Tough times ahead for Iskandar and Malaysia properties

There are four reasons behind the cooling property sector in Malaysia:

1. Oversupply in the market

According to Malaysia’s Valuation and Property Services Department, land prices and launch price of residential properties have doubled from 2011 to 2013. With so many projects launched during this period, there will be a huge supply of completed residential units flooding the property market in the next two to four years.

From 2011, developers jumping on the bandwagon loaded Johor, Selangor and Penang with countless upscale residential projects. Even overseas developers, including China developers, rushed to the country to diversify their investment. There were frantic moves such as building a man-made island without proper planning. And there is no authority to keep overbuilding in check.

Any industry can prosper with healthy organic growth. On the contrary, heavy dosage of growth hormones that promotes unnatural growth can result in many negative side-effects that ends up with premature mortality.


2. Disconnect between price and budget

There is huge injection of investment funds and impressive development plans in Iskandar. They contribute positively to the long-term economic growth in the area.

However, it takes time to reap what you sow. Earning power of the common people takes time to catch up. The 70 percent loan-to-value ratio is now beyond the capability of many home buyers. In fact, there appears to be a widening gap between the escalating property prices and the affordability of the home buyers.


3. Concerns of foreign buyers

Of course the high-end residential projects built by foreign developers are not relying on take-ups by the locals. But foreign buyers are deterred by the property cooling measures of Budget 2014, including 1) doubling of the price threshold to RM1 million; and 2) higher Real Property Gains Tax of 30 percent for properties bought by foreigners sold within five years of purchase and 5 percent hereafter.

For Singapore investors, they also find themselves at the mercy of the volatile relationship between the two countries on disputes over different issues like tolls, border or water.

The weaker Malaysian currency is a double-edged sword. The current exchange rate makes it look very attractive to own a property in Malaysia. But no one can guarantee that the ringgit won’t continue to weaken and will work against you when you want to exit the market one day.


4. Where is the resale market?

According to Malaysia’s Ministry of Finance, in the first half of 2013, only 1.5 percent of property transactions was above RM1 million in the Johor state. Those bought before 2014 with prices lower than RM1 million will have to wait for their properties to rise above that magic value of RM1 million until they can sell to foreign buyers.

Unlike Singapore, Iskandar is a testbed but not a tested market. Until recently, we have seen active buying but not active selling.

If one day properties with prices over RM1 million drop below the magic number of RM1 million, with all foreigners ineligible to buy, even if the locals are interested to take over, how many of them can afford the high quantum of these properties?

When everybody is talking about a hot market, it’s not the time to buy. It’s time to sell.

Properties in any country is a good investment. The key is the time and the price you enter the market. That is exactly the homework property investors need to do before they buy anything in any market.

No wider impact from Selangor move

After the hue and cry among developers and property consultants over the Selangor state government’s move to raise the threshold for foreign buyers to RM2mil, the next question is, will this cascade to other states?

Not likely, say property consultants.

Earlier this month, Selangor doubled the price cap of properties that foreigners are permitted to buy from RM1mil to RM2mil for residentials in most districts. Foreigners can only buy strata and landed strata properties.

It divided the state into three zones and also raised the price of commercial and industrial properties for all three zones to RM3mil.

There were no such differentiation previously. Selangor, incidentally, has one of the highest transaction volume in ringgit terms.

A check with property consultants in Penang, Johor and Kuala Lumpur shows that Selangor’s move - seen as a measure to protect the state’s property market and house owners - is unlikely to be followed by other states.

Penang-based property consultant Michael Geh, senior partner of Raine & Horne, says Penang “initiated” the anti-speculation move two years ago when it raised the purchase price of landed units from RM1mil to RM2mil. The cap for condominium units is RM1mil.

Last December, the Penang state government imposed a 3% approval fee for foreigners, in addition to the existing ceiling price of not less than RM2mil for landed properties and RM1mil for stratified ones on the island, and RM1mil for both landed and stratified properties on the mainland.

“Penang is not a speculative play among foreigners, with their transactions only accounting for about 3% of Penang’s total transactions in ringgit terms. It is more the locals who are buying and flipping,” says Geh.

If international buyers comprise 10% to 15%, he will be “alarmed”, says Geh. There are some purchases by Singaporeans but this is because they have families here.

