Saturday, December 27, 2014

Malaysia has liberal policies on foreign ownership

EVEN as the Asean Economic Community (AEC) heads towards the goal of regional economic integration by 2015, the regional property markets continue to see restrictions among member countries.

Here is a quick roundup of Asean 5 comprising Singapore, the Philippines, Indonesia, Thailand and Malaysia.

The conclusion is that Malaysia seems to be the most liberal in the case of foreign property ownership although land is a state matter. If a foreign national wishes to purchase a residential property in Malaysia, he must therefore make an application to the state authority to obtain the state consent before he completes the transaction. If this is not complied with, the sale or disposal can be rendered null and void.

Even with this additional level to overcome in order to complete a purchase, foreigners can own and purchase freehold land and other types of properties, landed and high-rise projects, industrial and commercial properties, anywhere in the country as long as they are prepared to fork out a minimum of RM2mil. Only Malay reserve land are prohibited.

They can own properties 100% under their names. Therefore, despite the various pricing thresholds in the different states and the need for state consent, these restrictions seem minute compared with the compliances in other countries.

While the current interest among Malaysians and well-heeled Singaporeans are Britain, Australia and the United States, perhaps in the very distant future, the property markets closer home will be more appealing and the buying process more cohesive and integrated among the people who reside in this region.

Knight Frank Asia-Pacific head of research Nicholas Holt considers four of these five markets.

Thailand

The last couple of years saw the marketing of Thailand’s condominiums in Malaysia. Foreigners are allowed to buy into this market as long as local Thais own 51% of the project. This is by far the most straightforward of purchases among individuals and corporations. Buying land is more complex.

A number of foreigners have bought into this market but the number is not big with Malaysian, Singaporean, British, and Hong Kong investors among the investors. Compared to the Singapore and Hong Kong real estate, Thailand is many times more affordable for investors from these two countries. People buy into the market because they like the culture and shopping opportunities there.

The political uncertainties and the disruptions to law and order have not dampened appetite. Every couple of years, an issue erupts but the city bounces back. Thai developers sell quite well. Bangkok, Phuket are the top destinations, followed by a lesser degree of interest in Pattaya and Chiangmai, and a smaller number in Koh Sah Mui.

Malaysia

The key markets are Iskandar Malaysia in Johor, Penang in the north and the Klang Valley. There is price pressure here and land is a state matter with different pricing limits for foreign ownership. However, they are allowed to buy freehold, landed properties and high-rise condominums in these three most popular areas. Foreign buyers in Penang are subject to a minimum threshold of RM1mil for condos and RM2mil for landed properties on the island, and RM1mil for all types of properties in Seberang Prai on the mainland.

In Johor, the minimum price cap is RM1mil but they are allowed to buy most types of properties, while in Selangor it is RM2mil in most of the districts. In the Federal Territory, the minimum threshold is RM1mil.

These restrictions aside, the last couple of years have seen a greater interest in locations such as Kota Kinabalu in Sabah among Asian buyers. Malaysia also has a Malaysia My Second Home programme under the Tourism and Culture Ministry which is open to all countries. The programme has numerous requirements which include a minimum monthly income, minimum liquid assets, a fixed deposit, plus various other rules. It was launched in 2002.

Singapore

This market has always been attractive to Malaysians, Indoneisans and Chinese nationals. Prices have kept going up from 2009 to 2013, prompting multiple rounds of cooling measures. The market has been going down for over a year and will continue to cool in 2015. The commercial and office market is quite strong.

In October the government said there was some distance to go in achieving “a meaningful correction”, signalling “an engineered slowdown”.

About 80% of housing stocks is with Housing Developers Board units while 20% in private housing market but this 20% plays a significant in the overall market. When a project comes up, the prices move up, and fingers point towards the foreign buyers but the reality is that, it is the Singaporeans who are pushing up house prices. Therefore, it all depends on what the government want, and how far they want to drive prices down.

