Kaygarn Tan No Comments

Early signs of recovery for property market in 2019

Despite the market slowdown in 2018 for the property segment, Napic sees that sector to bounce back in 2019 based on the slight growth in volume and transaction in 2018 according to Napic deputy director property market division Norhisham Shafie.

“Judging from the marginal increase in volume and transaction in 2018, the property market is expected to stablise in 2019,” he said during the Big Data Analytics conference hosted by the real estate and housing developers’ association (REHDA). Read more

Kaygarn Tan No Comments

Better to rent or buy? You decide

Google “Buy vs Rent” and you’ll get hundreds of search results. So, which is better? Both have its strengths.

However, if you are living in Malaysia and are a Malaysian, perhaps the answer is slightly clearer, after you consider factors such as age, and whether you’re a working professional or retiree.

Why it’s better to rent Read more

Kaygarn Tan No Comments

Measures to boost the property market

It’s not easy for the government and other stakeholders when it comes to the current mismatch in the property market.

The people want to buy homes but they want it to be affordable and in a good location and at least have the kind of features they want.

The current unsold units point to a mismatch in demand versus supply which the government intends to correct by building 100,000 affordable units in 2019.

There are also calls to relax lending rules for some potential buyers so they can get the loans they need.

We should also note that the issue of banks willing to lend and borrowers qualifying for a loan are two different things altogether too.

As for the measures to boost the property market, here’s a roundup.

According to an article in the NST, Malaysia’s economic growth this year is expected to be slower compared to the last two years with a projected growth of 4.9% in 2018, 4.7% this year and 4.6% next year.

Based on the latest statistics available, the number of unsold residential properties rose 48.35% (30,115) from 20,304 units year-on-year while the total value increased 56.44% from RM12.49 billion.

The 2019 Budget introduced some measures to encourage residential property market growth.

Some of the measures are:
• Stamp duty exemption on the first RM300,000 on the sale and purchase agreement for first-time buyers priced RM500,000 and below.
• Six-month stamp duty exemption for first-time buyers for units between RM300,000-RM1 million.
• Peer-to-peer crowdfunding initiative to provide buyers an alternative source of funding.
• Building of affordable homes for the B40 group.
• Help from Bank Negara Malaysia for first-time buyers with an income of less than RM2,300 for homes priced below RM150,000 with an 3.5% interest.
• RM25 million by Cagamas to provide mortgage guarantees for first-time home buyers with incomes of less than RM5,000.

Boosting the property market is needed. Rent-to-own schemes will help those needing a home but lacking the funds for a downpayment. Secondary markets should also be included.

However, any move that makes the property market become more speculative, should be avoided at all costs.

Buyers who really do not qualify should not get the loans they applied for, period. Properties must be built in the areas and with the specs that buyers need.

The numerous unsold units in the market have revealed that many were built with the intention of achieving “quantity” alone.

Hopefully, when we look back at this situation in 2020, the 100,000 units would have sold out and not added to the number of existing unsold units in the market.

Source: Free Malaysia Today

Kaygarn Tan No Comments

BNM trims OPR to 3% on market headwinds

Bank Negara Malaysia (BNM) decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 3% from 3.25% at its Monetary Policy Committee (MPC) today amid weak economic outlook.

This is the first adjustment since January 2018.

“The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively,” the central bank said in a statement today.

BNM said latest developments in Malaysia point towards moderate economic activity in the first quarter of 2019.

“Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector.”

The central bank noted that while domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions.

“The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.”

 

Source: The Sun Daily

Kaygarn Tan No Comments

Monetary Policy Statement

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

The global economy continues to expand moderately. While growth outcomes for several major economies were better than expected during the first quarter, underlying economic conditions continue to suggest moderation going forward. Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities. Although the tightening in global financial conditions has eased somewhat, heightened policy uncertainties could lead to sharp financial market adjustments, further weighing on the overall outlook.

For Malaysia, latest developments point towards moderate economic activity in the first quarter of 2019. Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector. Domestically, stable labour market conditions and capacity expansion in key sectors will continue to drive household and capital spending. The baseline projection is for the Malaysian economy to grow within the projected range of 4.3% – 4.8%. However, there are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.

