Property Malaysia

There were two articles in the Star Business section yesterday that caught our attention. Both were actually reports of the Fiabci Smart Investor in Property Seminar IV held in KL over the weekend.

According to one of the speakers, Mr. James Wong of VPC Alliance (M) Sdn. Bhd. timing was of purchase is critical in investment. There are 4 stages in a property cycle – bottom, growth, boom and decline. However, in reality, the property cycle does not run in such manner as there are cycles within cycles.

He elaborated that the Malaysian property cycle between 1970 and 2004 had three boom periods:

• from 1973 to 1975;
• 1978 to 1981;
• and 1995 to 1997.

There were two bottom periods:

• from 1984 to 1988;
• and 1997 to 1998.

He went on to elaborate in detail about how the cycles do not always go through the four phases, and how different segments of the property market go through different cycles concurrently.

You are encourage to read the article for the full write-up, or attend the next seminar which is organized by Fiabci and sponsored by the Star.

A related article reported that Ho Chin Soon of Ho Chin Soon Research Sdn. Bhd. was presenting how the population growth was the highest compared to other regions such as Johor Bahru and Penang.

According to the report,

Between 1991 and 2000, the Klang Valley grew at 4.8% per annum, compared to JB (4.6%) and Penang (1.57%),
“If the growth rate of 4.8% per annum in the Klang Valley is sustained, we will have a population of 8 million in 2016”.

Looks like KL will be joining the ranks of the supercities of the world very soon.

The news last week for REIT watchers was that the Securities Commission (SC) issued a guidance note to allow REITs to borrow up to 50% of their total asset value. Previously, they were only able to borrow up to 35%.

The Edge, has predicted that this will have trickle down effect to investors in the form of higher yields (see their report on July 17, 2006). The also noted that the government implemented this after receiving feedback from industry players. The also recorded some optimism that this news might help boost the price of the REITs currently. This however, may only happen if the cost of debt is remains lower than the cost of equity.

We have always lamented on the few number of REITs available in the market currently since the launch of this instrument so long ago, resulting in their effectiveness to make an impact in the Malaysian investing environment.

Currently, there are only 4 available REITs – Axis, Starhill, UOA and Tower. Of these, only Axis is trading reasonably above its listing price. In the case of Starhill, despite all the earnest marketing and promotions by YTL, it still remains sluggish. Axis, too have been aggressive, adding 4 more properties to their assets in the last 11 months (see our report here) and growing their listing from RM290million to RM400million. Actually all the four companies are constantly looking for more property injection (including Ritz-Carlton Residences for Starhill), and the higher gearing due to borrowings should be able to help quite a bit.

Interestingly enough, at 50%, the gearing level brings Malaysia in line to its regional peers. Singapore, previously also at 35%, increased it to 60% recently (with a credit rating).

So will there be better days for our paltry REITs? Let’s wait and see.

For more articles on REITs in Property Malaysia:
Tower REIT Opens At RM1.06
News on Tower REITs and Axis-REIT
Malaysia Real Estate Industry Hits RM56 billion
Tower REIT Looking For More Office Buildings
Starhill REIT Makes Good Debut
UOA Offers REITs Today
Axis REIT to Buy Two More PJ Properties
YTL launches Starhill REIT
Budget Boost for Malaysian REITs
About Malaysian REITs

Most of you would have some time or other heard about the ‘Malaysia My Second Home‘ (MM2H) programme touted by some of the sales and marketing folk. For a background of it, you can check out one of our earlier postings on it here. It was formerly known as the Silver Hair Programme from 1996 to 2002. The programme was mainly targeted at attracting retirees from other countries to settle in Malaysia as their second or holiday home.

But while the developers are almost always promoting it to all those foreigners (especially ‘mat sallehs’) that walk in the sales office, a lot of people have chipped in with comments and feedback to make the programme more effective and attractive.

It is to everyone’s advantage that such a programme like the MM2H be successful. Malaysia is a stable country politically and economically, and the comparative low property prices always make it more attractive as compared to, say, Singapore or Hon Kong. In addition to that, with the foreign exchange being brought into the country, other sectors such as banking, retail, tourism and service sectors stand to gain a lot from the expatriates.