Interest rates could likely inch up midway through 2015 in tandem with the rates in the US; challenges are expected as the US dollar has an indirect effect on the Singapore dollar. It is packaged to a basket and US dollar makes up a large part of it. The government may possibly taper stamp duty but this is still uncertain. Singapore is a good market for the long term and investors like the safety and liquidity aspect of their investments.

Indonesia

It is a bit more complicated here and the market is cooling. Foreigners are restricted as the market is regulated. People buy leaseholds through proxies and corporations. Legality of some of these transactions may be questionable. President Joko Widodo was thinking of opening up the property market but the understanding is that it is not going to happen. Jakarta properties is predominantly a domestic market and a foreigner is not going to get freehold title like in Malaysia. The Indonesian market is regulated.

The Philippines

Knight Frank declined to comment on this market. According to various blogs and websites, investing here seems trickier than in the other Asean 4. Purchasers have to be 100% in the name of a Filipino spouse. In the case of a corporation, it must be 60% Filipino-owned.

Correction anticipated in uncharted waters

THE year 2014 saw a number of government initiatives help to put the brakes on escalating property prices. While these have slowed the quantum of price increases, the cost of homes continue to be remain stubbornly high and issues on affordability persist.
No longer are high prices associated only with properties in the Klang Valley, Penang and Johor. The trend has crept into other major towns.
In a report by Khazanah Research Institute in November, the government-linked research said “our house prices on average cost much more than three times annual median income... our houses are more expensive than those in Ireland and Singapore.” The Malaysian median income is RM3,626.
The report also said that at 21%, the profit margins of our property developers are high – almost twice those in the United States (12%), 1.2 times those of the UK (17%) and higher than Thailand (14%), although Singapore has higher margins (25%).”
The past year saw a series of government attempts to bring some form of normalcy to property prices. The most important was the banning of developers interest bearing schemes (DIBs) which, coupled with easy credit, nurtured and oiled speculation. Lending rules based on net income, instead of gross, also resulted in high loan rejections, forcing buyers to walk away. The resumption of real property gains tax (RPGT) with more teeth was another deterrent, although this was not as strong as the first two.
Property consultants say these measures have resulted in more genuine buyers and investors and fewer speculators; developers complain a slowdown has resulted. When developers complain about “a slowdown”, they are referring to “slow sales at property launches” where they sell directly to buyers. Instead of hanging a “sold out” after two weekends, they may need a longer time to sell, property consultants say.
But the overall market does not comprise developers units. The bulk of the market, 70% to 80%, are driven by sub-sales, or the secondary market where buyers buy from owners. This market is “still active”, if hampered by financing.
An agent says “the property sector has been gambled nicely before 2014”. The days of getting 25% to 30% profit margin on disposal is over.
Agents worth their salt will not tempt buyers with a 30% profit, “not even a 10%-15% profit margin on flipping,” says one.
Poor 2015 outlook
The Malaysian property market enjoyed a boom for five years just after the 2008 US subprime crisis from 2009 to 2013, says Association of Valuers, Property Managers, Estate Agents and Property Consultants (PEPS) president Datuk Siders Sittampalam.
The price correction anticipated in 2008, the year Lehman Brothers fell and precipitated the Global Financial Crisis, did not materialise, he says.
“The growth in the market slowed down with the cooling measures announced in Budget 2014, unveiled in October 2013,” he says.
Thereafter, the past 12 months saw a slower price gain, “indicating the market is shifting out of rapid price escalation, (which has come about) without fundamentals,” he says, who is also PPC International Sdn Bhd managing director.
“Price growth, in general, decelerated in 2014 and is expected to further decelerate in 2015,” says Sittampalam, highlighting several reasons.
There were a large number of residential property launches in 2012 and 2013. These projects will be ready for occupation next year, he says.
Most of these properties were purchased on DIBs; purchasers have two choices; they either flip or they start paying mortgage payments. But even as this deluge of properties hit the streets, lending rates are expected to increase and house ownership will become less affordable along with the tighter lending, says Sittampalam. “Sentiment is expected to deteriorate from 2015 to 2016,” he says.
Adding to this conundrum is the implementation of the Goods & Services Tax (GST) with effect from April 1. Inflation is expected to increase. Inflation, measured by the Consumer Price Index, rose to 3.0% in November this year from 2.8% in October, contrary to a forecast of slower rise, says Sittampalam.
With GST, inflation is expected to increase further next year. Although residential properties are exempted from GST, developers will not be able to reclaim GST input tax. This cost will be passed down to the buyers to some extent,” says Sittampalam.
Oil factor
As localised issues slowed the market, a major shake-up in the world which is of some consequence to Malaysia, has entered the scene the last couple of months.
Oil price has dropped more than 40% to around US$60 a barrel since June. Besides the politics in Russia and tensions in the Middle East, the oil price plunge is the biggest shock for the global economy this year. The chaos has dampened the overall global outlook considerably. Malaysia is a net oil exporter and oil revenue funds the economy.
