PETALING JAYA: Headwinds from the gloomy global economic and financial fronts, particularly in the United States and the eurozone, will pose challenges to the performance of the local real estate investment trusts (M-REITs) this year.

According to Malaysian REIT Managers Association chairman Stewart Labrooy, the M-REIT sector will face slower growth and competition for tenants as an oversupply situation emerges in the office market leading to lower rental yields.

“It is going to be a volatile year ahead with the eurozone uncertainty coupled with low growth in the European and US markets. These markets are very important to growth in Asia and the impact would be felt in all export-led countries. Capital market activity will remain muted worldwide in 2012,” Labrooy told StarBiz.

In Kuala Lumpur, property prices are expected to remain flat for 2012 with some weaknesses in the high-end residential and office markets.

In the office sector, the seven million sq ft of new office space scheduled for completion this year would result in softening in rental and occupancy.

Despite the gloomy outlook, Labrooy said the Malaysian capital markets were expected to remain healthy this year with a significant number of deals – notably the listing of Felda’s assets in the first half of 2012.

“We are fully aware of the issues involved as some of the M-REITs have been through the 2008 global financial crisis and are taking a pro-active stand to retain their tenants through this period and manage their gearing leverage conservatively.

“Most M-REITs have strong tenant covenants and long leases to counter cyclical financial events. They also practise very conservative valuations so we don’t see any downward pressure on them in 2012 and beyond.

In addition, the average gearing of most M-REITs are in the range of 20% to 40%, precluding any event of a default on their loan covenants,” he said.

Labrooy said a silver lining from the uncertainty and volatility of the global markets was that investors and fund managers had started shifting to dividend stocks with strong asset backing and renewed their interest in M-REITs as defensive stocks in uncertain times.

“I believe that we will continue to see a strong subscription in the M-REIT sector this year bearing in mind that the sector performed fairly well to outperform the KLCI in 2011,” he added.

He said the local market still faced liquidity problem as the size of M-REITs was still small by international standards with only five having market capitalisation of over RM1bil. This has contributed to the weak participation among retail investors.

Although the combined market capitalisation of M-REITs has climbed to over RM15bil, its market capitalisation is still way behind that of Singapore which has US$27bil in market capitalisation.

Labrooy, who is also the chief executive officer of Axis REIT Managers Bhd, said the recent listing of Sunway, CapitaMalls Malaysia Trust and Pavilion REITs had improved the liquidity of the domestic market.

Labrooy also said there was an absence of listing of foreign assets as REITs on the local bourse, adding that those who wanted to go for listing had opted to do so in Singapore due to its much higher liquidity and better tax structure. The local regulatory and tax framework must be improved to be on par with Singapore, and a comparable tax code would assist in getting greater retail participation.

On whether there was a scope for other types of REITs to come into the market, Labrooy said: “Malaysia probably has one of the most diversified REIT offerings in Asia. We are currently offering hospitals, plantations, office, retail, education, hospitality, industrial and diversified REITs.

“In addition three are syariah-compliant to cater to the Islamic investors.

“The sectors that will see growth are in industrial, medium cost housing, healthcare, education and tourism. These growth areas are in the Iskandar Malaysia in Johor, Greater Kuala Lumpur and Penang.”

Al-Hadharah Boustead REIT chairman Tan Sri Lodin Wok Kamaruddin concurred that the prospects for the REIT market has not been fully tapped in terms of awareness among potential investors.

He said M-REITs were viewed as a safer investment compared with other REITs in the region. This was due to the domestic-centric focus of their property investments, lower refinancing risks and relatively lower foreign shareholding.

“Malaysia is in a strong position for greater growth and has the potential to lead the REITs market in Asia given its good track record and stable market conditions in Malaysia.

“Generally, potential investors are not well informed about REITs. We believe the level of awareness can be increased nationwide as knowledge plays an important role,” he said.

SOURCE: The Star

Making investments with money you don’t have and with information you should not be privy to is both morally and legally wrong

LAST year, a young entrepreneur turned property investor lost his business outfit. Although his monthly income fluctuated somewhat month-to-month, he was able to get loans from the banks to finance his purchases, which he had incrementally amassed to about 10 over the years.