According to a recent report, the programme has change quite a bit since its launch. Besides the name change, it has been moved from the Home Affairs Ministry to the Tourism Ministry (which we feel makes better sense). According to a recent report, this as resulted in an increase in the number of participants, from 2002 to 2005, a total of 6,695 participants were approved under the programme. Its Deputy Minister, Datuk Donald Lim said that there will an official relaunch of the MM2H some time this month. Some of the changes are include approval of multiple entry visa for 10 years (previously 5years) and setting up a ‘one-stop agency’ of sorts will be set up to approve the applications within 1 to 3 months.

Furthermore, the ministry will be targeting foreigners from countries in East Asia (Japan, South Korea, Hong Kong, China), Middle East and of course, Europe. They expect to approve 2,000 to 3,000 applicants per year, although no specific target has been set.
At the moment Chinese nationals followed by Bangladeshis are the highest number of participations.

The following is the highlights of new rules for MM2H under the Ministry of Tourism, effective April 2006:

Aged below 50:
Open a fixed deposit (FD) account of RM300,000 and after one year, the participant can withdraw up to RM240,000 for approved expenses relating to house purchase, education for children in Malaysia and medical purposes. Must maintain a minimum of RM60,000 from the second year onwards and throughout stay in Malaysia under the programme.

Aged 50 and above, Can choose to :
Open a FD account of RM150,000
OR
show proof of monthly offshore income of RM10,000 from approved/recognised institution in their country of origin, such as a pension scheme.
Participants who fulfil the FD criteria can withdraw up to RM90,000 for approved expenses relating to house purchase, education for children in Malaysia and medical purposes after one year. Must maintain a minimum balance of RM60,0000 from the second year onwards throughout stay in Malaysia under the programme.

House purchase
Each participant is allowed to purchase up to two units of residential houses at a minimum price of RM150,000 to RM350,000 and above each, depending on the location of the property. Generally, the minimum price for the purchase of houses in Malaysia is set at:

• RM350,000 and above each for certain areas in Sarawak;
• RM250,000 and above each for Penang, Melaka and Johor; and
• RM150,000 and above for other states.

Kuwait Finance House (Malaysia) Bhd (KFH), the financial institution looking to invest in the Malaysian property market, has obtained the greem light from Bank Negara Malaysia to launch the KFH Musyarakah Mutanaqisah Home & Property Financing-i, a new Islamic financing product, based on the Syariah concept of Musyarakah Mutanaqisah (diminishing partnership) and Ijarah (leasing).

According the a report,

In a statement on May 8, KFH, which is the country’s first foreign Islamic bank, said the financing was a form of diminishing partnership contract, where the customer and the bank jointly purchased and acquired the property. The property is then leased to the customer on monthly rentals, which are paid by the customer and applied towards increasing their ownership until full ownership.

KFH executive director Salman Younis said the facility would be made available initially for properties in which KFH had invested in. He said one such property was the Pavilion Kuala Lumpur project at Jalan Bukit Bintang.

The Pavilion, touted as the ‘last piece of prime property in the golden triangle’, is the first project that KFH has invested in.

For further reading:

Kuwaitis Looking to Invest in Malaysian Property
Pavilion KL to have retail sales of RM1.56b in 2008

For those of you interest to know how to do the above, here’s an interesting article on it:

“Calculating the cash flow from an investment in rental property will tell you whether your investment makes economic sense. Here’s how to do it.

First, calculate taxable income or loss from the property. Taxable income or loss is rent received minus three types of expenses: operating expense, depreciation, and mortgage interest expense.”

For the complete article, you can read it here (we tried the calculation, it’s a little diferent from ours, but it depends on the individual’s preference…)

This is a continuation of the 3-part series of the latest home loan packages and interest rates offered by banks in Malaysia. This first part to this series (you can read it here) focused on the packages offered by the 10 local anchor banks, this part will focus on 6 types of Islamic housing loans available from these local banks. The third and final part coming soon will be on some of the packages offered by foreign banks in Malaysia.

