2016 is said to be a gloomy year for the property market: Is there light at the end of the tunnel?

Article by Kaygarn Tan

Wishing you a happy new year 2016! How is your propery investment journey coming along? My wish for you is for your portfolio to grow year on year. As usual, at beginning of the year, my friends and fellow investors will come and ask me about my thoughts on the property outlook for this year? And their question is “Should I buy or should I sell?”

The year 2015 was a challenging year with the implementation of GST, gloomy economic outlook and political instability. Now, let’s crunch the numbers and statistics and ask the next big question – what is the property market outlook for 2016, particularly in Penang?

In overall, Penang’s performance was fair as compared to the other major property market i.e. Klang Valley and Johor Bahru according to Property Indicator by WTW Research (Figure 1). The Penang’s residential property prices is still on the uptrend while the residential property prices in Klang Valley and Johor Bahru remain flat. Point to note is that the declining prices for high rise residential in Johor Bahru is due to the over supply in the Iskandar region. 

Figure 1: Property Indicator

Now let’s focus on the performance of residential properties in Penang. Due to the various cooling measures implemented, challenging economic outlook and weakening sentiment, the Penang property market is not spared. This is demonstrated by the consecutive quarter-on-quarter decline in the residential property transactions since 2013 (Figure 2).

 

 Figure 2: Average transacted price vs volume

It was observed that the property transaction volume declined from Q3 2014 to Q3 2015 especially on the Penang Island. However, on the contrary, the value of properties have some how maintained or increase marginally, which means that the property prices on the island is still on the uptrend.

Adding to the current property market woes is the tight credit control environment. This has resulted in a high loan rejection rates from the bank, which forced many home buyers and investors at bay. According to a Savills Research (Figure 3), approximately 50% of loan application is rejected since year 2010.

 

Figure 3: Residential loan applications and loan approved

Moving forward in 2016, the market sentiments will be no different from 2015. As long as the cooling measures remains and economic outlook is less than promising, the residential market will remain sluggish. And distressed.

As a property investor, how do we strategize for the year 2016? Notwithstanding the above, is the property market going to rebound and pick up again by 2016? Or even 3 years later by 2019?

For me, now is the good time to buy. Why?

In the current distressed market, there is opportunities to grab good deals. As a smart investor, look for bargains and below market value (BMV) properties now in the market. Individuals I am currently coaching found properties that is 20% – 30% lower than the market value. Essentially, these group of people will make money when they buy.

The market condition we are experiencing now is almost similar to that is the year 2008-2009 sub-prime crisis where the market is quiet and opportunities abound. Even property developers are more willing to offer better packages. I was reminded of the quote by Warren Buffet “Be greedy when others are fearful and be fearful when they are greedy”. But then, something is stopping you. What? Do you fear the uncertainty?

Then, what better way to counter that than to learn more and research more. Learn and research about the property market, do the math on the rental return and bang! You are ready to take on your next property.

I’m now a better investor than I was four years ago, all because I was ready to unlearn and relearn. I re-learned the fundamentals of property investment and used the no money down strategy.

I will be sharing about my property investment journey and the 5, 2, 1 of property investment on the 23 Jan, 2016. At the end of the talk, you will take home with you your personal Property Investment Roadmap. If you would like to meet me in person and take home your Roadmap, book your seat here. 

I look forward to seeing you. 

Kaygarn

 

 

Share and Enjoy

Pinterest

LRT and highway lines for transport master plan approved

The Penang executive council today gave the green light to Penang Transport Master Plan (PTMP) project delivery partner SRS Consortium Sdn Bhd for the railway and highway schemes that include a rail line from Komtar to the airport and the Pan Island Link.

 

SRS tabled the plans to the state exco this morning.

The railway scheme covers both the island and mainland, with one LRT and two monorail lines on the island, one LRT line across the sea linking both sides of Penang, and a bus rapid transit (BRT) system.

Local government exco member Chow Kon Yeow said the priority for the railway scheme will be the light rail transit (LRT) line linking Komtar in the city centre of George Town and the Penang International Airport in Bayan Lepas.

This project, he said, would be Phase One of the railway scheme and treated as a priority project.

“With the green light given by the state, SRS will proceed to propose the railway scheme to SPAD (Land Public Transport Commission), which is the authority in charge of rail transport.

“SRS will consult with SPAD for its guidance and advice concerning the proposal to build a railway system in Penang,” he told a press conference in Komtar today.

He said the state has also approved the highway scheme proposed by the consortium.

