Amanah Raya Real Estate Investment Trust to expand portfolio to RM1b

The manager of the AmanahRaya Real Estate Investment Trust (AR-REIT) plans to inject three properties valued at about RM300 million into the REIT before the year-end, an official said.

This will take the total asset value of Malaysia's second largest REIT to about RM1 billion from RM645 million currently.

"It's going to be three properties in one injection," said Datuk Mohamed Azahari Mohamed Kamil, a director in AmanahRaya-JMF Asset Management Sdn Bhd, the manager.

"This is going to be a commercial building-office space as well as two industrial buildings. One is in the Klang Valley while the other two are outside, but in very good locations," he said, when met by Business Times recently.

One of the buildings is already owned by AmanahRaya-JMF's parent company, Amanah Raya Bhd (ARB), while the other two will be new acquisitions, he said, declining to elaborate.

He is targeting to obtain all relevant approvals from the Securities Commission later this year and have the additional units listed before December 25.

On another matter, Azahari said plans to list a REIT in Singapore with an Indonesian partner have been postponed because of soft market conditions there.

The REIT, equally owned by ARB and Indonesian property firm Gapura Prima group, was to have been listed in Singapore by March 2008.

"We had got all those plans ready but unfortunately the market is very soft in Singapore, particularly for REITs, so we decided to put it on hold for the time being. We will find an opportune time to have it listed," he remarked.

Azahari said the REIT market at home too is soft at present but believes that players should create more value by doing asset injections.

AmanahRaya-JMF has been active at this, having injected five additional assets and nearly doubling AR-REIT's asset value in less than a year after its listing in early 2007. It comprises 13 assets now.

Azahari aims for the REIT's size to touch the RM2 billion mark by the end of 2010.

"We are looking at potential buildings to be injected as an ongoing yield-accretive type of strategy," he said.

ARB is currently in talks to buy the Kenanga International building in Jalan Sultan Ismail from Injaz AsiaEquity Property Bhd, which may be injected into the REIT in a later year.

Azahari, who hopes to finalise the purchase by the year-end, said the market value of buildings in that area is about RM600 to RM900 per sq ft (psf).

Injaz had bought the 22-storey office building last June for just RM165 million cash, or RM555 psf.

Azahari continues to be positive on the property market's prospects, especially on assets in prime locations.

"We believe that Malaysia has a lot more value that can be reaped. If you look at properties now, even within the KLCC, they are all undervalued ... so there's a lot of opportunity for growth," he said.

He said AR-REIT, which reported a first quarter net profit of RM7.6 million this year compared with RM1.2 million in the same period last year, would focus only on local assets for now.

By New Straits Times (By Adeline Paul Raja)

Malaysia Property Inc to kick off in October

The soon to be launched Malaysia Property Incorporated (MPI), a joint public-private sector initiative to promote Malaysia's real estate internationally, will see the country getting into the limelight as a global property haven.

Promotional programmes that include road shows and conferences in the target markets of Britain, Japan and the Middle East have been drawn up and should take off later this year.

The Government has recently given the go-ahead for FIABCI Malaysia and Real Estate and Housing Developers Association (Rehda) to promote the country's real estate to foreign investors under the MPI umbrella.

Scheduled to kick off by October, the MPI will start off with a grant of RM25mil provided by the Economic Planning Unit (EPU).

Dr Richard Fong

FIABCI Malaysia president Datuk Richard Fong said the initiative, which was initially targeted for launch earlier, was delayed because of unforeseen circumstances.

“We are excited that everything is falling into place now and the MPI will be championing the country's real estate industry in the international arena,” Fong told StarBiz.

He added that Malaysia was still relatively unknown as a destination for international real estate investors.

Compared with other cities around the region such as Singapore, Bangkok, Phuket and Bali, Kuala Lumpur is getting just a tiny fraction of the investment in the region. This is despite the fact that Malaysia has the most attractive laws favouring foreign investment in real estate.

“The majority of the land is freehold and foreigners can buy any amount of residential properties priced above RM250,000. Our land laws are clear and transparent; there is also a waiver on real property gains tax.

“The Malaysia My Second Home (MM2H) programme is also not well known overseas. Most of the investors we met overseas are not aware of the benefits offered under this programme.

