CIMB Investment Bank Bhd research head Terence Wong said this is likely to happen over time.

"This could be continuing but not in a short time. It could happen once in a year," he said.

Investing in the property market in Penang is still a solid option.

"This is because property prices in Penang are firm and almost on par with what is being offered in the Klang Valley currently," he said.

On August 29, conglomerate Sime Darby Bhd said it was buying 30 per cent of Eastern & Oriental Bhd (E&O) for RM766 million to expand its portfolio in property development and hospitality, beyond Greater Kuala Lumpur.

Having a stake in E&O will immediately give Sime Darby access to present and future property projects in Penang.

Analysts have also said that it is cheaper to gain control of a listed company with landbank in Penang than buy large chunks of land in the island.

Three Klang-Valley based developers have already ventured into Penang and launched several properties.

IJM Land Bhd has launched it RM422 million The Light Collection I & II while SP Setia Bhd has introduced its RM60 million Brooks Residences, RM230 million Reflections condominium and semi-detached schemes for its Setia Pearl Island project.

Mah Sing has launched its the first phase of its Legenda@Southbay, for RM71 million.

SOURCE: Business Times

MORE than three years ago, my wife and I missed a chance to own our dream double-storey terrace house in Bangi. The price was about RM230,000 or RM217,000 after a 7 per cent rebate for Bumiputeras.

That house was under the first phase of a new township, whose units were snapped up within hours. A few months later, the second phase was launched, and the units under it, with slight upgrades from the previous phase, started from well over RM300,000 and were literally sold out too within hours.

I don't know exactly how the price for a more or less similar product had risen dramatically within a short span. My guts told me that it was due to a combination of the developer's reputation and quality and great demand for new houses in Bangi. Or perhaps, it's because of expectations (read speculation)?

Some observers said property rides on expectations. If people expect prices to go up in a foreseeable future, many may find out that properties will forever be out of their reach. Indeed, property prices in Malaysia have never eased during the past few years. As it stands today, the affordability ratio has gone through the roof.

A survey done by a publication on housing affordability saw property prices increasing from 5.9x income in 1989 to 10.9x in 2010. Left unchecked, it will soon climb to 15x your annual income.

It is also reported that the household debt-to-GDP (gross domestic product) ratio in the country has reached nearly 76 per cent, which is on the high side compared with our counterparts in Southeast Asia.

Hence, a proposal by Bank Negara Malaysia to change the way mortgages are calculated is excellent. It will greatly reduce the amount the public can borrow. The computation is supposed to be based on net income, and not gross income. That could reduce the amount that can be borrowed between 14 per cent and 37 per cent, according to a research house.

Certain parties can sigh and whine, but such proposal is a belated move to curb rising household debt. Yes, there could be an impact on the demand for affordable properties priced between RM100,000 and RM300,000. Yes, there could be slower take-up rate from the low- and middle-income segments that will result in the long run, slower delivery of affordable housing projects. And yes, ordinary wage earners could be affected more than the high-income segment.

But any good move to nip the household debt in the bud should be lauded. In other words, any good move to cool down soaring housing prices (and credit card loans) must be supported.

SOURCE: Business Times

So far this year, the number of deals involving malls or retail assets has reached a record and there is a possibility that more could be announced this year, industry experts say.

At least nine deals valued at over RM2 billion have been reported in the first nine months of the year, stretching from the northern state of Penang to Johor in the south and from the west of Klang Valley to the eastern state of Pahang.

Improved consumer spending and liberalisation of the market has helped spur interest in retail assets.

As the global economic recovery continues to be shaky, Malaysia has turned to domestic demand to boost its economy, chief economist at Bank Islam Azrul Azwar Ahmad Tajudin said.

“Malaysian consumers have proven to be rather resilient even during times of crisis. During the 2009 recession, the economy contracted by 1.7 per cent but private consumption was still in positive territory,” he added.

In year 2000, private consumption or consumer spending accounted for 43.8 per cent of the gross domestic product (GDP) while in 2010 the number surged to 53.3 per cent of GDP.

Azrul reckons private consumption will grow further to 54 per cent in 2011 and 54.6 per cent in 2012.

Malaysia Retailers Association has projected retail sales to grow 6 per cent this year, probably faster than the broader economic expansion seen at 5-6 per cent.

CB Richard Ellis (CBRE) Malaysia’s managing director Allan Soo expects a few more deals this year.

“REITs (real estate investment trusts) tend to look for both yield accretion and steady income streams. Retail assets here have a great accretion opportunity at the moment.

“Passing yields at acquisitions are mostly at 7 per cent but for trophy assets this may be pressured down to below 6 per cent. The pressure on yields results in higher valuations, so on a per sq ft basis, malls are now seeing better valuation than about five years ago,” Soo said.

At the same time, higher valuations have triggered previously less willing owners to part with their assets.