Headline inflation increased to 0.2% in March 2019 (February: -0.4%), due mainly to the less negative transport inflation at -3.0% (February: -6.8%). Underlying inflation, as measured by core inflation[1], remained stable at 1.6% in March 2019. In the immediate term, inflation is expected to remain low mainly due to policy measures. These include the price ceiling on domestic retail fuel prices until mid-2019 and the impact of the changes in consumption tax policy on headline inflation. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

The domestic financial markets have remained resilient, despite periods of volatility primarily due to global developments. While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

Source: Bank Negara Malaysia

Kaygarn Tan No Comments

PR1MA public housing may be dissolved

Perbadanan PR1MA Malaysia may be dissolved pending due diligence and a turnaround plan, its chairman Tan Sri Eddy Chen said.

He said on Thursday: “We found it very challenging because of the business model is numbers driven. It was given a big number to build and very little land to work on”.

PR1MA was established under the PR1MA Act 2012 to plan, develop, construct and maintain high-quality housing with lifestyle concepts for middle-income households in key urban centres.

Its objective was that the housing units would be priced between RM100,000 to RM400,000.

The housing units were to be built in key strategic urban areas nationwide, PR1MA was open to all Malaysians with a monthly household income between RM2,500 to RM15,000.

Source: The Star

Kaygarn Tan No Comments

Valuation needed for new houses — experts

House buyers stand to benefit if primary market residential properties too, and not just secondary properties, are required to have a valuation done, say experts.

Noting that new houses are currently priced at the sole discretion of developers, they said an independent valuation will help ensure fairer prices.

They were commenting on the call for improved housing valuation methods by Khazanah Research Institute (KRI) in its report on the state of housing released last week.

The report said the sales comparison approach (where the last transacted price of a house determines the value of a new comparable house in an area) currently used should be complemented with the cost approach (where the price is equal to the cost to build an equivalent property).

“One of the weaknesses of the sales comparison approach is that the rapid escalation of house prices is sometimes the result of speculative activities,” it noted.

Michael Kong, president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, said the report seems to assume that developers are pricing their properties based on valuations done.

“That is not true. Valuers are not involved in the developers’ pricing,” Kong told The Edge Financial Daily.
He said overpricing occurs when primary market properties are sold at high prices, as developers have the sole discretion in determining the prices.

A property sector analyst with an investment bank research house, who declined to be named, concurred with this view. She said the issue arises when the value of a unit of property at completion is lower than the initial price at its launch.

This, she said, is due to the fact that the valuation method adopted by property developers to price their products is inconsistent with how valuers appraise the same unit if it were to be sold on the secondary market.

“Malaysia has been fortunate as the House Price Index has been relatively stable and has been on an upward linear trajectory so far. So previously, homebuyers and investors who bought properties during its launching anticipated that they can at least sell the properties with 20% to 30% profit at completion. But the property market is soft now. It doesn’t work like that anymore,” said the analyst.

“This disparity of valuation method between the primary and the secondary market is the crux of the issue,” she added in a phone interview.

The analyst did not push for any particular valuation method to be adopted, but called for a standardised method that is endorsed by the government. This is so that the same valuation method is applied across the board.

“This issue should be addressed through regulatory measures by the government. It doesn’t matter which method (is used), as long as it is consistent and comprehensive,” she said.

The Valuation and Property Services Department (JPPH) has cautioned against adopting the cost approach for property valuation.

“The cost method is a last resort … because value is not equal to cost,” JPPH director Ahmad Zailan Azizuddin said last Friday at the launch of the National Property Information Centre’s (Napic) 2018 Property Market Report.

According to Kong, Napic data may not be the best representation of Malaysian house prices as rebates and discounts offered by developers are often not captured in sales and purchase agreements, which are the data recorded by Napic.

“This distorts official data on the property market,” he said.

Finance Minister Lim Guan Eng, also speaking at the launch of the Napic report, stressed the need for a reduction in the gap between property valuations made by the public and private sectors.

“I believe if there are clear SOPs (standard operating procedures), then the gap in property prices will not be so wide,” he said.

Referring to KRI’s recommendation, the minister said the argument for the adoption of the cost valuation method needs to be discussed among stakeholders before a final decision can be made.

Ahmad Zailan said the department routinely engages with surveyors and valuers in the private sector, and that while JPHH is concerned about the gap, it is “not too big.”

“As a government valued (method), we adhere to standards. We share the same standards and principles as the private sector, but with a difference in opinion,” he said.

Transparency needed on costs
While Ahmad Zailan described property valuation as “both an art and a science”, KRI is quick to point out the difficulty in assessing the true costs of properties as stakeholders, including developers, have been reluctant to elaborate on their costs.