The Penang market is healthy based on optimum employment and a high percentage of domestic buyers, he says.

As for foreign developers foraging for land on the island and mainland Seberang Prai, Geh says both locations are on their radar.

Over in Johor, Cheston International managing director Steven Ng says it is unlikely for the state to have curbs.

The current cap is RM1mil with no distinction between the different sub-segments. Foreigners are allowed to buy landed as well as strata-properties. They are, however, barred from buying agriculture and Malay reserved land, says Ng.

In addition to the RM1mil cap, foreigners have to pay a processing/approval fee of RM10,000 or 2% of the market value of the property, which ever is higher, he says. In Medini, there is no bumiputra quota and developers can sell the entire block to foreigners.

On the state of the current Johor market, a source from Johor, who declined to be named, says it is “in a bit of a confusion at the moment”.

“There are two issues here.

“Foreign developers have created a glut in high-rise units. This glut has resulted in Singapore developers holding back their launches. They will have to drop prices if they were to go ahead with the launch,” he says.

“Launches are priced between RM800 and RM1,200 per sq ft now.

“However, to sell at RM1,000 per sq ft and above is a challenge unless it is in a very prime area.

“Secondly, this confused state resulted from a lack of rules. Even when there are rules, there is a lack of enforcement,” the source says.

This has resulted in developers taking “a wait-and-see attitude” with CapitaLand Ltd becoming the latest to postpone the launch of its first phase in Danga Bay township. Singapore-based CapitaLand is South-East Asia’s largest developer. Landed housing, however, is not expected to be an issue, the source says. This should benefit the UEM Sunrise group which is expected to launch their landed units.

Kuala Lumpur-based property consultants and developers say the move by Selangor is “fair”, although there are differing views. It came about after consultations with the Real Estate and Housing Developers’ Association (Rehda) - who resisted the move - and the National House Buyers Association (HBA) about three months ago, a source says.

Says Mak Foo Wi, a project director with Alzac Viva Sdn Bhd: “Right now, Petaling Jaya’s SS2 prices are just below RM1mil. The authorities probably expect prices to trend upwards but before that happens, it raises the cap to RM2mil.”

Suntrack Development Sdn Bhd project director James KK Tan says while he understands the state government’s noble intention, “such restrictions eradicate almost all classes of properties (residential, commercial and industrial) and almost all of the price range of properties available for foreigners.”

He says it affects property sales across the board which include new property and those in the sub-sale market and adds the number of foreign buyers in Selangor is insignificant.

A property consultant who requested anonymity says if one were to make rules based on the significance of foreigner buyers, Selangor will forever have a lax policy.

“Selangor’s property sector is significant. The border between Kuala Lumpur and Selangor is difficult to distinguish. Bandar Utama has a Petaling Jaya address whereas Taman Tun Dr Ismail is a Kuala Lumpur address. Also, foreign developers have gone into Semenyih. The state has noted these events.

“The anomaly is that Kuala Lumpur is retaining its RM1mil cap for foreigners, he says. So let’s wait for the upcoming budget,” he says.

Certain foreign developers are taking their money out of their country and going into other countries. This is an issue for a small country like Malaysia. In conclusion, the market should not be affected by these new rules set by the state government.

EcoWorld launch EcoSpring and EcoSummer

EcoWorld launched its EcoSpring and EcoSummer Show Village in Iskandar Malaysia recently.

EcoSpring is an upmarket township of cluster homes and semi-detached houses set in a beautiful spring-themed environment. Over 13% of EcoSpring is reserved for nature.

The township, which is entered through a bridge, is dotted with a plethora of gardens full of blooming flowers and surrounded by pristine lakes, streams and lush greenery, that help to lower the temperature by 4°C to 7°C naturally.

Each of the four precincts also come with their own garden. The township is gated and guarded, as well as patrolled by security personnel around the clock.

In addition, the precincts are safeguarded by individual security checkpoints for added exclusivity and peace of mind.

There are also dedicated lanes for pedestrians and bicycles as well as free shuttle buggies for residents to travel around the township safely.

EcoSpring is designed with up to 65 world-class outdoor and indoor facilities, including a state-of-the-art gymnasium, floating stages, a skating rink, outdoor pavilions, viewing decks, basketball courts, and even a resident-exclusive clubhouse with a lap pool.