Another major factor was Malaysia’s decision to scrap a rule that required foreign investors to have a 30 per cent Bumiputera partner.

In addition, the Securities Commission’s endorsement of REITs as an investment alternative have also helped.

In January this year, CapitaMalls Malaysia Trusts (CMMT) said it would be buying The Gurney Plaza extension in Penang for RM215 million and in June it announced that it would be buying East Coast Mall for RM310 million.

In May, ARA Asia Dragon Fund won the bid for three shopping complexes – Klang Parade in Selangor, Ipoh Parade in Perak and Seremban Parade in Negri Sembilan. It paid some RM450 million to TMW Asia Property Fund, which had bought the malls for RM340 million in 2005.

Meanwhile, Adzman Shah Mohd Ariffin, founder of Hektar Property Services Sdn Bhd agreed that for some owners, a sale is actually part of their exit strategy to cash out.

“At the same time, foreign purchasers have found that the land/ownership law is more straightforward and properties in Malaysia are still cheaper than in other countries although at lower returns at times,” he said.

This week, we also received news that Bandar Raya Developments Bhd (BRDB)’s major shareholder Ambang Sehati Sdn Bhd, controlled by its chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, had offered to buy three retail assets belonging to BRDB.

The properties are The Bangsar Shopping Centre (BSC), CapSquare Retail Centre in Kuala Lumpur, and Permas Jusco Mall in Johor.

BRDB is believed to have received many offers for its trophy asset – BSC.

SOURCE: Business Times

KUALA LUMPUR: Sime Darby Bhd's planned purchase of a 30 per cent stake in Eastern & Oriental Bhd (E&O) last week will revive its flagging property business and also give it exposure to the Penang and Johor markets, analysts said.

For JP Morgan, the deal signals a more aggressive strategy from management to improve the property division.

"Sime's property division has generally been viewed as lacking push or not as aggressive as the purer developers.

"As it is, in the recently announced 2011 results, the property division was the underperformer with a 7 per cent year-on-year contraction in profits due to delays in obtaining approval for launches," it said in a research report.

Deutsche Bank AG said Sime is not present in the Penang property market currently and the deal would allow collaboration to enhance its property business in the long run.

Analyst Eltricia Foong said property development is estimated to account for 7 per cent of Sime Darby's 2012 operating profit.

"We reiterate our hold recommendation on Sime shares with a target price of RM9.30," the analyst said, adding that funding should not be a worry given its solid balance sheet and its recent RM690 million fabrication yard sale.

Sime Darby has proposed to buy the 30 per cent stake last week for RM766 million.

In Johor, E&O has a joint venture with Khazanah Nasional Bhd and Singapore's Temasek to develop a 84ha wellness township.

SOURCE: Business Times

There has been some trepidation over just what Bank Negara has up its sleeve in trying to tackle rising household indebtedness in the country.

Indications given previously were that new guidelines to address the issue of affordable borrowing and responsible lending would be out this quarter.

The reason for this has been the rise in consumer or household debt and the latest statistics show that much of that continues to be in the area of housing loans.

Mortgages continue to rise and the latest numbers indicate borrowing by people to buy a house has not slowed down at all despite regulation introduced late last year to limit the amount of money banks can lend to people buying a third home onwards.

Over the past couple of months, a white paper has been sent to banks to study how mortgages could be given based on just how much people could afford after making the deductions for their necessary household expenses and taxes instead of the gross salary they pull in each month.

Obviously, property players are resisting the introduction of such a measure. The impact is that people will be perceived as having less money to pay for their new mortgages should the rules of the game surrounding property loans change.

People still have a choice should those new rules come into force. Homes prices were up 12.2% last year in Kuala Lumpur and 11.4% in the first quarter in the capital, but reasonably priced homes could still be found in the secondary market. Just don’t expect to find one in the hot segments of the market though.

The hard fact, however, is that introducing a debt service ratio calculation in assessing loan amount eligibility is the right thing to do for the long-term sustainability of the household segment.

As of 2010, the debt service ratio for every ringgit earned by households is 47.8 sen. That would include debt taken by the household sector which includes property loans and car loans.

People have other obligations such as taxes, deductions for employees provident fund and daily living expense cost, which are increasing as inflation works its way through the economy.

As more Malaysians watch satellite TV, have mobile phones and subscribe to broadband, those expenses would appear to be the new norm rather than a luxury for most middle incomes and even households just below that bracket.

Should loans be given based on gross loans, and do not take into account the more realistic cost based on affordability, then the current boom in household credit and the property market will become a problem at a later stage.

Household debt is 76% and looks like it will rise and will emerge as a major problem should the economy turn for the worse, unemployment jumps up, interest rates rise, or should living costs keep on escalating.

Preparing for all eventualities should be the prerogative of not only households but policy-makers too, and being cautious when the numbers suggest the limits of just how much more debt the household sector can absorb should be something that should be tackled when times are still good.

SOURCE: The Star