“MPI's objectives are aimed at creating awareness among the foreign investment community on the attractive conditions regarding investment in Malaysia's real estate,” Fong said.

Datuk FD Iskandar

According to Rehda vice-president Datuk FD Iskandar, the nine-member board on MPI comprising industry representatives is still working out the right package of incentives for developers to take part in the MPI initiatives.

“We are brain-storming and working out the key performance indicators (KPIs) to rate the effectiveness of the MPI programmes. The objective is for Malaysia to re-brand itself as an international real estate destination, be more transparent and attract more foreign investments,” Iskandar said.

Road shows and promotional activities in the target markets will bring together developers to showcase their property projects, especially high-end residences in the Kuala Lumpur City Centre (KLCC) enclave as well as offices and other commercial properties in the Klang Valley.

According to Iskandar, there has not been any long-term and effective initiatives in the past to promote and brand Malaysia as a major real estate investment destination, which explained why the foreign exposure in local property was still very low.

“Currently, Malaysia is being promoted on a piecemeal basis and the time is right for a well coordinated initiative such as the MPI to place Malaysia on the world map of investors,” Iskandar said.

Besides attracting high net worth investors for the MM2H programme, Iskandar said the MPI also wanted to attract foreign banks' data processing centres and back offices to set up their regional offices in Malaysia.

He said Malaysia was still a politically stable country and the current political developments showed that democracy was still very much alive in the country. Its other assets include a developed infrastructure system and a big pool of educated and skilled workers.

Rehda president Ng Seing Liong said if the objectives and direction for the MPI were on track, “this is definitely the right time for MPI to make a marked contribution to the local property industry.”

“Malaysia has quality projects that still lacked exposure in the international arena and there are many ongoing and planned developments that will be suitable for high net worth foreigners from other countries.

“The greater foreign interest will further add value and depth to our property market. KLCC residences, which are now fetching around RM2,000 per sq ft, are expected to move up to RM3,000 per sq ft with a few upcoming launches,” Ng said.

Yeoh Teng Tatt

Meanwhile, Malton Bhd chief operating officer Yeoh Teng Tatt said to promote stronger foreign participation, the Government should adopt a more open policy for foreigners and relax restrictions on foreign ownership of properties.

“Quality high-end properties in Malaysia are still considerably more affordable compared with most other countries and the MPI initiatives will augur well for local real estate to get into the radar screen of foreign investors,” Yeoh said.

By The Star - StarBiz - (by Angie Ng)

Kuwaiti company 4th largest investor in AR-REIT

KUWAIT'S Global Investment House (GIH) has emerged as an investor in AmanahRaya Real Estate Investment Trust (AR-REIT), Malaysia's second largest property trust by asset value.

GIH, an investment company, bought a 3.94 per cent stake, or 17 million units, at the end of June, making it the fourth largest unitholder. It bought the units from Kumpulan Wang Bersama, the property trust's sponsor and biggest unitholder.

"It acquired the units because of the stability of AR-REIT in terms of rental yield and unit price. GIH has started to enter Southeast Asia in various investments and they view REIT as a good investment to start with.

"We believe this is considered one of the largest of REIT units taken by Middle Eastern institution in Malaysia," said Datuk Mohamed Azahari Mohamed Kamil, a director in AmanahRaya-JMF Asset Management Sdn Bhd, the REIT manager.

AR-REIT plans to pay a better yield of about 7.4 per cent this year compared with 6.9 per cent last year.

"We're looking at about 7.4 per cent net. There shouldn't be any problem because there hasn't been defaults in any of our rentals," Mohamed Azahari remarked.

It recently announced its first interim dividend of 3.57 sen for the first six months this year, which translates into an annualised yield of 7.5 per cent based on its last price of 95 sen a unit.

AR-REIT's unit price, which has lost four per cent of its value this year, has been trading at between 91.5 sen and 99 sen. Its latest net asset value is 97.4 sen.

By New Straits Times (by Adeline Paul Raj)

Lack of incentives hindering REIT growth

KUALA LUMPUR: Although most real estate investment trust (REIT) valuations are relatively cheap now, declining well below their current net asset value (NAV) per unit in tandem with the recent decline of the market, investors are still reluctant to invest in them due to the unattractive tax structure and incentives, analysts said.