EcoSpring’s double-storey residences, which are named after scenic places in England and range from 32’ x 80’ cluster homes to 50’ x 80’ semi-ds, feature a unique architectural style that combines sophisticated European architecture with smart contemporary designs, like walk-in wardrobe, en suite bathroom and more.

Adjacent to EcoSpring, separated only by a stream, is EcoSummer.

A tranquil stream-side township of 1,255 garden homes, approximately 16% of the total area of EcoSummer is reserved for nature.

At its heart is one of the longest linear gardens in Iskandar Malaysia.

To ensure that its residents can live with complete peace of mind, the township is safeguarded by 24-hour security and CCTV surveillance. The facades of EcoSummer are inspired by Western Country homes.

These modern residences also feature comfortably wide open living and dining areas, as well as a 10ft backyard garden with a 40ft backlane.

The first phase of EcoSummer is completely sold out, but there are still opportunities to own a double-storey garden home in EcoSummer new phase, the North Gardens.

For details, call 07-236 2552 or visit the EcoSpring and EcoSummer EcoWorld Gallery.

Changkat Duta Kiara

Properties of vast potential in the Klang Valley

Selangor is the richest state in Malaysia in terms of Gross Domestic Product (GDP), and of the many urban centres in the state, Petaling Jaya (PJ) is the most active in terms of property development. The areas that are hot on buyers’ radar is the stretch from PJ/Subang Jaya to Shah Alam, and goes west to Port Klang. This stretch is also referred to as the western corridor.

For the past two decades, property projects remained almost unchanged but the landscape is fast changing with the launch of new township developments in Shah Alam and Klang such as Bandar Bukit Tinggi, Setia Alam, Setia Eco Park, Aman Perdana, Cahaya SPK, Denai Alam, City of Elmina, Bandar Botanic and Tropicana Aman. The western corridor is today one of the more exciting corridors and the entrance of big developers has changed the property landscape.

S P Setia is credited as one of the first developers to introduce master-planned community living in northern Klang through its Setia Alam project in 2004. SkyBridge International CEO Adrian Un said: “All this while, Shah Alam has never been heavily favoured. The game-changer of Shah Alam has been S P Setia. I am not siding with the company but it is a game changer. Because of the company, people have taken notice of Shah Alam. The i-City project is a plus point.”

Growing population

Shah Alam’s population of approximately 750,000 is among the highest in Selangor. This is vital in ensuring an area’s sustainability. IQI Group Holdings chief economist Shan Saeed said, ”Whenever I look at any place or land, I look at population and job creation.”

“When I moved from Chicago to Kuala Lumpur three years ago, I looked at three key criteria – political stability, economic stability and financial stability. In Dubai, 80% of properties are owned by foreigners. In KL, it is the opposite.”

In Klang, the population is approximately one million, and there is potential spillover from those living in Klang to invest in Shah Alam as Shah Alam is closer to the centre of gravity. Greater Kuala Lumpur’s centre of gravity has shifted towards Kinrara, spurred by the proposed new Serdang-Kinrara Putrajaya Expressway, Kinrara-Damansara Expressway , Sungai Besi- Ulu Kelang Elevated Expressway, and Damansara-Shah Alam Highway (Dash).

Saeed added, “Shah Alam will remain on investors’ radar because it is close to Port Klang. The Japanese have chosen Penang and Port Klang as their manufacturing hub for the long-term.”

Current and future infrastructure

The western corridor is now home to modern award-winning township developments and all the necessary amenities including sports stadiums, tourist attractions, golf courses, recreational parks, higher learning institutions, and shopping centres.

The key factors contributing to the growth of the western corridor is infrastructure and accessibility. The network of highways serving the corridor include:

>        Federal Highway (connects KL to Klang)

>       NKVE (Jalan Duta to Bukit Raja)

>       Federal Highway Route 2 (Batu Tiga to Sungai Rasah)

>       Kesas (Sri Petaling to Pandamaran)

>        Guthrie Corridor (Shah Alam and Rawang)

>        Elite Highway (connects to Nilai and a few highways)

>       Kemuning-Shah Alam expressway (LKSA)

>       Proposed Dash highway (Damansara Perdana to Shah Alam)

Additionally, the KTM Komuter connects Batu Caves to Port Klang, with stations in Shah Alam, Padang Jawa and Batu Tiga.

