Property investors thrive in Malaysia

CHRISTOPHER BOYD sees more upside potential in the high-end residential market as demand pushes prices to ever-higher levels

THE residential market in Malaysia can best be described as well taken care of at the lower end, and, at long last, in a state of broad equilibrium at the middle levels. The excitement, such as it is, can mainly be found at the top end, which is the main focus of this article.

The Klang Valley these days covers an enormous area from Ampang in the northeast through Kuala Lumpur and on westwards towards Klang and Port Klang. It includes a great many suburbs within reasonable access of this east-west axis and since the whole valley lacks a formal definition, it is reasonably susceptible to hijack by those suburbs on the fringes. By our calculation it contains about 1.4 million dwelling units, of which half are landed, and half high-rise.

Last year, turnover was (in KL and Selangor, pretty much the whole Klang Valley) 57,151 units (Malaysia in comparison: 144,224 units) and the year before 50,715 units (Malaysia:153,315.) About 7 per cent of this turnover was new dwellings. Across the board, as at Q1 2007, the Klang Valley (KL and Selangor) had some 236,998 new housing units under construction and another 186,572 approved but not started yet; an indication of the fast growth rate since an ‘overhang’ of unsold units is barely an issue.

The number of completed condos in the best residential areas and priced at over RM500 per square foot amounts to 4,479 units, with a further 9,872 under construction.

There has been some concern that these top-end projects may be in oversupply, but the majority have met with a ready market, spurred early this year by the suspension of decades-old real property gains tax.

Global draw

The luxury condominium market has international appeal and buyers include the Irish and Middle Easterners, as well as expatriates in Hong Kong. Meanwhile, the Koreans have recently come into the market quite strongly and, who knows, it may soon be the turn of the mainland Chinese. There are no restrictions on the purchase (or resale) of most Malaysian residential property; you get a clear title and loans are freely available locally.

The market has moved up quite strongly over the past two years. Buyers of One KL facing the Petronas Twin Towers who were lucky enough to pay RM1,000 psf last year can now resell their units at twice that value – and the building is still under construction! The project is a development carried out by Malaysian tycoon Chua Ma Yu.

Purchasers of the nearby Marc Residences, a development by Singapore’s CapitaLand, who paid RM600 psf three years ago, are now taking possession of their completed units and getting offers of RM1,200 psf. The developers of the luxury Troika, within the vicinity of the Kuala Lumpur City Centre area, sold for an average of RM1,000 psf at its launch in 2005. The balance of unsold stock was re-priced early this year with a price tag of up to RM2,000 psf to keep pace with the market.

Is there any more upside potential? Will the madness continue? We don’t see why not. Interest rates are low, demand is high and supply, although increasing, is limited. Yields may fall as values rise, but we do not see this as dragging values down. Our experience in the region has shown that yield expectations from top-end residential property are not high. A rental of RM25,000 (S$11,000) a month from a condominium worth RM6 million is still 5 per cent, better than the deposit rate and offering the possibility of growth.

A far greater threat to long-term value is the quality of the proposed management and investors should check this carefully.

In Penang, the mood is bullish and upbeat with the announcement of the Northern Corridor Economic Region and with it, the Second Bridge, Outer Ring Road and monorail. These government initiatives have shaken the cobwebs off a moribund market and given it a new lease of life.

Luxury developments such as The Sanctuary in Batu Uban, Moonlight Bay in Batu Ferringhi, and Seri Tanjung Penang, a reclamation project in Tanjung Tokong have all reported over 70 per cent sales. The proposed Penang Global City Centre, launched on Sept 12, will bring new focus to Penang Island and will inevitably benchmark residential values which, at the moment, are stuck at around RM400 psf for top-end condos.

Johor, much like Penang, was a stable, well-supplied market with no discernable trends until the recent unveiling of the Iskandar Development Region turned it on its ear. The recent announcement of a RM4.1 billion investment by a Middle East group in the region has created excitement and done much to convince the sceptics.