Analysts said the lack of investor confidence in the REITS had to do more with the issue of withholding tax and lack of other incentives rather than the unattractive yields or asset quality.

At the moment, Malaysia has one of the most unfavourable tax regimes for REIT investment. A witholding tax of 28% is imposed on foreign investors, while individual distributions received by investors are taxed as high as 26%.

In comparison, Singapore’s REIT investors are exempted from withholding tax but foreign institutional investors and corporations are subjected to a 10% withholding tax. In Hong Kong, the withholding tax system no longer exists.



Based on selective counters, at the close of trading last Friday, Starhill REIT ended at 87 sen per unit (NAV: 97.2 sen), UOA at RM1.13 (NAV: RM1.39), Tower REIT at RM1.09 (NAV: RM1.45), Axis at RM1.64 (NAV: RM1.65), Quill Capita at RM1.04 (NAV: RM1.20) and Atrium REIT at 76 sen (NAV: 99 sen).

Atrium, StarHill and UOA are trading below their IPO prices. The annual yield of the six REITs averages 9.41%, representing a favourable and good return on investment (ROI), particularly amid the high inflation and slowing growth environment.

“Given the lack of new incentives and new regulations to spur the industry, we are unlikely to see any major upward movement in the unit prices of the REITs and their values will continue to be depressed in tandem with the current market condition,” an analyst said.

While REITs offered one of the highest ROI, analysts said it was not enough to lure investors to invest in small capitalised stocks.

“While the returns are basically good, if compared to the returns from the market, the current structure governing REIT investment has hardly changed since its inception in 2005 as the successor to the old property trust.

“The incentives, tax structure and rules have to be revised, hopefully in the coming budget, in order for the REIT industry in Malaysia to flourish,” an analyst said.

In terms of asset quality, the top picks among analysts are UOA REIT and Starhill REIT, while Axis REIT is the favourite in terms of management quality, as it has been one of the most aggressive in terms of acquisitions and property portfolio diversification.

UOA REIT, with properties predominantly consisting of offices and commercial buildings, provides a good benchmark in the recovery and demand of office space, especially in and around the Kuala Lumpur’s central business district (CBD).

Starhill REIT had on July 11 announced a revenue of RM108.23 million for the year ended June 30, 2008 (FYE08), an increase of 9.5% over RM98.84 million in FY07, while net income was up 11.8% to RM81.27 million from RM72.69 million.

Mayban Trustees Bhd, the trustee of Starhill REIT, undertook a revaluation exercise on Lot 10, Starhill Gallery and JW Marriot Hotel that would increase the valuation of the company’s prime properties by RM254.36 million. As at June 30, 2008, Starhill Gallery and Lot 10 had occupancy rates of 99% and 94%, respectively.

The analysts said the current depressed REIT prices did not reflect their relatively strong fundementals as an inflation-beating investment that could provide a consistent dividend stream due to the strong asset quality.

But for the sector to see some excitement among investors, there is no denying the fact that the local REIT industry needs a boost in having better incentives that are at least on par with regional peers.

By The EDGE Malaysia (by Tony C H Goh)

Timing important during economic uncertainty

While the emphasis of property projects has always been on location, timing has now become more important during this property slowdown amid the economic uncertainty, said Mutiara Goodyear Development Bhd chief executive officer Kee Cheng Teik.

He emphasised that there was no bubble in the property industry but the crucial question was which developers could survive the suppressed demand.

Cashflow management was crucial for the company and it would only implement projects it could undertake and manage well. Hence, its successful residential and commercial property projects.

“As a medium sized company, we have survived the ups and downs and the past two recessions. But things will improve and there will be opportunities,” Kee said.

Despite the temporary suppression in the purchases of housing units, Kee said there would always be pent-up demand for housing.

“People will still have to buy, and if they don’t buy this year, they will have to buy next year, or the year after. When the market improves, there will be an increase in demand for property,” he said.

Kee is positive about the property sector in Penang and the Klang Valley due to the growing population. In the pipeline is a commercial block in Sunway in Petaling Jaya, shophouses in Mutiara Gombak, a Kajang housing scheme and a joint venture on Penang island.