Ho Chin Soon Research senior manager Khairudin Ya’cob said the extension LRT project that is being built will connect to Bukit Jalil and to Kelana Jaya, and while the MRT blue line will cover from Sungai Buloh to Kajang. The Prolintas highway development connects Damansara to Shah Alam, and can be linked to Sprint Highway or the LDP, which will help to enhance the value of property in these parts.

Additionally, the LRT 3rd line’s (Bandar Utama–Klang) is awaiting approval and alignment has yet to be released. Ya’cob said, “The main thing is not to be near the alignment, but position properties near the stations.”

On the uptrend

From 2011 to 2013, there has been a consistent decrease in the number of transactions from 430,000 to 381,000. Despite this, the transaction value has steadily increased from RM137bil to RM152bil.

Malaysian Institute of Estate Agents president Siva Shanker opined, “If there is GDP growth, it is usually between 2% and 5%. During recession, it is minus 2% or minus 3%. We are now at minus 11%! What people don’t recognise is that we are already in the middle of the bubble and it is already here. Is it right time to invest? Looks like there is no wrong time to invest in Malaysia, as it seems to be on the uptrend all this while and we are in the middle of the bubble.”

Brand conscious

Malaysians have become brand conscious as they evaluate both the project’s and developer’s image.

This is evident especially in the Kuala Lumpur city centre. Some projects in the KLCC area are priced from about RM1,000 to RM1,700 per sq ft, while some are able to price their properties from RM3,500 to RM4,000 per sq ft due of branding. That’s 300% higher than the average neighbour.

In Shah Alam, i-City could be the go-to destination for the area when it starts building a brand name for itself. i-City was conceived as an MSC hub, but it is much more than that as it is self-contained with leisure, office and residential components. i-City is a fully integrated digital city comprising a shopping mall, corporate office towers, Cybercentre office suites, hotels, apartments, data centre, innovation and theme park.

Gen-Y

When it comes to property purchase, the older generations tend to stick to developed neighbourhoods that they are familiar with and would prefer landed properties. The Gen-Y is more receptive to new areas, especially when they are educated about the uniqueness of developments.

Chur Associates founder Chris Tan said: “Gen-Y should be trained to look at products differently.

“The Gen-Y lack information. Despite the availability of social media, education is still required. They should look at affordable subsale housing that are still within reach. Unfortunately, they are trained to look at new things, and not old houses.”

Gen-Y should also switch on their “trading up” mentality. By going for things that they cannot afford, and ignoring those that they can, Gen-Y will constantly complain about properties being out of their reach.

Gen-Y should think about purchasing lower priced properties first. After all, property is a good hedge against inflation. When the lower-priced property increases in value, capital appreciation can be used to slowly trade up to better properties.

For those who are looking into purchasing commercial properties such as SoHos, and SoFos, SkyBridge International’s Un advised, “With the implementation of the Goods and Services Tax in April 2015, developers should educate Gen-Y buyers.

“They are on a tight budget. They might have factored all the financing, but six months later they might be surprised to discover that they have to pay for the 6% upon full loan disbursement.”

Shah Alam and Klang have definitely outgrown their image as sleepy old towns. In the past decade, there has been an influx of infrastructure, connectivity and townships which opened up the western corridor of the Klang Valley. A pop duo once sang “Go West” and looking at the heightened attention on the western corridor, it seems that many property investors are certainly agreeing with them.

Why developer interest-bearing schemes should be banned

The Developer Interest-Bearing Scheme (DIBS) is marketed in such a way whereby the house buyers pay a small down payment during the signing of the sale and purchase agreement (SPA). 

The developer will bear the interest due during the project construction period until the handing over of vacant possession where the house buyer will have to come up with the remaining payment.

Developers are fond of the DIBS because it is a smart marketing tool which can be used to entice potential house buyers into believing that they have found a good financing deal, especially those who do not know the implications or read the fine print of the terms of the agreement in the event of project abandonment.