He was able to have a selection of properties because of the nature of his work which allowed him to source and research the sector and related industries. He was also a quick and adept student of the market and its trends, because like many Malaysians, he was interested in bricks and mortar as an investment instrument. It is uncertain how he will pay for all of them today.

Because of Malaysians’ great love for properties, there is the tendency to buy multiple units, each in succession when the previous purchase is not yet fully paid for. While there is nothing wrong with this strategy – some of us are more comfortable with properties than with other forms of investment instruments – these “assets” can become a financial millstone. Quite a number of Malaysians bought multiple units at one go, sometimes in the same project because they have faith in the developer. Or they buy into the same segment, for example, condominiums.

If one has the means to hold on to these investments over the long term, there may not be an issue. The danger of multiple property purchases – and ownership – comes during a down cycle.

A couple of years ago when the property prices were steadily moving up, Malaysians’ enchantment with the property market resulted in various courses being offered by property experts.

Nearly, if not all of them, were millionaires because of earlier property investments and they were offering courses to teach how one can become rich, like themselves.

However, the scenario then and the scenario today has changed drastically. It may not be possible to use the same strategy they had used. Like any investment, and at any one point in time, there are risks involved. But over and above taking a risk, there is something known as moral hazard. When risks become too high, the action taken by an investor may be hazardous and the probability of failure becomes very high. An action becomes morally hazardous when an investor makes a decision to do something assuming that he has a safety net.

Lately, there was a case where a spouse had bought two luxury condominiums with money that did not belong to him. Because properties at the time enjoyed high returns, he bought multiple units in Malaysia and Singapore. When the case came to light, he stressed that his wife, a public figure, is not involved.

A couple may not be a single entity from the legal standpoint. However, the reality is that the action of one will have a bearing on the other.

This was clearly seen early this week when the chairman of the Swiss National Bank, equivalent to our Bank Negara, resigned. Less than a week ago, he had denied any wrongdoing in a currency scandal that involved his wife.

The Financial Times reported that Philipp Hildebrand’s wife had in September 2011 bought US$500,000 before the Swiss National Bank, headed by her husband, imposed a ceiling on the appreciating Swiss francs to halt its rise. Because Swiss francs was appreciating so quickly, the greenback became “cheap” by comparison. The move by the central bank sent the Swiss francs down sharply. She sold the dollars one month later. She bought the US dollar cheap and sold high.

Hildebrand had earlier rejected calls to resign. When he did, he said: “I came to the conclusion that it’s not possible for me to deliver a definite proof that my wife requested the currency transation without my knowledge.”

His wife said she failed her husband because she had not considered the perception of a “conflict of interest.”

After his resignation, he asked rhetorically: “Can you live a dollar lifestyle, or a partly dollar lifestyle, like ours, and still be a central bank governor?”

That is an interesting question. It is a question of self examination that comes to each of us, at one point or another, sometimes many times over.

SOURCE: The Star

These are seen in the take-up rate for The Binjai on the Park condominium project at the Kuala Lumpur City Centre, which has picked up from 10 per cent in July 2009 to 35 per cent out of its 171 units.

"Compared with the initial launch in August last year that coincided with the onset of the global financial meltdown, the average sale price (of The Binjai) has been reduced from RM2,800 per sq ft to RM2,400 per sq ft for units measuring 3,200-3,700 sq ft, while the smaller units (2,200 sq ft) were released at RM1,700 per sq ft," HwangDBS Vickers said in a report yesterday.

However, the average sale price of The Binjai is set to rise after its take-up rate exceeds 40 per cent. The project is expected to be handed over by December this year.

"This is positive for (property) developers with ready-to-launch products to capitalise on this early recovery," said HwangDBS Vickers, naming DNP Holdings Bhd, Eastern & Oriental Bhd (E&O) and SP Setia Bhd as its top stock picks.

In a separate report dated September 4, HwangDBS Vickers also revealed that the Penang property market is heating up.