In Seberang Perai, Mutiara Goodyear will continue to expand its township project, which was started in 1996 covering 1,084 acres. The township is near the Second Penang Bridge.

The company is also involved in an exclusive property project near Taman Melawati in Kuala Lumpur. The Nadayu project would be on an 80-acre freehold land near the Taman Warisan heritage park.

“This is probably the last piece of land of this size which can be developed near the forest,” Kee said. As the site was on a slope, the company had pumped in about RM20mil on earthworks and infrastructure there, he added.

Kee said the first 60 acres will comprise 142 bungalows, priced from about RM4mil and it would be exclusive and guarded. The GDV would be RM500mil.

The second phase will have superlink houses, condominiums and a boutique commercial centre. The total GDV is about RM800mil and the time frame to develop it is three to five years.

By The Star (by Joseph Chin)

SP Setia remains optimistic, plans new launches

SP SETIA Bhd, Malaysia's most valuable property developer, will continue to launch new projects this year despite tougher business conditions.

It aims to launch two projects worth RM1.2 billion before its fiscal year ends on October 31 2008.

They are Setia Sky Residences, the group's maiden luxury condominium project at the intersection of Jalan Tun Razak and Jalan Raja Muda Abdul Aziz Shah, Kuala Lumpur, and the second wave of its Setia Walk integrated commercial and residential project in Pusat Bandar Puchong.

SP Setia will also launch new phases within existing townships by October, executive director and chief operating officer Datuk Voon Tin Yow said.


Voon: SP Setia is unfazed by the recent hike in fuel and raw material prices... In fact, it is optimistic of brisk sales during this trying time.

Voon told Business Times in Kuala Lumpur recently that SP Setia is unfazed by the recent increases in fuel and raw material prices. In fact, it is optimistic of brisk sales during the current trying times.

For Sky Residences, the group is projecting a gross development value of RM850 million, pegging each unit at an average RM850 per sq ft.

It is positioned as an "urban chic" development targeted at sophisticated urbanites aspiring to live and work close to the city.

"We will proceed with the project based on feedback from clients.

"So far, there has been no new launches in that area in this price range. So we are quite optimistic of the product," Voon said.

For Setia Walk, it will launch 800 units of service apartments worth RM280 million to RM300 million in four phases starting September.

"As far as market is concerned, there is opportunity to buy. If people wait and see, prices would rise further. What is possible is that property prices would not come down for new launches," Voon said.

"It won't be viable to maintain the selling price for new products because of fixed land and construction cost," he said.

Voon believes the current market scenario is short term and the situation will improve.

"If people hold back on buying, there will be less launches, which may lead to shortage of supply of new units," he added.

SP Setia has 1,937ha in Penang, Johor, Klang Valley and Kota Kinabalu, Sabah, with 16 ongoing projects worth RM30 billion. It is confident of meeting its RM1.5 billion sales target this year.

The company made a net profit of RM260 million on revenue of RM1.15 billion in 2007.

By New Straits Times - Business Times - (by Sharen Kaur)

I-Berhad in talks on en bloc sale of The Peak@KLCC

I-BERHAD, the developer of luxury serviced residence The Peak@KLCC, is in talks with several parties for a possible en bloc sale for this property.

The Peak, with an estimated gross development value of RM500 million, is expected to be officially launched by year-end.

The 41-storey property, located on a 0.43ha of land on Jalan Kia Peng, Kuala Lumpur, will have 104 units measuring between 3,000 sq ft and 5,000 sq ft each.

"There are potential en bloc buyers... we are talking to a few. The enquiries have come from Koreans and Middle Easterners," its deputy chief executive officer Lim Boon Siong said.

Lim hopes the property will fetch at least RM2,000 per sq ft based on recent property transactions in the area.

The land is owned by I-Bhd's majority shareholder Sumurwang Sdn Bhd which owns 58.59 per cent of I-Bhd. Sumurwang, controlled by I-Bhd chairman Datuk Lim Kim Hong, bought the land in 1993 for RM280 per sq ft.

I-Bhd will form a joint venture with Sumurwang to develop The Peak.