Under the Built-Then-Sell (BTS) 10:90 concept, the law has been amended and is found in Form I (for landed properties)http://www.hba.org.my/laws/housing_reg/2007/schI/schI-2007.htm and Form J (for strata properties) http://www.hba.org.my/laws/housing_reg/2007/schJ/schJ-2007.htm of the Housing Development (Control and Licensing) Regulations, 1989 (amended 2007). It has been in operation since Dec 1, 2007.

Spot the differences

Some developers have even equated DIBS as being the same with BTS 10:90. However, this is not true. If DIBS are not the same as BTS10-90, what then is the difference? Simple.

i) BTS 10:90 uses either Form I or Form J found in the HD Regulations. The BTS 10:90 is the financial model announced by the previous Housing Minister 2012 for financing housing projects come 2015. Under BTS 10:90, should the developer fail to complete the project as promised, the house buyer only faces trouble with the 10% deposit, which he/she may try to recover through the existing legal mechanisms.

ii) DIBS, on the other hand, are a “willing seller-willing buyer” SPA cunningly crafted by developers and are in contradiction with the current housing legislation. Under the DIBS, the house buyer has agreed to be responsible to the banks/financial institutions for the loans signed under the SPA whether the houses are delivered or not. This is the moral hazard the Government is trying to prevent the house buyers from getting into.

Developers, being entrepreneurs, have to be responsible and bear the risks that come with investment. They should not be allowed to enjoy profits at the expense of house buyers who have to bear the risks on their behalf. 

Thus, when developers claim that the schemes are good because they “assist new purchasers”, they should be asked to use the BTS 10:90 instead if they are sincere in not wanting to shift the risks to the house buyers. Developers being profit-driven, merely want to sell their products by whatever means, even recommend the DIBS for “first time house buyers” on the guise of “assisting them”. 

Are we saying that the Minister of Housing can’t spot the differences? If the Ministry of Housing promotes such DIBS schemes, then surely it must be the developers’ ideal marketing tool.

Interest element factored into DIBS “schemed” properties

DIBS properties are also priced much higher than non-DIBS properties as there is “no free lunch” as the saying goes. Whenever a developer says that expenses such as “interest during construction”, legal fees and/or stamp duty are absorbed by the developer, ultimately the cost of such “freebies” or “rebates” as they are called will be added back and factored to the purchase price of the property.

Based on past samples of comparison between DIBS properties and non-DIBS properties (see chart), the price difference is 10% to 20% and some even as high as up to 25%. 

That would mean that if a property was proposed to be launched at RM500,000 and if the developer were to offer DIBS, the developer would be pricing the said property at RM600,000 to cover for so-called “interest cost during construction (say three years)” that the developer is absorbing.

This artificially inflates property price which has a push effect on:

> Prices of subsequent new launches as future launches must be priced much higher than RM600,000, probably closer to RM700,000, thus making subsequent new properties more unaffordable.

> Prices of existing properties can also increase overnight by up to RM100,000, thus making existing properties also more unaffordable.

Property prices also have a spillover effect and can push up prices properties in surrounding locations. Properties launched in Mont’ Kiara will immediately push up prices in surrounding locations including Kepong and Segambut which will eventually affect the cost of properties in Cheras, Kajang and Semenyih too.

High level

Once prices of properties have reached an artificially high level, it is very difficult to bring them down again without adversely affecting the owners and banking institutions. What we can do is to slow down the steep escalation of house prices due to excessive speculation and other artificially inflated pricing methodology such as the DIBS.

The DIBS also encourages syndicated speculators to enter the scene. Basically through DIBS, speculators can enter the market with very small capital outlays. In brief the following occurs:

Speculators approach developers to offer bulk purchases or developers offer syndicated speculators bulk sales with “seemingly attractive discounts.” 

I stress on the words “seemingly attractive” discounts because in reality, the selling price is already being marked up. From this marked-up price, a discount/rebate is given by way of a credit note. 

This credit note is then converted and deemed to be deposit/down payment paid by the speculator buyer.

Thus one can see that one can buy a property with near zero upfront payment. This scheme may not work without the collaborations of valuers and banks. Sometimes bogus sales based on inflated prices are executed to set elevated benchmarks so that valuers can justify the inflated values based on the price that was last transacted. Thus, it can be seen that houses prices are pushed up on two counts.

Firstly, developers have to factor in the interests that they have undertaken to pay on behalf of the buyers, secondly they do so to offset the rebate/ discounts that they have built into such schemes.