Says Sittampalam: “Declining oil prices will further impact national earnings. This will create pressure on asset pricing, including real estate value and rental. However, since the Malaysian property market is not very much held by foreign purchasers, global market sentiments will not have a direct impact on Malaysian property market,” Sittampalam says.
Several quarters conclude that the ringgit slide may spur foreigners to enter the market, particularly Singaporeans but this may not materialise.
“The continuous weakening of Malaysian currency, a double edged sword, may deter foreigners as sentiment turn poor,” Siders says.
Another property consultant, Khong & Jaafar group of companies managing director Elvin Fernandez, shares similar views. “Oil prices are not just going to bounce back in the next one to two years.
While certain quarters say the there are ‘positives’, as in cheaper properties, cheaper cost of production, the repercussions may be far larger than previously anticipated.
“A weakening currency is cause for concern. How low will it go and for how long... are two major concerns. But once the currency settles and stays at a certain level, it may attract investors to come in. Any element of uncertainty is viewed unfavourably and discourages many from putting down their money.”
The falling British pound, as a result of the 2008 Global Financial Crisis, did not spur investors to buy into British properties until it hovered around RM5 to £1 in the early months of 2009 from about RM6 to £1 in 2008.
Another aspect of a weakening ringgit is that those who have bought earlier will not be happy, says Fernandez, because they would perceive that their investments have depreciated, for eg. Singaporeans who bought in Johor earlier.
“It is a double-edged sword,” says both Sittampalam and Fernandez.
Oil, houses and offices
Elvin concludes that the Malaysian residential sector will remain strong despite the oil price plunge because this sub-segment of the property market is held by individual households who “lend certainty and strength to the sector.” If it were held by speculators, they would want to cut losses, says Fernandez, which is why it is so important to remove excessive speculation.
Unless the oil price plunge triggers something on the scale of the 1997/98 Asian Financial Crisis, the residential market will be relatively strong, he says.
During the 1997/98 crisis, transaction volume dived 32% while value plunged 47%, data from the National Property Information Centre (Napic) shows.
The fall of investment bank Lehman Brothers in 2008 did not cause the Global Financial Crisis, but precipitated it; the unravelling of the oil price may culminate into something else, or it may not. Consultants anticipated a correction in 2008, which did not materialise.
But there was a 20% drop in both the high end condominium market and the office market, Fernandez says.
It is a different story in the office sub-segment and retail segment, however. Already flashing red lights with the oversupply, a large part of the premium office market is supported by the oil and gas (O&G) sector, says Elvin.
Most of the prime office buildings around the Kuala Lumpur City Centre – as with the high-end condominium projects – are occupied by oil companies and their expatriates.
“Oil companies will have to cut cosst. Rent is one of them. The net effect of this situation brings (property) prices down. If rent comes down, it drags down the capital values. Yield may trend higher because the risk has increased. But there will be a time lag to this because rental is sticky on the downside because of its contractual nature,” says Fernandez.
On the weakening ringgit, the slide would not be so much if not for the oil price drop, he says.
Debts, debts and more debts
Household debt, reported to be at a record at 86.8% of the economy, is still high. Tight lending rules are expected to characterise the market next year as the government is serious about cutting debt levels.
With the GST coming in, households will find it even more difficult to manage their household income. “Their spending will be crimped,” says Fernandez. This will weigh down sentiment.
On a positive note, Fernandez says the residential market is expected to remain strong but some type of properties and certain locations may undergo some form of correction.
This, says Fernandez, is not something extraordinary. “This kind of correction has been happening in the past two years except that the correction has been camouflaged by developers giving incentives and various forms of freebies,” says Fernandez.
When developers give incentives, it is actually “a de facto discount to prices.” Therefore, that itself should be considered as a price correction, says Fernandez.
What is needed now as we enter the new year is to educate buyers. Quantify these incentives. A house buyer must ask himself: “Am I buying the house for RM800,000 or RM600,000 minus the incentives?, says Fernandez.
It is not easy for buyers to calculate the real cost of the house. If a buyer can know the true cost of what he is buying, he can compare prices with the secondary market. The objective is clarity and transparency, he says.
Lending institutions today based their lending on the headline price, that is the house price plus the incentives.
“There is a need for lending institutions to lend based on the headline price, less the incentives. This is one way to reduce household debt of which 52% are house mortgages.
“Only when a buyer knows the real price, without the incentives, will he become a more intelligent buyer. Both purchaser and lender must know the true price of the product,” says Fernandez. Based on these factors, the market is expected to see a further price correction and consolidation next year.
The commercial sector, office and retail space, which is undergoing an oversupply situation, will also see a correction in rentals.
In addition, with lending cost increasing along with widening household debt ratio, the retail market is bound to see a major correction, says Sittampalam.