To be ready by end-2011, the project will be funded either through internal funds, cash raised from a rights issue or a combination of both.

"We are looking at the market condition now given the fuel price increase and the US recession that does not help the situation," Lim said, adding that he expects that the property market here to soften in the short term.

"However, in the long term, since land is very limited in Kuala Lumpur, things look promising," he said.

"The location of The Peak is fantastic as it is within walking distance of Suria KLCC and the Convention Centre," he added.

I-Bhd is also in talks with international hotel chains like Marriott, Starwood, Hilton and Accor to manage the property.

By New Straits Times (by Vasantha Ganesan)

Gamuda gains on report bid has support

GAMUDA Bhd, Malaysia’s second-biggest builder, rose the most in a week in Kuala Lumpur trading after a newspaper reported the company’s largest shareholder supports a takeover bid by a Middle Eastern fund.

At 12.30am, the stock rose 9 sen, or 3.7 per cent, to RM2.52, headed for its biggest advance since July 14.

A Middle Eastern fund has gathered enough support to make a takeover bid for the construction company, the paper reported, without saying where it obtained the information.

Gamuda’s largest shareholder, the Malaysian royal family in Perak, agreed to sell its 7.5 per cent stake to the fund, the paper reported. The acquisition of the royal family stake is crucial to any takeover, according to the newspaper.

Such a bid “is not attractive enough for the privatization to succeed,” Vincent Khoo, who has a “buy” rating on Gamuda at Aseambankers Malaysia Bhd., said in a report today. “The stock is still trading significantly below its core net assets value of RM2.90.”

Gamuda stock has tumbled this year after managing director Lin Yun Ling sold most of his stock.

By Bloomberg

Govt asked to temporarily ban exports of steel

Many property developers and contractors have urged the Government to impose a temporary ban on the exports of steel and allow it to be imported to stabilise rising prices and meet growing local demand.

Although there is currently no serious shortage of steel in the country, industry players fear that this situation might not hold on for too long as there are currently many projects being undertaken by the public and private sectors.

They also claimed that some steel traders and suppliers were manipulating steel prices. “Those who can afford to pay can get their supply of steel but the smaller developers and contractors who cannot pay a higher price may not be able to carry on with their projects,” said a developer.

Master Builders Association of Malaysia (MBAM) president Ng Kee Leen said it was important that the Government allowed all steel bars that met the Malaysian standard MS146 or its equivalent the BS4449 standard to be imported tax free. As it is, he said not a single steel bar had been officially imported since the Government lifted the ceiling price of steel about two months ago.

This was because what happened on the ground was very different and there was still a lot of confusion as to the type of steel that could be imported. “The Government must fully liberalise and clarify the process and procedure in the importation of steel,” Ng said, adding that international steel traders have lost confidence in Malaysia as they found the process and procedure of importing steel vexing.

He said if the Government did not take action now, more than 140 related industries including the tin mining, timber, electrical, air-conditioning and joinery industries might collapse.

The country consumes some two million tonnes of steel per year or about 150,000 tonnes a month. Steel prices have soared from about RM3,000 per tonne two to three months ago to RM4,200 per tonne depending on the term of payment.

“The rising price of steel is like a roller coaster except that it does not come down. The situation is very critical,” said Ng.

MBAM past president Patrick Wong said MBAM had earlier called on the Government to stockpile steel and stabilise raw material prices to help government and low-cost housing projects.

He also urged the Government to monitor the situation.

International Real Estate Federation (FIABCI) Malaysia Chapter president Datuk Richard Fong said many developers were facing a “double squeeze” from increased construction cost and falling sales.

Many contractors have refused to tender for new jobs although some developers have agreed to absorb any rise in cost of steel and cement. This is because they feel that other raw materials such as tiles, copper, wires and even rocks have also increased in prices.

By The Star (by S.C.Cheah)

Steel prices in UAE surge

DUBAI: Steel prices in the United Arab Emirates have risen almost 10 per cent in one week as demand for construction materials continues to drain the local market, traders said yesterday.

Gulf Arabs are investing heavily in real estate and suppliers of building material are struggling to keep up with demand in the UAE, the second largest Arab economy.