Property prices are reacting accordingly. A three-bedroom apartment in Danga Bay, facing Singapore, which would have sold for RM250,000 in 2005 is now worth RM300,000. Newly-launched detached houses in Casa Almyra overlooking the proposed Integrated Leisure Resort were recently snapped up at prices from RM900,000 to RM1.6 million.

The main growth areas are seen to be within the vicinity of the Second Link to Singapore and the area around Aeon Tebrau City known as the Tebrau Corridor.

Johor Bahru residents can look forward to the creation of a new class of residential accommodation in response to the international attention now focused on their city.

The writer is executive chairman of ReGroup Associates

Source : Business Times – 27 Sep 2007

Sentosa Cove turns sea to gold with $3b land sales

The combination of sand, sea and location have worked wonders for Sentosa Cove Pte Ltd (SCPL).

It has raised more than $3 billion selling land parcels in its namesake upscale waterfront housing district since late 2003, market watchers have calculated. And by the time SCPL finishes selling the last few land parcels that remain, the total takings are expected to go way over $4 billion.

By the time it is completed, Sentosa Cove will have about 2,500 homes.

The remaining 99-year leasehold plots that the master planner and developer of Sentosa Cove is now left with include four seafronting bungalow plots; the man-made Pearl Island which can be developed into 19 bungalows (this site is being relaunched today) and a plum condo site, dubbed The Pinnacle Collection at the entrance of Sentosa Cove’s marina basin.

The tender for The Pinnacle Collection was launched earlier this month and closes on Dec 12, with a reserve price set at $963.8 million or $1,600 per square foot per plot ratio. But most market watchers expect the winning bid to be much higher.

As for the 159,742.1 sq ft Pearl Island, CB Richard Ellis executive director Li Hiaw Ho expects it to draw bids of $800 to $900 psf of land area. This is about 30 to 46 per cent above the $617 psf that the next-door Sandy Island fetched during an expression of interest that closed in November last year.

Pearl Island was offered for sale during the same exercise but the site was not awarded by SCPL although it received offers above the reserve price.

Pearl Island, which can accommodate up to 19 luxury waterfront villas with private berths in their backyards, will not be sold to individual buyers seeking a plot. Instead, the entire land parcel must be bought at one go, presumably by developers. ‘This is an opportune time for developers to develop and offer luxury waterway villas in Sentosa Cove to satisfy the pent-up demand,’ said Ms Kemmy Tan, general manager of Sentosa Cove.

CBRE said that assuming land bids of $800-900 psf for Pearl Island, prices for the completed individual bungalow units will likely start from $8 million upwards.

Taking a more bullish view, Savills Singapore director of marketing and business development Ku Swee Yong predicts winning bids for Pearl Island will come in at $1,200 to $1,300 psf, reflecting absolute quantums of $191.7 million to $207.7 million.

The breakeven cost works out to about $13 million per bungalow. ‘This still leaves a profit margin for the developer. After all, the owner of a seafronting completed bungalow at Sentosa Cove with a 9,000 sq ft land area is said to be asking for close to $20 million,’ Mr Ku said.

The expression of interest for Pearl Island closes on October 25. Its award will be based solely on price.

SCPL yesterday also revealed that new benchmarks have been achieved for individual bungalow sites during an expression of interest that closed on Sept 4. A waterway plot fetched $1,247 psf of land area – a new high for such a site – while a fairway facing site achieved $1,527 psf, surpassing even the $1,473 psf that a seafronting bungalow site achieved during an expression of interest that closed in May this year.

Source : Business Times – 27 Sep 2007

Looking good

THERE is a lot to smile about these days.

A broadbased recovery in the housing market now looks imminent with some developers feeling confident enough to put in new benchmark bids for 99-year suburban leasehold sites.

But HDB upgraders are finally making a comeback, bolstered no doubt by salary revisions in the civil service and mid-year bonuses.

Even the much-anticipated fallout from the United States sub-prime crisis and subsequent global credit crunch appears to have left the Singapore property market relatively unscathed. Not only have foreign institutional investors continued to pump money into the property sector, a new base of investors, most notably from the Middle East, are making their presence felt.