Banks traditionally base the quantum of loan against the valuers’ report. Being loan disbursements target-orientated, they pay scant attention to the actual values of properties that their clients have purchased.

Laughing to the bank

The chief beneficiaries of the DIBS are the developers – they can flock off their products quickly and the banks/financial institutions – they can give out higher loans to achieve their monthly target.

DIBS – dubious scheme

DIBS or any other permutation similarly “schemed” cannot be allowed to continue for the betterment of the housing industry as it risks creating a property bubble as the property prices have been artificially increased and they create a snowball effect. As property prices get more unaffordable, the younger generation cannot afford to own their own properties, social problems can also arise.

DIBS prohibition announced in Budget 2014 had been effective in curbing the unbridled escalation of house prices. DIBS must continue to be prohibited and outlawed. Do not allow first time house buyers to be deceived.

Imagine, these young adults are just entering the work force and these burdensome loans (with DIBS factored in) comes with a financial commitment to service a debt. The young people must diligently pay monthly instalments to the banks they are committed to. 

They may be sued by the banks for breach of contract or non-performance or risk their home being foreclosed should they default in any of the periodical instalments. Do you want our young adults to be enslaved by the banks and financial institutions?

From another perpective, an undesirable household economic situation is created when a large proportion of household income is taken up to service a housing loan. Responsible individuals are compelled to ensure that they do not default on their loans. Malaysian household debts are already among the highest in the world. All these enticements will only worsen the situation.

Many households may fall victim to temptation and may overstretch themselves financially and eventually get into the “camel’s back” situation. It also creates an unbalanced economic situation in the country whereby in order to service the housing loans, families will drastically cut back on other expenses such as entertainment, holidays, clothing, education, etc.

In sum, families’ are compelled to lower the quality of life, all for the servicing of housing loans! Consequently, the other sector of the economy such as the entertainment, travel, food and beverage and garments will end up picking up the crumbs.

Chang Kim Loong AMN is the secretary-general of the National House Buyers Association, a non-profit, non-governmental organisation manned purely by volunteers.

Selangor imposes restrictions on foreigners

Foreigners only permitted to buy residential properties that are priced at a minimum RM2mil for Zone 1 and 2, & a minimum threshold of RM1mil for those located in zone 3.

Zone one encompasses the districts of Petaling, Gombak, Hulu Langat, Sepang and Klang.

Zone two are Kuala Selangor and Kuala Langat while the districts under zone three are Hulu Selangor and Sabak Bernam.

Besides the minimum threshold, the land office permits foreigners to buy strata and landed strata properties only.

In the commercial and industrial sub-segments, they are only permitted to buy properties priced RM3mil and above located in all the three zones.

Developers and property agents were thrown into a flux last week over a new set of guidelines on property purchases in Selangor by foreigners, permanent residents (PR) and foreign companies.

Generally, the new guidelines restrict foreigners from buying all types of properties costing less than RM2mil in most of the districts inthestate.

Previously,the cap was set at RM1mil,as announced during last October’s budget. Some property developers are still in the dark over the matter while others are coming to grips with the significance of the move’s effectin an already slowing market.

The measures, outlined in a circular dated Aug 28, were effective from Sept 1 this year. The circular was signed by Department of Lands and Mines Selangor director Datuk Kamarulzaman Jamil.

According to the new guideines, residential, commercial and industrial properties are divided into three zones.

The minimum price for purchases by foreigners is based on the zones.

Foreigners, PR holders and foreign companies are only permitted to buy residential properties that are priced at a minimum RM2mil for Zone 1 and 2, and a minimum threshold of RM1mil for those located in zone 3, according to the circular.

Zone one encompasses the districts of Petaling, Gombak, Hulu Langat, Sepang and Klang.

Zone two are Kuala Selangor and Kuala Langat while the districts under zone three are Hulu Selangor and Sabak Bernam.

Besides increasing the minimum threshold, the land office permits foreigners, PR holders and foreign companies to buy strata and landed strata properties only.

“The new guidelines have raised the threshold price considerably besides putting up new barriers on the type of properties they can buy,” a developer said.

In the commercial and industrial sub-segments,they are only permitted to buy properties priced RM3mil and above located in all the three zones.