Thursday, December 25, 2014

Mixed outlook for property market

PROPERTY analysts and experts are mixed in their property market outlook for next year due to the uncertainty that is looming ahead of the Goods and Services Tax (GST) implementation next year.

While many are expecting the property sector to dip, MIDF Research property analyst Ahmad Annuar Rahman said property prices are expected to hold and grow marginally for all residential types.

“We don’t expect the prices to fall but to remain flat for the low and middle range with a softening in the luxury property range instead.

“While the House Price Index is showing a slower growth at 6.6 per cent, the sector should remain sustainable as most of the potential buyers are in it for the long haul.

“We foresee that the property demand will remain, if not slightly increase next year,” he added.

The Housing Price Index decrea-sed to 6.60 per cent in the second quarter of this year from 9.60 per cent in the first quarter, averaging at about 3.77 per cent from 1997 until 2014, according to the report by Bank Negara Malaysia.

Property experts, however, are anticipating tough times ahead and are urging potential buyers to leverage on the lower prices now.

Property guru and best-selling author Milan Doshi said the best time to buy a property is usually when others fear to do so.

“That is the time when you can get good deals, which normally don’t come by during better times. As long as you know the locations that are good to invest in, you can secure good financing and can negotiate good deals. There would be many opportunities to benefit from.

“A smart investor should possess the know-how and the know; the two main ingredients to be a good property buyer,” said Milan at the 2015 Property Outlook Conference yesterday.

The two-day conference, to be held on January 10 and 11, is expected to attract about 1,000 participants, congregating real estate investors, home buyers, financiers, developers, master planners and property agents.

Meanwhile, on the implementation of GST in April next year, Ahmad Annuar said there should not be any increase in property prices post-GST as the taxes have already been factored in this year.

“Properties usually have two to three years to be developed, so the GST should not be a reason for property price hikes next year.

“While pricing might continue to grow and the sticker price might be slightly higher, units on sale might be reduced. However, it is always wise to meet the buyers halfway as obvious price increases would deter them from buying, and it also depends on the marketing strategies developers are adopting to attract buyers,” said Ahmad Annuar.

Syarikat Ong managing partner Agnes Wong said certain clarifications are still needed over the GST calculations in the property market.

“The Act is out, the guide and formula are also out, but developers need to seek further clarification on how to use it in the industry. The government will be announcing the Anti-Profiteering Act to the merchants that they are not allowed to introduce excessive price hikes.