Of course, there is still a level of volatility in some segments. The high-end and luxury residential sector may see both foreign and local investors make more cautious decisions about buying into a segment that is already a little peakish.

Speculators, who have been driving up prices in the high-end and luxury segments, also appear to be beating a retreat, after considering the upsides in flipping properties no longer worth the risks.

Emerging markets are also looking like pretty safe bets though.

Few will have failed to notice that when the US sub-prime situation started to unravel in July and August, the China and India markets seemed impervious to its effects.

The growth story of both these powerhouses is well known, so much so that industrialists and developers alike are looking for new frontiers.

Vietnam is certainly a hot favourite now but closer home, Malaysia too holds many opportunities.

And if the Singapore market is anything to go by, the increasingly buoyant high-end sector in its capital city certainly bodes well for the rest of the real estate market.

Risk aversion may yet be the catch phrase of choice for the months ahead.

Not surprising then, financial analysts have come out in support of the mass market and the mid-cap developers most exposed to this segment.

Also looking relatively safe is the growing Singapore real estate investment trust (S-Reit) sector. The first Reit was listed in 2002 and, to date, there are 17 S-Reits with more expected to be listed here, giving even more depth to the market.

Source : Business Times – 27 Sep 2007

Rush to launch collective sale sites

DESPITE the cooling off in the property market, there seems to be something of a rush to launch collective sale sites this week.

The latest offerings are Chateau Eliza at Mount Elizabeth, Toho Garden in Yio Chu Kang, Vista Park at South Buona Vista Road, and a stretch of 15 houses at Jalan Bunga Raya near Balestier Road.

Property consultants said there are a string of other collective sale cases where agents have either recently secured the minimum consent levels or are rushing to do so before new en bloc sale legislation kicks in early next month.

In some cases, agents have had to raise minimum reserve prices a little in the collective sales agreements to entice the last few owners to sign up.

However, in other instances, they have also managed to persuade owners to set more realistic expectations, pointing to the perils of not achieving the minimum consent levels before the new rules are in force. The various processes and safeguards entailed in the new rules are expected to lengthen the time taken to get collective sale sites ready for launch, market watchers said.

CB Richard Ellis executive director Jeremy Lake said the US sub-prime mortgage woes in the past four to six weeks have also served to add a dose of realism to owners’ price expectations, helping to expedite securing minimum consent levels in some instances.

‘Prior to that, it seemed like a never-ending party,’ he said.

DTZ Debenham Tie Leung director (investment advisory services) Shaun Poh said: ‘I would say that in 50 per cent of our cases, we’ve had to up the reserve prices a bit to get the last few owners to sign up. But we’re also trying to ensure owners’ pricing expectations are realistic.’

In the remaining cases, Mr Poh did not have to raise minimum prices but persuaded owners to be more realistic and sign up.

‘Our advice to clients is: Let’s lock in the 80 per cent consent level first, before the new laws take effect. We can then watch the market and see how new residential property launches in the location fare before deciding whether to launch the tender for our en bloc sites,’ Mr Poh said.

Chateau Eliza at Mount Elizabeth has an indicative price of about $115 million to $120 million, which works out to $2,130 to $2,222 psf per plot ratio (psf ppr). No development charge (DC) is payable.

In July, the site was launched through an expression of interest before the minimum consent level had been secured, with an indicative price of $120 million.

Marketing agent Credo Real Estate is now launching a tender for Chateau Eliza as it has secured consent for a collective sale from owners controlling more than 80 per cent of share values. The freehold site has a land area of 17,997 sq ft and can have a maximum gross floor area of nearly 54,000 sq ft, based on preliminary checks.

Over in South Buona Vista, Newman & Goh is launching the tender for Vista Park, which stands on a site with a remaining lease of about 71 years. Owners are looking at about $265.7 million, which reflects a unit land price of about $680 psf ppr, inclusive of an estimated $37.3 million payable for upgrading the site’s lease to 99 years. No DC is payable.