The rising cost of building materials is helping fuel inflation across the Gulf, where economies are flourishing on a more than sixfold rise in oil prices since 2002.

A tonne of reinforcing steel bar (rebar), used in construction, fetched around US$1,700 (US$1 = RM3.24) yesterday, up from around US$1,550 on June 13, dealers said.

By Reuters

Konsortium Logistik hopes to get RM65m from land sales

KONSORTIUM Logistik Bhd, a logistic company, plans to sell several pieces of land in Indonesia, Thailand and Malaysia for an estimated RM65 million.

The sale of its land in Jakarta, Indonesia is due to be finalised within a couple of months, said its chairman Ismett Azyze Hamad Abbdul Azyze.

"We are looking to dispose no-yield or low-yield assets ... it is not a fire sale, we will sell if the price is right," Ismett told Business Times.

"We have land in Thailand, Indonesia and Penang (Seberang Prai) with an estimated value of RM45 million. We also have other pockets of land in Port Klang and Johor worth another RM15 million to RM20 million," Ismett added.

"We have agreed on the pricing for the land in Indonesia. It will go for about RM13 million or RM14 million. Hopefully, the deal is done within one or two months," he said.

For the land in Sadao, Thailand measuring 32.4 ha and in Seberang Prai measuring 12.2 ha, Konsortium Logistik has received various enquires and offers, none of which is the price the company is seeking.

"We are likely to make a small margin from the sale," Ismett said.

Meanwhile, the firm is also exploring the possibility of selling another piece of land measuring 3.65 ha and valued at RM42 million in Puchong, Selangor.

"We are looking at the operational requirement of the group. If we do not need the warehouse (in Puchong), we may move to another location," he said.

Ismett said that it had received an offer to set up a real estate investment trust for the land in Puchong and in Port Klang but it put the option on hold.

By New Straits Times (by Vasantha Ganesan)

A frank assessment of property & construction

According to census only 5% of households in the country have a monthly income of RM10,000 or more. You would think the figure was a lot higher judging from the number of property launches over the last 2 years with condos, semis and bungalows selling for over RM1mil.

If you bought properties that are worth more than RM1mil, you’d better be living in them when they are completed.

The recent fuel price hike coupled with higher cost of living and inflation may require a sober assessment of the local property and construction sectors.

There are about 4 -5 million households in the country, so we are talking of just 200,000 to 250,000 households with income of more than RM10,000 a month.

A property purchase of RM1mil on a 30-70 deposit-loan ratio would be staring at a RM700,000 mortgage. That would be a monthly payment of RM7,000 - RM9,000. Even if you bring that down to RM400,000 it is still RM3,500-RM5,000 a month.

Hence one can safely conclude that it’s a market for rich folks and foreign buyers mainly. Rich folks being those who can put up all cash or 50% deposit hoping for a nice fillip in the near future.

According to the Masters Builders Association of Malaysia, building material cost for local contractors have risen by 25% on average since January this year. Following the recent electricity tariff hike, they should be looking at another 5%-10% hike in the coming months.

Coffee shop talk has it that contractors are already putting requests for price variations of a 30%-40% hike on the original contract.

Over the last few weeks more than 200 contractors have turned down letters of award for government projects. Some are asking for mutual termination.

Let’s look at some building material cost items:

Sand (washed)/t: 2006 24.00 / Q108 27.00 / June08 34.00

Readymix Concrete 40 M3: 2006 152.00 / Q108 186.80 / June08 234.00

Re-bar High Tensile/t: 2006 1,855.00 / Q108 3,169.00 / June 08 4,050.00

Property companies have been jumping on the super luxury market as the trend and sentiment were on their side. The huge success of casinos in Macau followed a very spectacular property boom in Singapore triggered by the IRs over the last 2 years. Hence some spillover effect is understandable.

Currently property prices in Asia-Pacific is still high but largely flat in recent months. The proverbial stuff has not hit the fan as yet. The wait and see attitude is masking grave dangers.

The big fallacy is to see property companies reporting enormous profits. Do bear in mind these are profits booked for the past 12 months.

Naturally developers would be the last people who would want to come out and sound the alarm bells. Many property companies in Asia-Pacific have delayed their IPOs over the last 6 months. These are the alarm bells.