The priority highway project, he said, is the Pan Island Link, which connects Gurney Drive and Bayan Lepas.

“The alignment was also presented to the exco today. The next step by SRS is to conduct the DEIA (detailed environmental impact assessment) for this proposed project,” he said.

Project manager Szeto Wei Loong from SRS said the next stage after securing the state’s approval is to engage the public and inform them of the alignments of the projects.

“We are going to do a preliminary detailed design for the Phase One LRT line, which will be submit to SPAD for the railway scheme approval.

“A condition for approval is giving SPAD the overall masterplan for the railway network, which the state has approved this morning.

“We will liaise with SPAD regarding this masterplan submission, and this will take another six months. Once ready, it will be up for public display.

“At the same time, we will also be submitting the DEIA for the LRT line. We hope by the third quarter of next year all the railway scheme will be approved,” he said.

For the Pan Island Link, Szeto said SRS will submit the DEIA, which will take another six months for studies to be conducted and completed, to the Department of Environment for approval.

Chief Minister Lim Guan Eng said the state have not approved any land reclamation yet or other components of the PTMP, such as water taxis and cable cars.

SRS has proposed to reclaim two or three islands in the south of Penang island to finance the RM27 billion masterplan.

The manmade islands would be auctioned off to pay for the transport projects in the masterplan, if all federal approvals are obtained.

Source: The Edge

Share and Enjoy

Pinterest

Rising, falling, rising? Market observations for the first half of 2015

PENANG RESIDENTIAL PROPERTY MARKET

In Penang, the residential property market contracted by almost half since the hitting its peak in 2011. The market recorded a total of 9,667 transactions in 4Q2011, its highest in four years, before seeing a drastic drop of about 48.47% in 1Q2012, to just 4,981 transactions. The corresponding value of transactions dropped to RM1.5 billion in 1Q2012, from RM2.27 billion in 4Q2011.

The market saw fluctuations in 2012. In 2Q2012, the number of transactions increased by about 38.68% to 6,908 valued at RM1.92 billion before dropping slightly to 6,398 in 3Q2012. The market plunged again in 4Q2012 by 22.17%, to 4,979 transactions.

The market continued to contract in 1Q2013, when the number of transactions dropped slightly to 4,193 (worth RM1.55 billion) but remained stable with slight increases throughout the next three quarters of the year, bringing the total transactions to 17,700 units (RM7.1 billion).

In 2014, the pattern of transactions was interesting. It dropped slightly by about 8.66% to 4,291 transactions in 1Q2014 from 4,598 transactions in 4Q2013, before increasing by about 10.27% to 4,732 in 2Q2014, valued at RM1.89 billion. By 3Q2014, the number of transactions had dropped to 4,194 (RM1.75 billion), before surging 23.82% to 5,193 transactions (RM2.06 billion) in 4Q2014.

By 1Q2015, the market had plunged again by about 26.17% to 3,834 transactions (RM1.55 billion) compared with 4Q2014. A year-on-year (y-o-y) comparison with 1Q2014 also saw a market contraction of about 10.65%.

In 2Q2015, the market improved slightly on the previous quarter, to 3,909 transactions (RM1.59 billion). However, in a y-o-y comparison with 2Q2014, the market contracted by 17.39% or 823 transactions.

Geh believes the market contraction in Penang could also be due to strict loan approval criteria and fewer loan approvals.

He adds that the long delay in the issuance of the advertising permit and developers licence (APDL) had also taken a toll on the Penang residential property market.

“I believe the demand for projects in the pipeline in Penang is good but the sales process cannot commence due to the delay in the APDL,” he says.

Developers must obtain the APDL from the Housing Ministry before the sale process and the signing of the sales and purchase agreement for any development project.

The issuance of the APDL in Penang for many projects by local developers has been delayed for more than a year.

MALAYSIA: OVERALL RESIDENTIAL PROPERTY MARKET

There was an overall contraction of the Malaysian residential property market in the first half of this year (1Q2015) compared with 1Q2014, according to figures released by the National Property Information Centre (Napic).

The first half of 2014 (1H2014) recorded a total 122,830 transactions in the market worth a total RM40.31 billion. In comparison, 1H2015 recorded 119,599 transactions with a value of RM37.97 billion, or a 2.63% contraction.

If we look at the quarterly comparison, the 1Q2015 saw a slight increase of about 1.46% to 59,626 transactions (RM18.74 billion), from 58,767 transactions (RM19.39 billion) in 1Q2014 .