Newman & Goh is also offering the freehold Toho Garden at Yio Chu Kang Road with an 86,881 sq ft site area through a tender. Its owners are seeking $60.8 million, which works out to $580 psf ppr including an estimated $9.7 million DC. Both Vista Park and Toho Garden have a 1.4 plot ratio (ratio of maximum gross floor area to land area).

DTZ has also launched the tender for Nos 1-15 Jalan Bunga Raya, with a freehold land area of 24,058 sq ft. Access to the terrace houses is by a road which can be alienated by the state for about $7 million, boosting the total land area to about 32,978 sq ft, according to DTZ.

A DC of $263,000 is also payable. The $66 million to $67 million price expected by owners reflects an all-in unit land price of about $800 psf ppr. The site is designated for 2.8 plot ratio.

Meanwhile, Jones Lang LaSalle yesterday launched the tender for a 28,798 sq ft freehold residential site with a 2.8 plot ratio at River Valley Road for sale by tender. It did not indicate price expectations in its release.

Source : Business Times – 27 Sep 2007

Private home rents jump by 8% to 10%

RENTS of private homes continued to rise strongly between July and September.

They jumped 8 per cent to 10 per cent islandwide over the previous three months, estimated property consultancy Knight Frank.

This was on top of a record 10.4 per cent growth in the second quarter, added Mr Nicholas Mak, Knight Frank’s director of research and consultancy.

Rents in the Woodlands and Mandai area saw some of the highest growth rates in the third quarter. They surged between 25 per cent and 30 per cent, largely because of the draw of the Singapore American School in the area, said Mr Mak.

‘This is an indication that although expatriates are concerned with rising housing rentals and costs, they are still willing to pay a premium to stay near international schools in Singapore,’ he added.

For the last three months of the year, Mr Mak expects rents to rise slightly less, by 5 per cent to 10 per cent. This would bring full-year rental growth to between 30 per cent and 40 per cent, he said.

Knight Frank added that market activity is expected to pick up in the last quarter, as developers step up launches to meet year-end targets.

Another 3,500 to 4,500 units are likely to be launched for sale, and home prices for the whole year are expected to grow by up to 25 per cent.

Source : Straits Times – 27 Sep 2007

Sentosa Cove puts last site up for sale

DEVELOPERS who want a slice of the Sentosa Cove pie will have to act fast – the enclave’s final development site was put on sale yesterday.

Up for grabs is Pearl Island, the last of five islands zoned for landed homes. The 159,740 sq ft site can host up to 19 waterfront villas with private berths.

Property consultancy CB Richard Ellis expects offers of $127 million to $144 million for the plot, which works out to $800 to $900 per sq ft (psf).

Pearl Island was originally packaged with another parcel, Sandy Island, which has since been sold at $617 psf.

The most recent bungalow sale at Sentosa Cove saw seven offers for three individual plots. A new benchmark price was set at $1,527 psf.

Pearl Island is located near the Tanjong Beach and Tanjong Golf Course and has a maximum gross floor area of 127,792 sq ft. The plot is being marketed through an expressions of interest exercise that will close on Oct 25.

Sentosa Cove’s last condominium site, The Pinnacle, was also recently launched for sale in a tender that will close in December. The only land still unsold in the enclave are four seafront bungalow plots for individual buyers.

Pearl Island was not the only plot put on the market yesterday. Four sites were put up for collective sales, ahead of new rules on such sales which are expected to kick in next month.

One estate, Chateau Eliza at Mount Elizabeth, has an indicative price of $115 million to $120 million, said marketing agent Credo Real Estate.

This works out to $2,130 to $2,222 psf per plot ratio (psf ppr) – just shy of the record $2,338 psf ppr paid for The Ardmore in June.

Chateau Eliza sits on a 17,997 sq ft plot with a possible gross floor area of close to 54,000 sq ft. No development charge is payable for the site.

A 36-storey condominium with 20 units of about 2,500 sq ft each can be built on the plot, said Credo.

Meanwhile, property firm Newman & Goh put up two estates for sale: Toho Garden in Yio Chu Kang and Vista Park in South Buona Vista Road.

