Investors divided on timing of purchase

Monday July 14, 2008

By Angie Ng and Eugene Mahalingam

WITH inflation expected to have surged to 6% in June from 3.8% in May and looming recession, investors are unsure whether to enter the property market.

S.K. Brothers Realty (M) Sdn Bhd chief executive officer Charlie Chan said political concerns, high cost of living and rising inflation were affecting the real estate sector.

“Investors and purchasers are divided over what is the right thing to do. Some people believe that the time is right to buy for fear that prices will escalate further while some feel that now is the right time to sell,” he said.

Chan said while there were still a lot of uncertainties, he was optimistic that property in the RM150,000 to RM400,000 bracket would still experience brisk sales.

“Transactions within the Kuala Lumpur city centre should remain steady and relatively unaffected,” he said, adding that due to the fuel price hike, people were more likely to buy property that was either within or close to the city.

“We see an increase in demand for property closest to the city as transportation cost has become an issue after the oil price increase and more people will be looking to live closer to their workplace,” he said.

Workers pour concrete at a construction site in Kuala Lumpur. Some experts believe property prices are determined by demand and not by raw material prices – Reuters

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz had said last week that she expected inflation to hit 6% in June following the increases in fuel prices and that domestic inflation was expected to rise until early next year.

She had said the inflationary pressure was also following the increase in electricity tariffs from July 1, with tariffs up to 18% for households and an average of 26% for some commercial and industry users.

DTZ Nawawi Tie Leung Sdn Bhd investment executive director Brian Koh believes sentiment towards the property sector is generally negative and properties costing below RM250,000 would be most affected.

He said those planning to buy houses below RM250,000 might hesitate as their household income had shrunk due to high food and fuel prices.

Reapfield Properties Sdn Bhd president David Ong did not foresee a drastic fall in property transactions, as there would always be some people who would still buy while others might remain cautious.

“Property is one of the best investments in time of inflation. Any time is a good time to buy,” he said.

According to Ong, the high cost of living would impact property within the low-end and medium-end range.

However, sales of high-end properties should continue to remain stable as the wealthier investors were unaffected by the high cost of living, especially with the recent fuel price hike.

Ong said there were also “pros and cons” on purchasing residential properties within the city as it might help to minimise transportation cost but properties in such locations were also too expensive for the average city worker.

On property prices, PPC International Sdn Bhd executive director Thiruselvam Arumugam said they were determined by demand and not by raw material prices.

“Transactions are slowing down because of the cautious approach by investors and buyers. Developers can increase the property prices but the demand will just not be there.

“This will result in an overhang and eventually, prices will have to come down,” he said.

On the market outlook, Thiruselvam said the industrial and manufacturing sectors would be most affected whereas the commercial and residential sectors were still in good demand despite the current situation.

Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng said as a result of weaker market conditions, the take-up rate for homes could drop in 2008 as buyers took a more cautious stance.

“Confidence in the economic climate is vital for a buoyant property market. People will buy property if they see that there is room for capital appreciation,” he said, adding that investors and purchasers were more likely to invest in established locations where demand was strong.

“Popular and prime locations like Bangsar, Damansara Heights, Mont Kiara, Bandar Utama and Mutiara Damansara will continue to receive strong interests as investors can still enjoy decent yields while waiting for the market to improve.”

Opportunities in high-end segment

Monday July 14, 2008

By ANGIE NG and EUGENE MAHALINGAM

ALTHOUGH the increase in the price of petrol and escalating cost of living has affected sentiment in the property market, especially for the lower to medium-priced property, there are still pockets of opportunities to be tapped.

Developers said housing products priced at less than RM300,000 a unit now take more than nine months to be fully taken up while those priced between RM300,000 and RM800,000 take about six months to a year.

However, demand for houses priced at more than RM1mil remains good and these high-end units usually take only a week to be fully taken up.

According to Glomac Bhd group managing director Datuk F.D. Iskandar, since the 30% rise in construction cost and 40% fuel hike in the past six months, developers of medium-range residential properties priced between RM250,000 and RM300,000 were the worst hit.

“This is because 60% to 70% of the country's population belong to the middle class. Potential buyers have turned cautious since the rising inflation and they have changed their priorities to lower their financial commitments.

“With interest rates expected to start rising in the coming months to curb rising inflationary pressure, market sentiment is expected to soften further for the lower-to-medium property sector.”

Mass townships such as Setia Alam that are equipped with all the elements for healthy living, learning, work and play will become more sought

On sustaining interest for properties in the Kuala Lumpur City Centre (KLCC) area, Iskandar said given the competitive pricing of residences around the KLCC compared with other global cities, investors saw good upside potential for these properties and the response had been good.

Concurring with Iskandar, SP Setia Bhd group managing director Tan Sri Liew Kee Sin said higher-end property buyers were more resilient and recession-proof.

“While buyers in the medium-range market comprised mainly end users now, high-end investors are driven by the opportunity to invest in property as a hedge against rising inflation.

“Those who are serious investors always have an eye for premium properties at attractive entry price to enjoy good capital appreciation potential or rental yields,” Liew said.

He foresees that the fuel price hike would result in more pronounced demand for properties in areas that provide integrated amenities in a single location.