They are barred from buying properties set aside for bumiputras. As for non-bumiputra units, they can buy not more than 10% of those units.

Agricultural land, Malay reserve land, non-strata landed residentials and auction properties are off limits.

The new guidelines also govern participants of Malaysia My Second Home programme.

They are to buy directly from the developers and not from the secondary market and are eligible to buy one residential unit only per family.

“This means the state of Selangor is going the way of Johor. Land is a state matter. While the Federal Government may propose its policies – unveiled during each budget – the individual states can go along with the measures proposed, or they can propose their own measures,” a source said.

“We saw the state authorities in Johor proposing their own rules with regard to land issues a few months after Budget 2014. We now see Selangor doing the same,” the source added.

The property source said that the Aug 28 circular seemed to be “a preemptive measure” to prevent foreign developers from entering the state in a big way.

Selangor New Guidelines for Foreign Purchases

SELANGOR STATE NEW GUIDELINES FOR FOREIGN PURCHASERS 

EFFECTIVE 1 SEPTEMBER 2014 :::

1. This new guideline shall apply to all Sale & Purchase Agreement which are dated after 1 September 2014.

2. Foreign Purchasers refer to any purchase made by non-Malaysian, PR Holders and Foreign Companies.

3. The properties in Selangor shall be categorised into three (3) zones, as the following:

ZONE 1
- Daerah Petaling
- Daerah Gombak
- Daerah Hulu Langat
- Daerah Sepang
- Daerah Klang

ZONE 2:
- Daerah Kuala Selangor
- Daerah Kuala Langat

ZONE 3: 
- Daerah Hulu Selangor
- Daerah Sabak Bernam

4. No more than 10% of Non-Bumiputera units can be sold to Foreigner.

5. Foreigner is NOT ALLOWED to purchase the following:

- Landed/Non-Strata Residential-Titled Buildings

- Property by public auction

- Land categorised as Agricultural Land and Malay Reserved Land

6. For Strata and Landed Strata Residential Building:

- Minimum purchase price of RM2 million for properties located in Zone 1 and Zone 2.

- Minimum purchase price of RM1 million for properties located in Zone 3.

7. For all Commercial Building:

- Minimum purchase price of RM3 million for properties located in Zone 1, 2 and 3.

8. For all Industrial Building:

- Minimum purchase price of RM3 million for properties located in Zone 1, 2 and 3.

- The acquirer of industrial buildings require a requisite license from the Ministry of International Trade & Industry (MITI) and follow all other current regulations.

9. Acquisition of Property by a Foreigner under Malaysia My Second Home (MM2H) Programme are as follows:

- Foreigner must only purchase directly from a Developer in accordance with the respective zoning requirements.

- The minimum purchase price must be in accordance to the respective zonings.

- Foreigner is only entitled to One (1) Residential unit.

- The approval granted is not Transferrable. However, the State shall consider transfer of properties by way of love and affection between close family and foreign interest named as beneficiaries in a will.

- The Foreigner must obtain the prior approval from Immigration Department together with the endorsed Visa/Passport for the MM2H Programme.

Sales in The Primary Market Falling

Sales in the primary market have fallen to a “worrying” 49% in the first six months of this year, according to the Real Estate and Housing Developers’ Association’s (Rehda) property industry survey in the first half of 2014 (1H14).

Malaysian property prices to continue uptrend

Property prices, which rose 8 per cent in the first quarter of this year, will continue to head north, as developers pass on the rising cost of building houses to buyers, according to Credit Suisse.

But higher selling prices does not necessarily mean bigger profits for developers with Credit Suisse noting that developers' cost of doing business has reportedly risen 20 per cent in the first half of 2014.

"Margins are being compressed," it said in a sector report on Monday. The firm is negative on the sector.

Property sales, especially in the affordable category, had slowed since the start of the year with measures to curb speculative purchases dampening sentiment in the property market.

The report indicated that the Government was considering additional measures to cool down rising prices with specific plans to address the issue of affordable housing.

Credit Suisse said it believed that measures to facilitate home ownership among the lower and middle income groups such as allowing developer interest bearing schemes for first-time house buyers or those below a certain income level, would be positive for the market.

"However, a blanket policy to stop the rise in property prices would be negative as sentiment is already so low," it added.

