klang Valley, Johor and Penang, as well as Perak and Sabah. These are areas where foreigners buy properties. Nevertheless, the imposition will certainly reduce sentiments from foreign buyers and affect foreign property investment in the country and there may be foreign exchange losses.

Q: What is your take on the implementation of Goods and Services Tax (GST) next year?

DSIM: Rehda has submitted a memorandum of understanding to the Finance Ministry on the impact of the GST on the public at large.

In its current form, we feel it will impose further hardship to consumers and there will be an increase in house prices. At present, land and property transactions are subject to a stamp duty averaging 2.75 per cent. The GST will result in double taxation and inevitably lead to higher cost of property transactions.

With the implementation of GST, stamp duty on transfer of properties should be abolished or lowered to reduce the burden on property buyers. We have proposed a GST model for the housing market. For properties priced between RM100,000 and RM400,000, we have proposed for it to be zero rated.

Q: What is your outlook for 2015?

DSIM: It is not possible to lower house prices because of an increase in the cost of doing business. As it is, house prices in selected locations have gone up by between five and 15 per cent. In locations such as Mont Kiara and Bangsar, house prices have increased by more than 15 per cent. More than 99 per cent of the time, when you buy a house, the price will increase. As we speak now, house prices are increasing, so it is always a good time to buy.

To stabilise house prices, we need to increase the supply. Since October last year, a few measures unfolded with the reinstatement of RPGT, removal of DIBS, affordable housing initiatives by the government and higher price threshold for foreign buyers.

Since then, launches and take-up rate have gone down. With the cooling measures announced, we anticipate some impact on the property market.

Although the budget is tailored to promote a more stable and sustainable property market, all these measures will inevitably bring some major changes in both the demand and supply sides of the equation.

With the various measures put in place, I don’t think property transactions can pick up next year. We will see an increase in property transactions just before the GST is implemented as people would rush to buy.

Once the GST is implemented, there will be a slowdown again, at least for six to nine months.

The biggest market currently is for houses priced between RM150,000 and RM200,000, followed by properties worth between RM200,000 and RM400,000, and we believe that trend will continue next year.

Q: What is your view on affordable housing?

DSIM: It was announced in the 2014 Budget that RM1.9 billion has been allocated to build 123,000 affordable homes. In foreign countries, it is the government who takes on the role to build affordable houses. As a developer, we are not running away from building affordable house. We want to be there and help but because of scarcity of land and the high cost of construction, it is becoming difficult for us. The state governments have a lot of good land and perhaps, they should free up some parcels for us to develop. This could help to reduce the cost of constructing each home.

Affordable houses should also be near public transportation and amenities. They should be well-connected to the LRT, MRT and monorail, for example.

‘Property prices to keep rising’

Real Estate and Housing Developers Association (Rehda) president Datuk Seri FD Iskandar Mansor says property prices will continue to rise because of the supply and demand factor and high land cost.

According to National Property Information Centre, the average annual housing completion was 100,000 units against the average annual household formation of 140,000.

Iskandar, who is Glomac Bhd managing director and chief executive officer, said the public still have the misconception that developers are to blame for escalating property prices.

He said it is not possible for developers to reduce or maintain the selling price for new launches because of land cost, coupled with high conversion premium which has risen by up to 300 per cent recently.

“Glomac bought 80ha in 2009 in Puchong and paid almost RM15 million premium for conversion. In 2011, we bought an additional 80ha to expand the development and paid almost RM49 million,” Iskandar told Property Times.

On the cost of doing business, Iskandar said it has been increasing every year and developers are not enjoying the 30 per cent profit margin like before.

According to him, developers make around 15 per cent profit margin now because of high compliance cost, development and infrastructure charges, quit rent and stamp duty.

“Some 20 years ago, when we develop a piece of land, water and electricity is supplied to the area. All we need to do is connect the supply to the development. Today, we have to get water and electricity from the main source and this is costing us more.”

He said for landed properties, utility cost in terms of gross development cost (GDC) has risen by five per cent to 19 per cent in the past two years.

For strata title properties, the cost has increased by six per cent, and or townships, between nine and 25 per cent.

“The public should not blame developers for the increase in house prices.

Utility companies are making money from both consumers and developers.”

Iskandar said Rehda has been engaging with the government and companies like Tenaga Nasional Bhd, Telekom Malaysia and Indah Water Konsortium Sdn Bhd, among others, to find ways to resolve the matter.

He also said land is also getting scarce and more expensive.

“In early 2007, when Glomac bought land nearby the Petronas Twin Towers, the seller asked for RM1,000 per square feet (psf) but we wanted to pay only RM600 psf. I knew what we wanted to build on it so we paid RM1,000 psf.

“A few research houses downgraded Glomac because of that. Now, that same piece of land is worth RM3,500 psf and the value of the building has risen. Land cost has tripled in the last seven years.”

Iskandar said there are many issues that need resolving soon in the local property market, which is one of the pillars of growth for Malaysia.

“We are in an industry which is highly regulated. We are governed by three different authorities, namely the state government, the Federal Government and the local authorities. If we don’t comply, we won’t be able to get development approvals.

“Rehda has around 1,200 members, who directly and indirectly employ close to one million people. Last year, total loans given to the real estate industry was 40 per cent. It was the highest on record.

“In terms of compliance cost, the contribution to the local authorities is between four per cent and 18 per cent for landed properties, around five per cent for strata title properties, and as much as 20 per cent for townships.

“If we keep having issues such as rising cost of doing business, delays in approvals and more cooling measures, the sector will become stagnant,” Iskandar added.