By 2Q2015, there is a noticeable contraction of 6.38% to 59,973 transactions, from 64,063 transactions in 2Q2014. Over the years, it is normal for the number of transactions to increase from the first to the second quarter, as seen in 2014 (from 58,767 to 64,063, worth RM20.92 billion).

Looking at transaction history, the first quarter of every year usually sees a slight drop before the transactions spike in the second quarter. The residential property market in Malaysia hit its peak in 2Q2011, when transactions spiked to a high of 73,710 (RM16.68 billion) from 60,333 (RM13.52 billion) previously. Similarly, 1Q2012 saw a total of 64,402 transactions (RM15.13 billion), which spiked in 2Q2012 to 71,595 transactions (RM17.48 billion).

After the market hit its peak period between 2011 and 2012, it began to drop in 2013 and reached a four-year, all-time low in 1Q2014. The market picked up in 2Q2014 and 3Q2014 by recording 64,063 transactions (worth RM20.92 billion) and 63,661 transactions (RM21.66 billion), respectively.

By 4Q2014, the market had again dropped, to 60,760 transactions (RM20.09 billion) and continued to drop in 1Q2015 before increasing slightly in 2Q2015.

In summary, the overall residential property market in Malaysia in the last four years up to the first half of this year saw the market spiking in 2011 and 2012 before it contracted in 2013. While picking up slightly in 2014, it again showed a contraction in the first half of this year.

Raine & Horne International Zaki + Partners Sdn Bhd senior partner, Michael Geh, attributes the overall contraction in the market to strict loan requirements.

“The low loan approvals due to stricter loan requirements has taken a toll on the property market,” he says.

Source: The Edge Property

 

Share and Enjoy

Pinterest

Investing in buy-to-lease property schemes

MANY of us have seen advertisements or heard about “buy-to-lease” property schemes especially, serviced apartments that are used as hotel accommodation. They sound really good as they allow property investors to gain returns without the hassle of managing the property.

Under such a scheme, owners who purchase a property have to lease the unit back to the property developer or property management company. In exchange, they will get rental returns either based on a guaranteed return model or a profit-sharing scheme, for a set period of time, explains property consultancy PPC International chief executive officer Siva Shanker.

He adds that buy-to-lease properties are not only limited to hotels, serviced apartments and resort homes, as they can be a normal residential property such as a house and condominium, or even student accommodation, office space and industrial property.

In countries such as the UK, investors have numerous choices from hotel rooms, apartments to purpose-built student accommodation where the whole building consists of studio suites that come with kitchenettes.

“However, in Malaysia, the choices are limited as there are not many investment-grade properties available,” says Siva.

According to Siva, buy-to-lease property investments have gained investors’ attention in recent years as most of these schemes promise very attractive rental returns. The average rental return offered is about 5% to 7%, some even up to 12%.

“But keep in mind, like owning a property, owners still have to pay maintenance charges and towards the sinking fund,” he reminds.

One of the recent property projects offering guaranteed rental returns is PTS Properties Sdn Bhd’s luxury condominium hotel The Pines Melaka with leaseback returns of 7.5% per annum for the first nine years and 9% for the following six years. Others include Shama Medini by United Malayan Land Bhd (UMLand), The Ruma by Ireka Corp Bhd and Angsana Teluk Bahang by Banyan Tree Group.

UMLand will launch its buy-to-lease Shama Medini serviced apartments located in Iskandar Malaysia, Johor by the end of this year. Shama Medini offers 196 units of fully furnished apartments for investors. The units with built-ups ranging from 583 to 2,015 sq ft, are available in four layouts — studio, 1-bedroom, 2-bedroom and 3-bedroom. The average selling price is RM1,300 psf.

The owners of Shama Medini will enjoy 6% guaranteed rental returns for the first five years of the leaseback scheme. The next five years will be a revenue-sharing model, in which 45% of the rental revenue will be shared by the owners.

Ireka Corp launched The Ruma hotel and serviced residences in Kuala Lumpur in 2013. The one-acre development, which is located at the Jalan Kia Peng-Changkat Kia Peng junction in Kuala Lumpur, has a gross development value of RM635 million. It offered 253 units of hotel suites for leaseback investment.

The Angsana Teluk Bahang, which is located in Penang, is developed by Senja Aman Development Sdn Bhd and is the first beach resort in Malaysia managed by the Banyan Tree group. It offered 83 units of serviced apartments for leaseback investment. Currently, there are fewer than 10 units available.