Lee Heng Guie, executive director of the Socio-Economic Research Centre, said managing cost structures is often the competitive advantage of most developers, making it less likely that they would be willing to share such information.

But KRI chairman Dr Nungsari Ahmad Radhi said “the real issue” is price discovery, as the prices of a developer’s new products depend very much on the valuation of sub-sale units in the surrounding area.

“The [valuation] decision on one acre influences the next one … regardless of [development] cost. It becomes an auction,” Nungsari said during the launch of the KRI report.

This is the key reason the think tank has recommended that an independent valuer be appointed for house purchases, not only during the application of bank loans but also to derive the true values of houses.

According to Kong, the ease of obtaining bank facilities has also left developers unchecked.

“Bank Negara Malaysia used to require developers to conduct market studies before banks could approve financing for their developments. Now that is no longer a compulsory practice. But the instructions should come from (the) banks,” he said.

However, developers have often blamed high compliance costs for rising house prices, including the cost of building infrastructure for utility companies without being compensated.

Datuk Soam Heng Choon, president of the Real Estate and Housing Developers’ Association, referred to a case where a developer acquired a piece of land in Kuala Lumpur at a high cost.

When the plan was submitted to the city council, it was imposed with RM24 million development charges, which translated to around RM30 per plot ratio or over RM30 per sq ft, Soam said at the KRI report launch.

The KRI report, however, stated that limited data indicated both compliance and contribution costs are only a small fraction of total development costs, while costs caused by delays in development approvals have been addressed through improvements in the One-Stop Centre portal

“Data from the Construction Industry Development Board and Napic indicate that house prices in Malaysia have almost doubled since 2008 while construction costs — labour, material and machinery, and equipment — have increased only slightly in the same period,” the report said.

In fact, for affordable housing schemes, Housing and Local Government Minister Zuraida Kamaruddin said all the compliance costs have to be absorbed by the government agency responsible for the scheme. This includes the construction of utilities such as Telekom Malaysia Bhd communication infrastructure and Tenaga Nasional Bhd power stations.

“There were concerns that the agency might not have the money to absorb the costs on their own, but I have talked to some of the developers and I have suggested that they incur the costs first and collect them later from the government because the government will be the one collecting the bills.

“We will come up with a mechanism but whatever it is, we are trying to reduce the construction cost so that prices of houses will not be too high,” she told the media on Monday.

“The property developers should not include compliance expenses in the construction cost to the price of the house for affordable housing,” she added.

Government intervention a must for affordable housing
Zuraida said prices of affordable homes under the newly introduced National Affordable Housing Policy will be determined by taking into consideration the median income of a particular area, which could go as low as RM90,000 per unit and up to RM300,000.

“We are going to monitor the prices of houses according to the median income of the area. So that is one form of control. Therefore, they (property developers) cannot go more than what the affordability rate of the people in that area,” she said.

If the property developers do not follow the price guideline set by the ministry, Zuraida said those projects would not be approved.

“With the median price, they (property developers) will have no choice but to follow (the guideline). If they don’t accept the median price, then I won’t give them the job, simple as that,” she stressed.

When asked if this would interfere with the free market convention of demand and supply to determine the pricing, Zuraida said, “As far as the affordable homes are concerned, I don’t think it’s interference, because it is what we want to give to the people. But if [they’re] private [projects] then we are not concerned with how they price their properties.”

According to JPPH’s Ahmad Zailan, the cost valuation approach may in fact be most practical for affordable housing developments.

While he acknowledged that it is a challenge to secure the correct figures from parties that are currently not transparent with their costs, he believes that it is possible to succeed with firm government intervention.

“There needs to be a strong policy,” Ahmad Zailan said.
On the demand side, the finance minister has repeatedly called on banks to be more flexible in disbursing loans, even suggesting progressive interest rates on repayments for housing loans.

“If borrowers are facing [payment] pressures, they can move to progressive payment schemes to pay more in later years,” he said.

However, KRI highlighted that Malaysians’ high household debt of RM1.1 trillion or 88.4% of gross domestic product as at the end of 2016 largely comprises borrowings for house purchases. It also noted that the US sub-prime crisis showed that loans extended to people who cannot afford to pay for them are highly detrimental to the wider economy.

“Against the backdrop of high debt levels, rises in property prices that are not supported by fundamentals can be a potential source of risk to financial stability,” KRI said.

Source: Edge Property