According to the Real Estate Housing Developers Association's first half of 2014 property industry survey, a majority of developers are either neutral or negative about the outlook for the second half of 2014.

This sentiment is expected to carry through to next year, with only 13 per cent of respondents optimistic about the outlook in the first half of 2015. Developers have been holding back new launches this year, with only 39 per cent of respondents launching in the first half compared with 52 per cent a year ago.

Take-up rates fell to 49 per cent in the period, the first time it dipped below the 50 per cent level.

The main reason for slower sales was the difficulty for buyers in securing financing. Properties priced between RM250,000 and RM500,000 saw a 30 per cent rejection rate, while properties prices between RM500,000 and RM700,000 experienced a rejection rate of 24 per cent.

Additionally, growth in housing loan approvals has slowed since December 2013 and fell 13 per cent year-on-year in July 2014. For the first seven months of the year, total housing loan approvals were up only 1 per cent year-on-year at RM68bil.

But despite the soft market condition, Credit Suisse said it believed that prices would continue on an uptrend next year as input costs are pushed up by the Goods and Services Tax (GST).

"Residential properties are GST exempt, but developers would look to pass on the higher costs via higher launch prices," it said.

Malaysia's property sector cooling off

Property developers have come out with some hard facts that suggest that the sector is cooling off.

According to the first half 2014 Property Industry Survey by the Real Estate and Housing Developers’ Association Malaysia (Rehda), properties in the affordable housing price range below RM1mil have been facing a tough sell largely because of homebuyers’ difficulty in getting financing and a glut of unreleased bumiputra lots.

Also, some 31% of properties in the RM500,001 to RM1mil range were still left unsold after completion in the past three years. These were largely in hot property markets like Selangor and Johor.

Properties in the price range of RM250,000 to RM500,000 also faced the same dilemma, with 34% of the completed units unsold. These were located mainly in Perak and Pahang.

Close to 90% of the respondents experienced a slowdown in property sales due to cooling measures announced in Budget 2014 and over 80% of the respondents of the survey held a “neutral” to “pessimistic” outlook for the first half of 2015.

Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor said demand for property was intact but with the Government’s cooling measures introduced a year ago, developers were finding it difficult to successfully sell in the affordable housing segment.

“A property is a person’s biggest wealth creation asset, yet they can’t seem to own one,” he noted. He suggested that the Government reinstated the developers’ interest bearing scheme for first-time house buyers to allow the working class to own a roof over their head.

The survey found that while 84% of developers were able to get bridging financing for their projects, 53% of their buyers faced challenges getting financing to buy the properties. Among the loan rejections from financial institutions, the highest rate was among home buyers in the RM200,001 to RM500,000 property range.

“We can build but it is a different story for those with the capacity to buy the homes,” he said, adding that the 70% loan-to-value ratio was beyond the capability of many home buyers too.

Hence, Fateh Iskandar appealed to the banks to revisit the guidelines for responsible lending to property buyers.

He further pointed out that for the first time in the recent history of the property sector, less than 50% of units launched were sold in a half-year period.

Of the total 10,189 units launched in the first half of this year, only 49% were taken up. Of that figure, 41% of the launches were in the RM200,001 to RM500,000 price range, mainly located in Johor and Pahang, while 31% were in the range of RM500,001 to RM1mil. This trend was similar to the the second half 2013 period.

At the same time, property developers have had to struggle with the lack of demand for bumiputra lots in locations where bumiputras do not traditionally settle in.

Fateh Iskandar said the authorities’ call to raise the bumiputra quota in property developments up to 70% would only further squeeze developers who would not be able to sell the lots despite their best efforts in marketing the projects to the targeted buyers.

“Demographics and locality can’t be pushed. If you were to ask a non-bumiputra to buy a property in Kampung Datuk Keramat or a bumiputra to buy a house in Jinjang, for example, it’s going to be difficult,” he said. “Yet these quotas are still being put in place everywhere.”

Fateh said developers were supportive of the original quota of 30% bumiputra lots but felt a higher quota would not serve certain locations.

Rehda has suggested for the automatic release of the unsold bumiputra lots in tranches – 10% release every six months from the launch – but this notion has not been taken up by the federal nor state authorities.

Sg Long Area - Condo Transactions

From 2010 to March 2014