Main considerations

Zerin Properties chief executive officer Previndran Singhe says there are three main considerations before deciding on a buy-to-lease investment: yield, benefits (free stay, for example); and discounts on hotel or apartment rentals.

He explains that some operators give time-sharing benefits — certain days for free stays in their property. The stays could be under the same hotel brand, while others may extend the benefits to other brands under their umbrella.

For instance, “at Shama Medini serviced apartments, which will be managed and operated by the ONYX Hospitality Group, investors can enjoy 14 days free stay. They can choose to stay in Shama Medini for seven days, or OZO and Amari hotels, which are under ONYX’s umbrella, for up to seven days,” says Previndran.

Another important point for investors to note is, although you own the property, you can’t occupy it, because once the property is leased back, the owner will not have a say over the property.

“Even if some operators offer you free stays, these are subject to availability, if your unit has been rented out, you may end up staying in another unit,” Previndran explains.

‘Scrutinise contracts closely’

Buy-to-lease schemes are not new to Malaysia, however, there are some things investors need to be aware of.

According to Carey Real Estate Sdn Bhd managing director Nixon Paul, the returns on investment attracted many in the early days, especially for projects located in prime locations catering to the expatriate community.

There were some good quality properties offering buy-to-lease schemes that were worth investing in, but as more investment schemes were introduced, not every one of them honoured their guarantees and many investors became apprehensive about these investments.

“Usually, young and new investors tend to subscribe to these type of property investments. The older and more savvy investors will stay away from guaranteed returns,” says Paul.

For investors who are interested in investing in a property offering guaranteed returns, the first thing to do would be to scrutinise the contracts closely. “Check on who is providing the guarantees and if there are escape clauses,” advises Paul.

Investors also need to check on the financial strength of the developer offering the guarantees. “Further to that, one would need to know if there is legal recourse if the rental payments due are not forthcoming,” he adds.

There are also some companies offering a profit-sharing business model instead of guaranteed rental return. Paul says investors may need to find out whether they possess a licence to do so.

“In Malaysia, profit-sharing on rental income with the developer or an investment company is illegal unless they have a licence from Bank Negara Malaysia to sell these type of investments,” he explains.

Overseas properties

More due diligence would be required if the property investment is located overseas. On the checklist would be details regarding income tax, property management fees, commissions, repair and replacement costs, forex gains/losses and several other costs.

“When it comes to investing in a foreign property, it is best to visit the property and conduct a proper due diligence before making your decision,” he explains.

There are other issues related to valuations and property financing which can be a tedious and difficult experience. For instance, a developer overseas may promise to secure financing for the investor, but this may only be done when the property is nearing completion.

“At the time of completion, if the valuation on the property is unable to meet the price that it was purchased for. It means that the investor have to fork out more money for their investment,” he explains.

Hence, there are many things one needs to be aware of before jumping into an investment.

Source: The Edge Property

Share and Enjoy

Pinterest

Unsold property units on the rise in Malaysia

The number of unsold property units in Malaysia have increased due to unreleased Bumiputera lots and loan rejections, says the Real Estate and Housing Developers Association (Rehda).

The percentage increased by 14% in the first half of 2015 ended June 30, 2015 from the preceding half ended Dec 31, 2014, according to Rehda’s survey. Most of the units which were unsold were in Kedah, Penang, Selangor and Johor.

Also the Rehda Property Industry Survey for the first half of 2015, the number of unsold units rose to 78% from 64% in six months before and 57% in the first half ended June 30, 2014.

“Unreleased Bumiputera lots and loan rejections by banks are the top reasons for the unsold units,” said Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor during a press conference on Friday.

He said the percentage of potential property buyers who had failed to secure loans had increased from 29% in the second quarter of last year to 35% during the first half this year.

Most of the loans rejected, he said, were those involving residential property priced between RM250,001 and RM500,000 and between RM700,001 to RM1mil.

Respondents of the survey were 125 property developers, who are Rehda members.

He said respondents of the survey indicated that the Goods and Services Tax (GST) had increased the overall cost of doing business, as well as pushed up property prices.

He said 80% of the respondents cited a cost increase of between 3% and 5% while 67% of the respondents indicated between 3% and 5% hike in house prices due to GST.

Respondents of the survey were pessimistic about the outlook for the property market in 2H 2015, but pessimism was expected to reduce in the following six months, he said.

Source: The Star

Share and Enjoy

Pinterest

Answer My Question

CLOSE

Your question has been sent!

Please fill out the form below.

Name *
Email *
URL (include http://)
Subject *
Question *
* Required Field