We have to remember that property affordability and property speculation have a high correlation to local stock markets performance. In particular, it is more prevalent for Asia-Pacific because we tend to have a large portion of our GDP being listed, plus the fact that Asians prefer to do direct investments themselves.

Just look at the equity markets from 2005-2007 and note the markets’ performance. Now look at the markets’ performance over the last 6 months. The doldrum is only just working its way into the financial economy.

Looking ahead, we will still have firm commodity prices, high inflationary expectations and likely higher interest rates – all not exactly friendly to stocks or property markets. Enough said.

In fact the real demand in the market place is for properties between RM300,000 to RM700,000 which has been sorely lacking. Even semis in Balakong and Rawang are nearing the RM1mil in new launches. It all boils down to affordability, and that’s the affordable range.

If you had bought properties that are worth more than RM1mil, you’d better be living in them when they are completed.

Ask anyone in property about the price for concrete and steel bars, and you will get a good idea of the huge jumps in construction and material costs. All things being equal, higher material cost should mean that your existing property should be worth a lot more as the replacement cost has gone up significantly.

If you bought 12-24 months ago, technically speaking your house is worth a lot more based on higher building materials’ cost alone.

Why then is the property market flattening out? When things dictate that property prices should move higher, but it doesn’t, then something is very wrong. It’s an old adage but worth repeating here (for property and equity investors): If something that is supposed to go up doesn’t, it is very likely to go down.

Sub contractors are now more willing to give up on the jobs secured, even paying the penalties and giving the jobs back to the main con because cost of building materials have gone up so much that they will be making losses if they go ahead. Just look at the run up in billing estimates for the second Penang bridge and you will have a good idea what we are dealing with.

For the super luxury market, probably less than half will be tenanted if at all. One can expect more to come back onto the market place in the coming months even though the replacement cost for these properties are actually higher.

The merry-go-round has stopped for super luxury items. Just witness the property markets in Singapore, Hong Kong, Thailand, Indonesia, China and even Australia.

The only sub-sector that may hold up well might be commercial buildings but that’s largely due to under-investment the few years following the Asian financial crisis of 1997.

As things stand today, just in Selangor alone there are already 140 abandoned projects from the previous cycle, involving the 47,000 odd units worth RM2bil. The huge cost run up will increase the likelihood of more new abandoned projects.

We Asians tend to view property investments differently. We tend to do it with minimal discussions with friends or relatives, as if its a crime to let others know that we are buying properties.

Maybe people will think we are rich, or too rich. In the end we end up discussing property investments with property agents, and reading tomes from property magazines. Just note the number of new property magazines launched over the last 2 years. After all, this is probably the most important financial decision we make in our lives.

The probable consequences in coming months

· Properties having sold 100% off the plan will see some of the developers starting to lose money if they are less than halfway through their projects as they may not have secured the building materials cost budgeting.

· Some smaller developers will be hit even harder and there will be more abandoned projects. Better to run than to continue the project. Developers cannot really go back and ask buyers to pony up another 30% to their purchase price, or can they?

· A substantial portion of the economic vibrancy in Asia-Pacific over the last 3 years has been due to strong property prices. A similar contraction effect will happen if things slow substantially in the property and construction side.

· Luxury properties will see at least a 15%-20% easing in the coming months even though the holding power is stronger. 15%-20% is about the loss that speculators are willing to take going forward.

· Real affordability is between RM300,000 to RM700,000. Anything above that is a different market, but they will still be affected. Completed units will have to be left empty or be rented at cut-rate prices. Maybe we can rent a RM1.5mil house in a gated community at RM3,000 ? who knows.

· Affordability is a function of outlook on inflationary expectations as well, and that’s not looking good

· Government construction projects will have to be revised higher to be viable or else the successful bidder will just walk away, even with penalties. Construction spending will rise in the coming budget but not in actual number of projects. Just accommodating the higher costs alone will move the budget a lot higher.

· Developers who sold 100% off the plan over the last 12 months may now be looking at making losses just to complete the projects.

· Coming months: a slowing US economy; higher inflationary expectations; commodity prices to stay firm; global equities under pressure.

· Rental market is a lot better in Hong Kong and India, showing a preference to defer property purchase. Expect that trend to be replicated in Singapore and Malaysia as well.