The Anti-Profiteering Act 2011 will be enforced by the government in order to curb excessive price hikes upon the implementation of GST next year.

Friday, December 19, 2014

Strong launch in township

SP SETIA Bhd launched a new phase of double-storey terraced houses in its Setia EcoHill township development Setia EcoHill recently.

The launch is part of Phase 2 of the township located in Semenyih, Selangor, which was unveiled in September.

The houses come in three designs: Begonia, Bellucia, and Bartonia. Each design will offer a choice of two facades.

According to the developer the Begonia design offers built up areas of 1,936sq ft for prices starting from RM598,000. Bellucia offers 2,025sq ft starting from RM615,000, and Bartonia 2,089sq ft from RM632,000 onwards.

According to the developer, the response to the launch was overwhelming. Interested buyers started to queue on a Friday morning for the opportunity to book one of the 149 units released for sale. By the end of Saturday, over 70% of the units in the first two parcels, Begonia and Bellucia, had been snapped up.

Most of the people in the queue said they were attracted by the range of amenities available in Setia EcoHill, including the Ecohill Park, Weeping Meadows lake garden, as well as the upcoming Tenby International School.

Another key factor is the easy accessibility that the Lekas-Ecohill Link promises. SP Setia invested RM70mil to build the link that will connect Setia EcoHill directly to the Lekas, SKVE, Silk, PLUS and LDP highways. Upon completion in mid-2015, the dedicated interchange is expected make travelling to Kuala Lumpur’s city centre as well as other parts of the Klang Valley easier.

The developer says Setia EcoHill has transformed the property landscape in Semenyih with its unique Live Green! concept based on sustainability as well as high-quality products. Phase 1 of Setia EcoHill was launched in October 2013. The launch drew a strong response, with the first 1,300 units sold within hours.

Monday, December 8, 2014

Secondary market remains strong

THE Penang secondary property market continues to perform well as developers hold back launches due to new and unbudgeted infrastructure charges, says Raine & Horne International Zaki + Partners Sdn Bhd director Michael Geh in presenting the Penang Housing Property Monitor for 3Q2014.

“Activity in the market is limited to people who really need to buy a house … Short-term investors, speculators and flippers have left the market, allowing serious long-term players to come in,” he says.

Based on National Property Information Centre figures, Geh points out, secondary transactions accounted for 84% of the market last year while newly launched products made up only 16%.

He also highlights that developers have been hit by a new infrastructure charge that he noticed being implemented at the beginning of the year, resulting in some of them holding back their launches and most likely adjusting their selling prices. “Developers have to pay an infrastructure charge of about RM15 psf on the gross area. Some of them will have to pay maybe RM3 million to RM7 million extra up front. This is an unbudgeted expense.”

Thus, the primary market may soften in the coming months while the secondary market keeps climbing steadily.

“I think the sentiment in the third quarter in Penang will continue into 4Q2014 because there have been no major inspiring announcements from Bank Negara Malaysia or changes in policy,” remarks Goh. “Moreover, people are anticipating affordable housing and may wait until next year to buy.”

PPPs for affordable housing

The Penang government is looking to incentivise developers to build affordable housing based on new guidelines and criteria. Jagdeep Singh Deo, a member of the Penang state executive council for town and country planning and housing, revealed in a speech on Sept 13 that private-public partnerships will be formed between the state and private developers on affordable housing.

Under the new guidelines, the affordable homes will have built-ups of 750 sq ft, 850 sq ft and 900 sq ft and be priced at RM200,000, RM300,000 and RM400,000 respectively. Developers that wish to build affordable houses will be exempted from the requirement to build low-cost or low-medium-cost units and see a reduction in the development charge to RM5 psf.

According to Geh, these developers will also be given a high plot ratio for high-density products, depending on the location. “I’ve seen many serious private developers make submissions. The state government has been proactive in the issue of affordable housing. The new guidelines are considered among the most significant policies for the quarter.”