The complete series:
Home Loans by Malaysian and Foreign Banks Part 1 : Local Banks
Home Loans by Malaysian and Foreign Banks Part 2 : Best selling Islamic Banks Loans
Home Loans by Malaysian and Foreign Banks Part 3

This info was also highlighted in Monday’s Star Business section (27 March 2006). For a full listing of all banks (local and foreign) including info like their contact numbers and addresses, you can check out this page.

For more info and further explanation on these home loan packages and prevailing rates, you are advised to check with the individual banks.

In the following tables, ‘C’ denotes Completed properties while ‘U/C’ stands for properties under construction. BLR stands for ‘Base Lending Rate’ while Y1 is for Year 1 and so on. IFR stands for ‘Islamic Financial Rate’. Check with relevant bank for prevailing rates.

More from Property Malaysia:
Part 1 : Home Loans by Malaysian and Foreign Banks
List of Malaysian Banks

Tower Real Estate Investment Trust (Tower) was posted at a modest RM1.06 on its April 12 opening day.

Some fast facts:

• At the opening bell, there were 1.01 million units done.

• Within the first 30 minutes of trade, there were 5.68 million shares done at prices ranging from RM1 to RM1.06.

• By 9.30am, it was trading at RM1.00 flat, down seven sen.

• The Tower REIT IPO consists of 2.48 million shares was subscribed by 2.48 times.

According to the Edge, the cautious market following the sharp increase in oil price and also weaker Asian markets affected sentiment in the counter. Japan’s Nikkei 225 fell 1.1% or 193.50 to 17,224.63 at 9.30am. The Kuala Lumpur Composite Index was down 3.12 points to 939.35.

For more info on the Tower REIT, their assets and management company, read the following earlier articles on Property Malaysia:

News on Tower REITs and Axis-REIT
Tower REIT Looking For More Office Buildings

There’s two big news on REITs yesterday, the first one was regarding Tower REIT. We had highlighted them before (you can read it here).

The 9.3 million shares issued was oversubscribed 1.48 times at an offer price of RM1.07 per unit. 30% of the new units, which is about 2.79 million units, and the remainder of 6.51 million units were allotted under the public category. Malaysian Issuing House (MIH) said on April 3 that there were 4,327 applications for all the 23.09 million.

According a report by the Edge,

842,000 unsubscribed units reserved initially for eligible directors and employees were also made available to the public.
Under its listing exercise, there were 201.87 million new units in Tower REIT.

The proposed listing date is April 12. Two office buildings in Kuala Lumpur — Menara HLA on Jalan Kia Peng and HP Towers on Jalan Gelenggang, Damansara Heights — will be injected into the trust for RM351 million.

The other news item is regarding Axis-REIT. Earlier postings regarding them can be found here.

They have just bought the entire interest in Lot 24, Jalan Lebuh 1, Kawasan Perusahaan Sultan Sulaiman, North Port, Port Klang from EC Distribution Sdn Bhd for RM10.3 million cash. The managers said that the lot, with its existing building and land, was currently tenanted by MISC Logistics Sdn Bhd. with a monthly rental of RM110,000 which expires on Dec 31, 2007, with an option to renew for another 3 years at the prevailing market rate.

According to the Edge,

The combined gross built-up area of the original buildings and the extensions is 149,248 sq ft. It said the annualised gross rental income was RM1.32 million and the rental rate per month per square foot as at April 3 was 85 sen calculated on a net lettable area of 130,000 sq ft.
…purchase consideration was at a discount to the appraised value of the property of RM13.5 million in a valuation report dated March 6.

Further on, it also noted:

It added that the proposed debt financing would increase the REIT’s gearing ratio to 14.27% of total assets, which is below the gearing limit of 35% prescribed by the Securities Commission.

The other day, an associate asked us if we had ever reviewed affordable homes under RM150,000 (USD$40,540). We said that there were definitely a few that we have reviewed in recent weeks. So we actually went through the reviews page, and listed down all the projects with units below the price of RM15ok. And we have listed them below.