The owners of freehold Toho Garden are asking $60.8 million, or $580 psf ppr. The 86,881 sq ft site has a 1.4 plot ratio and can host 80 new units.

Vista Park, a 99-year leasehold site, is priced at around $300 million, or $680 psf ppr, including an estimated upgrading premium of $37.3 million. About 300 new units can be built on the 319,248 sq ft plot.

The fourth site put on sale yesterday was a vacant plot in River Valley Road, between River Valley Grove and St Thomas Walk. It is 28,798 sq ft in size, can be built up to 36 storeys and has 80,634 sq ft of gross floor area, said marketing agent Jones Lang LaSalle.

Source : Straits Times – 27 Sep 2007

Singapore is world’s 5th largest forex hub, Asia’s No2

SINGAPORE is now the fifth largest foreign exchange (FX) centre in the world and the second largest in Asia, according to a survey by the Bank for International Settlements.

This came as the average daily FX turnover volume here jumped 84 per cent from the previous survey in 2004 to reach US$231 billion in 2007.

The BIS Triennial Central Bank Survey – FX and Derivatives Market Activity in 2007 – which is for the reporting month of April this year, shows that Singapore’s FX market continues to be international in character, with the major currencies such as the US dollar, Japanese yen and euro dominating turnover volumes.

The survey also ranks Singapore as the eighth largest centre globally in terms of over-the-counter (OTC) derivatives trading, up from 12th position in 2004.

The average daily OTC derivatives turnover in April shot up to US$68.6 billion, from US$17 billion in 2004.

FX derivatives accounted for an average daily turnover of US$11.3 billion while single currency derivatives stood at US$57.3 billion.

The BIS study uses a submission basis based on where the FX or derivatives transaction originated. Fifty banks in Singapore were involved in the survey.

In addition, the Singapore Foreign Exchange Market Committee (SFEMC) carries out a semi-annual FX survey of the top trading banks in Singapore, in coordination with committees in New York, London, Tokyo and Canada.

‘The last survey done for the month of April 2007 had put average daily FX turnover at around US$223 billion for the top 30 FX banks in Singapore alone,’ the Monetary Authority of Singapore (MAS) said.

MAS deputy managing director Ong Chong Tee said: ‘The BIS as well as the SFEMC surveys affirm Singapore’s continued strong growth as a key foreign exchange centre in the world. A number of financial institutions have chosen Singapore as their Asian FX trading hub, and several have been expanding their operations here.’

Source : Business Times – 26 Sep 2007

Singapore ranks third in world for meetings held last year

SINGAPORE has risen to be ranked as third city in the world for meetings held last year, up from its fourth position in 2005, as shown by international meetings statistics compiled by the Union of International Associations (UIA).

Paris was declared first and Vienna second. In the report, Singapore was ranked Top Country for Meetings in Asia for the 24th year running.

The city hosted 298 meetings in 2006, which was a 62 per cent increase over 2005. Tourism receipts totalled $4 billion last year, which shows that the republic is on the right track to meet targets set by the Singapore Tourism Board (STB) of $10.5 billion in tourism receipts by 2015.

Last year’s big events included the annual meetings of the International Monetary Fund and World Bank in September, which drew some 16,000 foreign delegates.

On a regional level, Singapore hosted 22 per cent of all meetings held in Asia in 2006. In the last five years, Singapore has more than doubled the number of meetings held here, even though the number of meetings held in Asia declined by 2 per cent over those years.

Other efforts to expand the MICE sector by the Singapore Exhibition and Convention Bureau – a group within the STB – include their new business strategy, which involves working with other Singapore government agencies to create, attract or grow business events. These events would ideally focus on Singapore’s fundamental economic drivers and initiatives, complement the development plan of these sectors, generate buzz and bolster the strategic position of Singapore as the exchange capital for each cluster.

‘These rankings by the well-respected UIA further validate and reinforce the strong performance of the industry last year,’ said Aloysius Arlando, assistant chief executive (Business Travel and MICE Group) for STB.