· While Asia-Pacific has weathered the US sub prime implosion well enough, the recent Vietnam implosion has rattled some feathers of regional developers.

· Be prepared for margins destruction, projects disruptions and scrapped/deferred projects.

Things we need to do now

· Lower your leverage and borrowing substantially, even if it means making some loss.

· By lowering your leverage, you are basically making it available at a future point in time to capitalise on probable better opportunities in stocks and property.

· Re-evaluate your property portfolio, be careful if there are yet to be completed properties you have bought.

· Be very wary of buying from smaller developers as the risk quantum has increased substantially.

· The state and federal government should start imposing adequate “capital requirements” for existing projects and new projects. Don’t wait till they abandon the projects. It is a lot harder to revive once abandoned.

· Think about the potential jobs constriction within the property and construction market place and plan your policies to mitigate those effects on the broader economy.

· Even developers with overseas projects may not be immune unless the rise in material cost has been factored in fully. Even if they were factored in, a 50% jump in cost may make many of these projects unviable. Only places such as the Middle East countries swishing in petrodollars can maintain the aggressive infra spending plans over the next 1-3 years.

· The economy may hold up a lot better than the general population as oil and gas receipts and plantation receipts will be positive. Generally speaking the general public’s wallets does not have a high correlation to oil or CPO prices, if there is even a correlation at all.

· Authorities should only allow build-and-sell developers over the next 3 years. As consumers, buying from the secondary market place would be a much better option than off the plan.

· A three-year contract in the Middle East with lucrative terms on a construction related job should look a lot better now.

· The government should defer the big projects which may not be the priority now. Instead it should spend more on Klang Valley’s transportation system.

By The Star (by S.Dali) (Article posted on 20 July'08)

S Dali is a pseudonym. He is an ex analyst/fund manager and active blogger. (malaysiafinance.blogspot.com) who says he is too young, too old, too sarcastic, too dark, too funny, too charismatic, too poor, too Cantonese, too Malaysian, too frank, ...too bad ..

Danga City Mall to add hotel, serviced apartments

JOHOR BARU: Danga City Mall Sdn Bhd (DCMSB) plans to build a hotel tower and serviced apartment block as part of its Danga City Mall development.

Managing director Gary Lee Seaton said the project would be located on the mall's existing outdoor car park, measuring about 40,000 sq ft.

The interior of Danga City Mall.

“The retail and hospitality sectors in Johor Baru will chart a good growth with the influx of local and foreign investors to Iskandar Malaysia,” he said.

Johor would also benefit from the spillover of the tourism sector in Singapore if local retail and hospitality players worked together to tap this market, he said.

Seaton said this during a preview of the newly refurbished mall, opening for business on Aug 31.

The mall, formerly known as the Best World Plaza, closed down two years after its opening in 1996 due to the Asian financial crisis.

DCMSB, which is closely linked to the developers of Danga Bay waterfront project, acquired the building in 2005 from Pengurusan Danaharta Sdn Bhd.

The former has spent RM100mil on the mall, including a RM50mil makeover, to reposition it as the city’s premier retail complex.

Located along Jalan Tun Abdul Razak, the mall has a gross built-up area of one million sq ft and 500,000 sq ft of lettable space over seven floors.

“The upgrading of the road to give the mall greater accessibility is our main priority as previously shoppers had problems coming to the mall,” said Seaton.

He said Metrojaya would be the main anchor tenant, occupying 120,000 sq ft.

Seaton said Metrojaya would have a 1,500-sq-ft café within its premises – the first of five such Metrojaya stores in Malaysia.

The other stores are at Mid Valley Megamall, Berjaya Times Square and Bukit Bintang Plaza in Kuala Lumpur, and Island Plaza Penang.

By The Star (by Zazali Musa) (Article posted on 20 July'08)

Floored by the pure beauty and warmth of solid wood

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All the wood here is kiln-dried for the Malaysian climate, resulting in wooden floors that are more stable and stronger, with smoother finishing.

As Asia Timber House is a wholesale company, their wood is also budget-friendly.

They offer personalised consultancy to cater for different environments and design requirements of each home.

By The Star