A few thoughts first.

Apartments
They are all apartments, residential or serviced suites. There are no landed units listed here, but there are many affordable one available out there. The reasons why only apartments are listed here are manifold - they are slightly more popular than small landed homes, they offer services that make them attractive to young buyers, and are more strategically market in the media (when was the last time you saw a full page ad for a 18′ x 65′ house in the newspapers?)

There are plenty of affordable sub-150k landed homes available out there, you just have to know where to look. There are also many, many more apartments available out there, this list is in no way exhaustive.

Location
Interestingly enough, out of the 8 projects reviewed here, they are all within the Puchong - Seri Kembangan - Bukit Jalil growth area. Of course, you wouldn’t expect to see Mont’Kiara or KLCC or Bukit Antarabangsa listed here, but in terms of location, buyers need to be realistic. We’ve reviewed a few others in the Subang / Sunway area, and the prices there are nowhere near RM150k, either.

Okay, here we go:

Bayu Puteri
Currently, one of two condo projects on offer in Bandar Puteri, Puchong, the other being the upmarket Aseana Puteri.

Desa Impiana Condominiums
This is deeper into Puchong, located next to the Desa Impiana Duplex units which have sold quite well. New interchange on LDP will ease peak hour traffic.

Desaminium Park
Massive project in the outskirts Seri Kembangan area.

The Heron Residency
Our first ever review. Recently launched the second tower for sale.

Nilam Puri
Very affordable homes in the relatively new Bandar Bukit Puchong 2 area. Follow up Nilam Terraces will be more upmarket.

Villa Pavilion
Launched quite some time ago, no frills and competitive pricing. Access road out to Bukit Jalil highway will make traffic circulation much easier.

Vistaria, Desa Millenia
Quite quiet recently… quite near the Desa Impiana Condominiums.

Koi Kinrara Suites
Third launch in the area, after Koi Tropika and Koi Legian.

GLM Reit Management Bhd’s REIT, called the Tower REIT, will be listing on April 12. The company is a subsidiary of GuocoLand (Malaysia) Bhd is currently looking for more office buildings.

According to a report in the local papers:

• They are in negotiations with several third-party office building owners in the Kuala Lumpur, Petaling Jaya and Damansara areas to acquire their properties. These buildings are worth not less than RM50 million each.

• as part of their strategy for the next two to three years, the company will be focussing on the properties in these three commercial districts.

• The prospectus for Tower Reit, which will cover two commercial buildings in Kuala Lumpur - Menara HLA and HP Towers - is expected to be issued on March 22.

• The company expects a return of of 6% to 7% annually for Tower REIT.

• Proceeds from Tower Reit would be used to repay the purchase of the buildings and also for working capital.

• Menara HLA is a 32-storey office building located in Jalan Kia Peng, while HP Towers is a commercial building with a nine-storey annexe and 21-storey tower at Damansara Heights.

• Tan said the two properties with a total market value of RM362 million, valued by global real estate advisor Knight Frank, were purchased for a total of RM351 million recently.

• HP Towers with a total lettable space of 350,056 sq feet is 88% occupied with Hewlett Packard as the anchor tenant while Menara HLA with 396,820 sq ft lettable space is 85% occupied with Hong Leong Assurance Bhd and HLG Securities Sdn Bhd as the anchor tenants.

• They are confident that the properties would see 20% to 30% increase in rentals starting this year.

• According to the management, the going market rate for commercial properties in the Golden Triangle area should be about RM4.50 per sq foot (psf) to RM5 psf for Menara HLA from RM3.50 in 2003 and RM3.50 psf from RM2.50 for HP Towers. The demand and supply band for the office sector in the Klang Valley is narrowing with the average occupancy rate reaching 83% last year from 75% in 2000 and 95% in 1997.
  They also believe that rental has yet to reach its peak of RM5.60 psf in the Golden Triangle and RM5 in Damansara Heights.

• The management added that GLM Reit would sell the properties for capital gains at the right price.

For the full article you can check it out here.