“Mass townships such as Setia Alam that are equipped with all the elements for healthy living, learning, work and play will become more sought-after, as residents and businesses find it more cost-effective to move into well-connected suburban townships with main highway arteries,” Liew said.

Mah Sing Group Bhd president Datuk Sri Leong Hoy Kum said developers should look into offering good value products to help ease the people’s burden.

To suit the needs of the current times, Mah Sing is redesigning its property offerings which has given rise to new trendy design elements such as the use of windows extension to promote cross ventilation and lower electricity consumption.

Leong said innovative and cost efficient designs that embrace practicality and sustainability were important considerations for house buyers these days. “Ecologically friendly and passive, low energy designs will make their way into homes,” he added.

Sunway City Bhd managing director Ngian Siew Siong said the property market was getting more competitive and newer properties with facilities that promote quality lifestyle, well-designed and sustainable products, as well as safe environment would be much sought after.

“By offering value innovation in our product offerings and consistent delivery of quality products and services, we aim to set new benchmarks in new growth markets,” Ngian said.

Gamuda Land Sdn Bhd managing director Chow Chee Wah said the company also placed much importance on sustainable living environment in its developments.

These include providing efficient road network systems with dedicated interchanges, reliable traffic management systems, modern facilities and commercial centres.

Strategies to survive the property slowdown

Monday July 14, 2008

By ANGIE NG and EUGENE MAHALINGAM

MOUNTING inflationary pressures following the sharp rise in the price of construction materials, oil and food are creating much anxiety among the property and construction industry fraternity.

To mitigate the adverse impact of the rising cost and softening market sentiment, developers are resorting to more ingenuous strategies and measures to ride out the tough times.

The threat of stagflation – high inflation without demand growth – is also looming and developers are faced with rising costs and slower take-up of their property products.

The big jump in the price of key construction materials, especially steel and cement by between 30% and 40% in the last six months, has resulted in slower progress of work on site.

It looks like the high cost environment will be here to stay for a while unless global demand and speculative activities for some of the key commodities such as oil and steel slow down.

A filepic shows the crowd at a property fair in Penang. The high cost environment will be here to stay for a while unless global demand and speculative activities for some of the key commodities such as oil and steel slow down

According to SP Setia Bhd group managing director and chief executive officer Tan Sri Liew Kee Sin, the company has incorporated cost escalation clauses into fixed-price contracts for a few key construction materials (steel and cement) to alleviate cost pressures on contractors while avoiding over-pricing of overall contracts.

“We will also take advantage of our strong financial position to offer to purchase construction materials on behalf of our subcontractors to enable works to progress expeditiously on site.

“By doing bulk material purchase, we can enjoy the economies of scale and command better bargaining power with suppliers,” Liew told StarBiz.

Concurring with Liew, Sunway City Bhd managing director Ngian Siew Siong said: “To lessen the impact and to help contractors contain costs, we encourage them to buy materials in advance and have enough materials in stock so that there is a lesser impact on rising costs.

“We also leverage on our financial capability and pay our contractors in advance to buy their materials. In the long run, we want to ensure that all parties are affected as little as possible.”

Mah Sing Group Bhd president and group chief executive Datuk Sri Leong Hoy Kum said competitive funding costs and good payment terms for land acquisitions have helped the company to keep costs in check.

“We have set up a specialized material sourcing team which works together with suppliers and contractors to ensure the best pricing and bulk purchase discounts,” he added.

SP Setia's Liew said the company has restructured and streamlined its operations to strive for higher cost efficiency and productivity improvements.

“We are also expediting the provision of key infrastructure and amenities in the company's various townships and improve our product offerings to achieve greater value creation for customers.

“This will facilitate justifiable price increases to be passed on to purchasers,” Liew said.

Workers pour concrete at a construction site in Kuala Lumpur. Some experts believe property prices are determined by demand and not by raw material prices – Reuters

Meanwhile, Glomac Bhd group managing director Datuk F.D. Iskandar has called for more proactive measures to address the country's high prices of construction materials and attract greater interest in real estate.

He said tax discrepancy between the import and export of steel has contributed to the high price of steel in the country. In the last six months, the price of steel bars jumped 45% to RM3,000 per tonne.

“While imported steel products are subjected to a 20% tax, steel products bound for the export market are not taxable.

“Political will and more concerted efforts are necessary to address the steel issue. More priority should be placed on local needs. It will certainly help if both import and export of steel are subjected to the same quantum of tax rates,” Iskandar said.

On measures to promote greater demand for the country's real estate, he said concerted efforts to attract more multinational corporations to set up regional offices in the country would create demand for a broad section of properties, including office space and residences.

“Malaysia My Second Home (MM2H) programme has great potential to attract high net worth and other potential foreigners to invest in the property market.

“However, to reap its full potential, the programme has to come under the purview of the Prime Minister's Department and get full co-operation from all the other agencies,” he said.

Another area that offers great potential is turning Malaysia into a reputable Islamic financial hub to attract the huge reserve of “oil money” from big institutions and investors in the Middle East.

“There is growing competition for these investments from other neighbouring countries and Malaysia should leverage on its position as a model Islamic country to attract more such funds,” he said.

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Cost crunch: Property and construction players are maintaining vigil over soaring costs.
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