Looking for a bargain?

Some of the completed houses at Setia Alam.

Developers and banks are offering attractive mortgage plans for home buyers.

For several months, a friend was checking out old double-storey terraces in Petaling Jaya. With a budget of about RM350,000, it was difficult to make a decision, as she would probably need to incur another RM80,000 for renovation.

She came across Setia Alam in Shah Alam, liked the open space and quiet surroundings, and signed on the dotted line. What made her excited was the 5/95 campaign.

“I pay 5% downpayment and will not need to start mortgage payments until the property is completed. The developer will bear all legal fees, stamp duty on the sale and purchase agreement, loan agreement, and memorandum of transfer. They will also service the interest during the construction period,” she says.

Banks and developers today are working very closely to design mortgage plans for home buyers. The leanings seem to be towards developers with large landbanks, offering bread-and-butter housing like double-storey terraces.

There are one or two tie-ups with developers offering high-end condominiums, but generally, these schemes do not come across as attractive as those offering normal housing.

As the year unwinds, more developers are expected to come up with such packages. Probably because of their large landbanks and a wider market audience, developers of bread-and-butter housing are quick to work something out with their bank partners.

SP Setia Bhd tweaked its marketing strategy after the fall of Lehman Brothers in September last year. Its 5/95 payment scheme, to run for three months from January 19, has so far generated about RM300mil sales in Selangor, Penang and Johor just five weeks into the campaign.

The company has a sales target of RM1.1bil. For its 2008 financial year, it had RM1.4bil sales, with progress billings of unbilled sales at RM1.2bil.The company has a land bank of 4,000 acres.

Sime Darby Bhd’s property division, which started its campaign since the middle of last year, is now on its third campaign. The campaign, which ends June 15, has so far generated about RM160mil sales since its launch on March 6.

The campaign includes an interest rate of base lending rate minus 2.3% and the developer absorbs the interest during the construction period. Its first campaign generated RM246mil in nine days, while the second campaign achieved more than RM146mil sales.

The speed at which market surveys were done by developers in the last quarter of 2008 and the strategies put in place in January, underscores the urgency developers view the situation.

Whether it is to clear old stocks or to complement new launches, something has to give to lift the current sentiments.

Says an analyst: “There is no bubble in the mass housing market. It is more a case of job insecurity and buyers holding out for bargains. Capital values are holding quite well, unlike in KLCC and Mont’Kiara. There are genuine buyers of bread-and-butter housing out there and given the current spate of incentives by banks and developers, why not make a decision now?”

He adds that: “Never before have developers absorbed the interest. In the past, developers priced in the interest in the higher selling price, but now it is different. These are the units which could not move, so developers would rather lose out 2% to 3% margin based on the interest cost and stamp duties”.

Whether these incentives are sustainable until year-end depends on how things pan out in the local and global economy, he says. He also cautioned that a lot of sales numbers given by developers may be just bookings, which have yet to convert into sales and purchase agreements.

“We expect demand to remain weak notwithstanding the campaigns. The fact that there are such campaigns show that developers are in jeopardy.

“A condominium developer had virtually no sales in the last quarter of 2008 and a large-scale developer had sales of only RM70mil in the last quarter, compared to RM300mil a year ago. So the incentives to buy must be there,” the analyst says.

Another analyst opines that the larger boys offering mass housing may have a better survival rate. Those offering homes that costs millions may have problems this year. It all depends on their stock of these million ringgit homes.

“(Demand for) luxury condominiums will only come back in 2010. More home buyers will return in the third and fourth quarters. We expect more creative approaches in the second quarter, but these incentives will also cut into the costs,” he says.

The way things have turned out for developers and banks underscore the cooperation needed by both to tie over the period.

A source from Mah Sing Group Bhd says sentiments are indeed very poor.

“Banks have to do a lot of packaging if sales are to continue. If you are buying for own stay, now is the time. The fact that the second stimulus package allows banks to defer mortgage payments for one year indicates how concerned the Government is,” he says.

“When there is job insecurity, people will not buy. Most developers will think twice about increasing prices. But developers in the right market and the right location will hold strong,” he adds.

The company has achieved sales of about RM140mil following its 5/95 sales campaign for all properties. It has a sales target of RM450mil for 2009, a 13% increase over the previous year’s of RM397mil. About 88% of the sales are from the Klang Valley, with nearly half from commercial properties.

Mah Sing’s campaign ends March 31. There may be plans to extend or tweak the current package. Sunway City Bhd had two schemes, one for completed projects and the other for those under construction. Both ended Feb 28 and generated about RM60mil during the schemes’ two-week duration.

By The Star (by Thean Lee Cheng)