"Recent launches were well received with new price benchmarks being set – catching up closely to Kuala Lumpur's," it said.

These included E&O's Seri Tanjung Pinang link houses, SP Setia's Reflections condominiums at Setia Pearl Island and IJM Land Bhd's Light Linear condominiums.

"Developers are also looking to gradually pull-back incentives and raise selling prices. Buyers are mainly locals and Penangnites working outstation or overseas," it added.

HwangDBS Vickers said despite the current financial crisis, land prices in Penang have remained "sticky" and huge contiguous parcels are hard to come by.

"Therefore, developers with large prime landbank will hold an upper hand in riding on the strong demand for Penang properties," it said.

E&O is the largest landowner on Penang Island with a total of 1,123 acres, including reclamation rights to 740-acres Seri Tanjung Pinang Phase 2 and 365 acres at Gertak Sanggul.

SOURCE: Business Times

Vertiq, rising majestically as the tallest development in the prominent Metro East area offers a signature lifestyle like no other. This is an upcoming freehold mixed development by IJM within MetroEast-Unidi, Penang. Located next to Pearl Regency and just a stone throw away from TESCO, an international known hypermarket. Comprises 318 residential units.

Facilities:

• Sky Garden & Lounge
• Basketball Half Court
• Children Playground
• BBQ Area & Tea Garden
• Forest & Indoor Gym
• Jungle Tai Chi & Jogging Track
• Splash Pool, Children Pool, Pool Deck, Mini Water Theme Park, Jacuzzi, Swimming Pool
• Community Hall

Property Project : Vertiq
Location : MetroEast, Gelugor, Penang
Property Type : Condominium
Land Tenure : Freehold
Built-up Area : 1,044 sq.ft. onward
Total Units : 318
Indicative Price: RM540,000 onward
Developer : IJM Land

GEORGE TOWN: Penang-based property developer Belleview Group will unveil new projects with a development value in excess of RM500 million this year in the northern region.

Its managing director, Datuk Sonny Ho, yesterday said besides two launches on Penang island, the company is also set to launch first condominium project in Alor Star, Kedah.

"We are working with the state authorities to try and change Kedah's landscape and introduce condominium living by bringing in projects similar to the ones we have been doing in Penang for three decades," he told reporters after the official opening of the 1st Avenue mall here yesterday.

1st Avenue is a joint-venture project between Asian Retail Mall II Ltd (a pan-Asian fund managed by the Pramerica Real Estate Investors Asia Pte Ltd), Belleview Group and the Lion group.

Ho said the Amansuri Residences project along Jalan Darul Aman in Alor Star will boast two towers, comprising 22 and 24 levels respectively.

"The project will be sited on a 1.21ha of land and will comprise 277 units, with floor areas ranging from 1,200 to 3,000 sq ft and priced at around RM350 per sq ft," he added.

On Penang island, Belleview will launch its RM200 million Moulmein Rise mixed development project in the Pulau Tikus area by the middle of this year.

"We will offer, among others, commercial, small-office, home-office type units, along with upmarket condominiums in a 27-storey block close to the Pulau Tikus market," Ho said.

Also to be launched are eight bungalow units along Jalan Utama (also known as Western Road). The "W Residence" project, which carries a gross development value of between RM70 million and RM80 million, is expected to be completed by the middle of 2014.

Meanwhile, Pramerica Real Estate Investors Asia chief executive officer Victoria Shigera Sharpe said despite continued chaos in the global economic environment, the year 2011 was a very successful year for Pramerica in the Asia-Pacific region.

The S$3 billion (RM7.3 billion) fund, which is managed by the Singapore-based company, last year consolidated its popular closed-end Asian Retail Mall funds into a private open-end property fund for institutional investors looking to take advantage of opportunities in Asia's growing retail sector.

"What this new fund structure means for our investors, Pramerica and Malaysia is quite significant as the conversion allows us to maintain a more long-term position in the Singapore and Malaysian markets, where we do not have exit assets because of structural reasons, namely the term of our investment funds coming to an end," Sharpe said.

SOURCE: Business Times