In his speech, Jagdeep said in their project submissions to the state government, developers could propose to build only affordable homes but these had to be the 850 sq ft/RM300,000 units. Alternatively, they could build a selection of affordable homes: 20% of 750 sq ft/RM200,000, 60% of 850 sq ft/RM300,000 and 20% of 900 sq ft/RM400,000.

To ensure quality control, there are guidelines as to what each unit should have, such as ceramic tile floors in all the living spaces and at least minimum fittings in the kitchen and bathrooms.

Landed properties

As the market waits to see the result of the Penang government’s push for more affordable housing, the secondary market grew overall in 3Q2014.

On the island, the 1-storey terraced homes in Green Lane showed the highest growth of 28.21% with prices rising to RM780,000 year on year. Prices rose 26.92% to RM780,000 in Jelutong and 14.29% to RM700,000 in Sungai Dua while in Tanjung Bungah, they remained unchanged at RM750,000.

On the mainland, there was no y-o-y change in prices in Seberang Perai Utara, although there was growth of 11.11% to RM180,000 in Seberang Perai Tengah and 3.33% to RM150,000 in Seberang Perai Selatan.

Q-o-q, prices rose only in Green Lane (+3.85%), Jelutong (+3.85%) and Seberang Perai Tengah (+11.11%).

In the 2-storey terraced house category, homes in Green Lane led the way with prices growing 16.67% to RM1.2 million y-o-y. Coming a close second were houses in Sungai Nibong, which saw prices rise 15% to RM1 million, followed by those in Sungai Ara (up 14.77% to RM880,000) and Pulau Tikus (up 14.29% to RM1.4 million).

On the mainland, the prices of 2-storey terraced houses rose in Seberang Perai Utara (up 6.25% to RM320,000), Seberang Perai Tengah (up 14.29% to RM350,000) and Seberang Perai Selatan (up 14% to RM250,000) y-o-y.

Q-o-q, the only areas that achieved double-digit growth in prices were Sungai Nibong (10%) and Seberang Perai Selatan (12%). Prices also grew in Green Land (+8.33%), Seberang Perai Tengah (+5.71%) and Sungai Ara (+3.41%).

As for semi-detached houses, the prices of those in Island Park climbed 15% to RM2 million while in Minden Heights and Sungai Nibong, they gained 13.33% to RM1.5 million and 11.76% to RM1.7 million respectively.

It is worth noting that all semidees in Penang went past the RM1 million mark in 4Q2012.

Q-o-q, there was no price growth in this category, according to the monitor.

In the 2-storey detached house category, the Green Land homes saw the highest price gain — up 42.86% y-o-y to RM3.5 million. Next were those in Island Glades (+28.57% to RM2.8 million), Minden Heights (+15.15% to RM3.3 million) and Pulau Tikus (+10% to RM2 million).

Detached homes in Tanjung Tokong and Tanjung Bungah saw no change in price y-o-y while q-o-q, only the Minden Heights homes achieved a 3.03% increase.

High-rises

In the high-rise segment of the secondary market, the prices of standard 3-bedroom flats in Relau gained 20% y-o-y to RM250,000 while in Green Lane and Sungai Dua & Lip Sin Gardens, they rose 6.25% to RM320,000 and 6.67% to RM300,000 respectively. Flats in other areas did not show any price growth from the previous year. Q-o-q, only the flats in Relau showed price growth of 4%.

The highest y-o-y gain in 3-bedroom condo prices was seen in Tanjung Tokong (up 18.18% to RM550,000) while in Pulau Tikus and Batu Ferringhi, prices rose 16.67% to RM540,000 and 16.28% to RM430,000 respectively.

There was also double-digit price growth in Tanjung Bungah (15.79%), Island Park/Glades (11.11%) and Batu Uban (10.81%).

Q-o-q, the only price growth was in Island Park/Glades (4.44%), Pulau Tikus (3.7%), Batu Uban (2.7%) and Tanjung Bungah (1.75%).

Overall, the property market in Penang is continuing to grow, although rents are not moving much, resulting in low yields. According to Geh, investors are awaiting the launch of new affordable houses. Will this change the property market landscape in Penang? Only time will tell.