Source : Business Times – 26 Sep 2007

German fund manager eyes Asia properties

GERMAN fund manager Difa Deutsche Immobilien Fonds (recently renamed Union Investment) is looking to quadruple its property portfolio in Asia over the next four years, its Asia-Pacific head has told BT in an interview.

‘Right now, we have 10 properties worth about 500 million euros (S$1,055 million) in Asia,’ said the group’s Asia-Pacific managing director, Steffen Wolf.

‘We would like to grow the portfolio value to at least two billion euros or so.’ he added.Union Investment, which owns some 15 billion euros worth of real estate across the world, last year turned its attention to Asia in search of attractive acquisitions.

Since September last year, it has acquired 10 properties in the region, including six residential projects in Japan and two office properties in South Korea.In Singapore, Union Investment has bought two properties. In January, it acquired Vision Crest’s office block and the House of Tan Yeok Nee next door in the Penang Road/Clemenceau Avenue area for a total of $260 million from mainboard-listed property group Wing Tai.

Union Investment is now working on more acquisitions in Japan, China and Singapore, Mr Wolf said. ‘We are also closely looking at Malaysia, India and Thailand,’ he added.

Right now, the group’s focus is on the key cities in all the countries, he said.Asia, said Mr Wolf, is ‘very strategic’ to Union Investment. The group has traditionally invested in Europe and the US, but has of late been building up its Asian team in Germany. The logical next step was to set up a physical presence in the region, and so the group opened an office in Singapore in October 2006.

Right now, the office has just two people, but Mr Wolf wants to grow the team to six or eight by the end of the year, he said.In Singapore, the group is looking at office properties as well as residential, retail and hospitality assets for acquisition, Mr Wolf said.

The group ideally has to acquire finished, freestanding and already leased-out buildings. It is, for example, not allowed to take on the risks involved with developing a greenfield project.Its business model is based on collecting rents and distributing them to shareholders.

But Union Investment will not rush into acquisitions, Mr Wolf said.The cash-rich company is in Asia for the long haul, and will be willing to wait for good acquisition opportunities to come by, rather than compete head-on with more aggressive bidders.

‘We can ride through market cycles,’ Mr Wolf said. ‘We are not affected by crises such as the sub-prime crisis. We have a lot of cash.’

Source : Business Times – 25 Sep 2007

Redas: Mass market poised for double-digit growth

The Real Estate Developers’ Association of Singapore (Redas) yesterday said that it expects ‘double-digit’ price growth in the mass market over the next 12 months.

‘The mass market hasn’t been very active and the base is low,’ said Chia Ngiang Hong, Redas’ first vice-president. ‘It will probably play a bit of catch-up with the high-end segment. So I believe it is going to be double-digit (price growth) for the next 12 months.’

Mr Chia is also the general manager of City Developments, one of Singapore’s largest developers.

Developers and analysts agreed with him.

‘Mass-market home prices will go up in line with higher costs of building materials, labour and land prices,’ said Margaret Goh, chief executive of NTUC Choice Homes.

Yesterday was Redas’ annual Mid-Autumn Festival celebration.

Kicking off the event, Redas president – and SC Global chief executive – Simon Cheong called for more good local and international schools in Singapore.

‘One of the most important conditions for expats to stay in Singapore, I am told, is education,’ he said. ‘In short, no good education, no good future, no global city, no good real estate market.’

Education Minister Tharman Shanmugaratnam was the guest of honour at the event.

Mr Cheong also told reporters that collective sales in Singapore are slowing after the government recently introduced new rules governing such sales.

‘In the process of digesting all these new rules, there will obviously be a pause . . . It will probably slow down the supply of en bloc land,’ Mr Cheong said.

Sales could also be slowing as homeowners who cannot find replacement properties might be reluctant to sell, he said.

But Mr Cheong expects the prices fetched by en bloc sites to keep climbing as more owners will have to be enticed to sign up for a collective sale.

Developers are already anticipating more difficulty in getting prime land and expect to pay higher prices going forward, he said.

Mr Cheong also said that developers could be holding back launching new properties because changes to the en bloc legislation means that supply of new prime land sites could be harder to come by.

Source : Business Times – 26 Sep 2007