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Steady occupancy rates for upscale hotels in KL

PETALING JAYA: Upscale hotels in Kuala Lumpur and its surrounding areas continue to see steady occupancy rates, despite a slight increase in average room prices, according to a property survey.

With the weaker ringgit seen as a welcome boost for the tourism industry, hotels in the city are expected to continue to attract new investments.

“With the extensive new supply of branded residence market, more new hotel entrants are expected,” CH Williams Talhar & Wong’s (WTW) said in a report on the sector.

The firm said occupancy rates remained stable particularly on upscale hotels.

“Room rates still have room to grow as Kuala Lumpur is relatively low compared with neighbouring countries.”

An estimated 27.44 million international tourists visited Malaysia during Visit Malaysia Year (VMY) 2014, up 6% compared with 2013.

“There was a slight drop on mainland Chinese tourist arrivals subsequent to the MH accidents.

“In the second half of 2014, occupancy remained at 70% and average room rate was RM267, up 4% compared with previous review period. This is mainly driven by increasing tourist arrivals after numerous promotional activities by Tourism Malaysia in VMY 2014,” it said.

It said upscale hotels remained stable and outperformed except for three-star hotels dropped to 61%, likely affected by the decline in mainland Chinese visitors.

“Average room rate increased 4% to RM267. Market observed marginal growth in room rate for most hotels due to increasing operation costs.”

Menawhile, WTW, in its property market report 2015, said hotel supply in the Klang Valley was 167 hotels (48,047 rooms) in 2014, up 6.2% compared with 2013.

“Up to 2018, there are 15 new hotel developments including 12 five-star hotels. The developments include St Regis, Harrods, Four Season Place and Fairmont Hotel.

“Fairmont Kuala Lumpur is expected to open in 2017 with 750 rooms. Moving into 2015, the weakening of Malaysian currency made the country appealing as a low-cost travel destination, which will spur the demand of hotel rooms,” the report pointed out.

 

*The Star

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Is owning a house in KL and Penang beyond most people’s reach?

DATUK Charon Mokhzani says it is “funny” how when someone wants to invest in the stock market there is heaps of data about what exactly happened in the past and the prediction for the future but the same cannot be said about housing.

“When you want make a huge investment in a house, you don’t know what new developments are coming up and how many people want houses.

“There is no data. It’s really quite amazing,” he says.

Charon is the managing director of Khazanah Research Institute (KRI) that came out with the Making Housing Affordable report.

 There are 7.3 million houses in the country. Of these, three million are “informal” houses, which are houses built without a development order or those built by villagers like kampung homes.
If we give incentives to developers, we could have a far more efficient system and everyone can make far more money. – Charon Mokhzani

The National Property and Information Centre only takes into account formal housing, so their records show there are 4.3 million houses in the country; the Department of Statistics includes informal homes in their figures and the difference is a whopping three million.

You get the picture: There is no comprehensive integrated data base on housing here.

Charon points out that the closest thing Malaysia has to complete data on housing is the fact that over one million people have registered for houses with PR1MA.

“That tells you something.

“At some point in time, we have to provide one million houses for them. We are not sure if one million need houses or if they are renting but they have registered with PR1MA. Until we see the data, we won’t really know. But at least it’s a start and better than not knowing anything.

“But if we had a proper data base, then we would be able to do better planning,” he says.

PR1MA (Program Perumahan 1Malaysia, or the 1Malaysia People’s Housing programme) is a government homebuyer assistance programme to help people in the middle income group buy homes.

Those who register must be above 21, have a household income either individually or combined, between a husband and wife, of RM2,500 to RM10,000 a month. They should also not own more than one property between them.

Charon says the research institute report on affordable housing shows that houses in Kuala Lumpur and Penang are “severely unaffordable” and if nothing is done to address this as the country grows more urbanised, 40% of the lower income and 40% of the middle income groups would need some kind of social housing in the future.

In KL, based on the median household income, affordable houses should cost about RM280,000 and yet in 2014, there were no new property launches in KL below RM250,000 and the bulk of new launches were in the RM500,000 to RM1mil bracket.

“No wonder people in KL complain about housing! Urbanisation is happening all over the country. We are concerned that if we don’t do something now, KL and Penang will get worse and this might spread to the rest of the country.”

Charon believes that it is very possible for developers to offer affordable houses.

“Look at Malacca. They have an affordable range of houses costing around RM180,000. And a number of their new launches are near the affordable mark,” he says.

Developers argue that houses are expensive in KL because land is expensive.

But Charon says it is in fact the other way around.

“Why is five acres of land in KL more expensive than five acres of land in a small town? The reason is because you can sell a house in KL for far more than a house in a small town,” he says.

Be efficient to make more money

One interesting fact the report found is that cost of construction, building materials, and labour have actually all gone down.

Which is one reason why Khazanah Research Institute director of research Dr Suraya Ismail believes house prices can and should come down.

“Savings can be done at the project level. I’ve seen a lot of wastage at the project level on construction sites.

“House prices can come down if all these savings are done, but they have to make sure that the savings are passed down to the consumers.”

She points out that when the Government gives incentives to developers, the quid pro quo is for them to provide affordable homes for people.

For Dr Suraya, there is a great need for efficiency and innovation in the housing sector.

She says Malaysia should stop promoting a mentality and system which puts up with inefficient construction processes and inefficiency at construction sites.

She warns that if Malaysia keeps going the way it has, it will never have a very efficient sector that will be able to sustain the housing industry for the next 20 years.

The foreign contractors are coming in. They are very efficient. If we don’t make improvements, they will do it for us. – Dr Suraya Ismail

“The (China) Chinese contractors are coming in. They are very lean, they are very efficient. If we don’t make all these improvements at the construction site at company level, all these people (the Chinese and foreign contractors) will come in and just do it for us.

“Are we saying that it is fine? We should be looking at our own construction sector furnishing our own people with good housing units.

“But if we keep doing it the old way, our construction sector will not be modernised, it will not be able to be responsive and will be left behind.

“It is going on now, and we are always talking about it. Yet when KRI wants to put in the innovation, the first thing they say is that it is expensive, they won’t pay for it and it won’t bring house prices down.

“Someone has got to start intervening right now,” she says.

Both Dr Suraya and Charon cite Philippines 8990 Holdings Inc as an example of a developer hugely successful in providing affordable quality housing to the lower-income and medium-income group.

The company is able to do this through efficient project budgeting processes, product innovation, and reduction of production costs, which it passes on to the home buyers.

Charon says the Philippines’ model shows that developers can provide affordable housing and still make a good profit.

But will Malaysian developers be willing to do this?

“One of the things we say is that if we give the right incentives to private property developers and public sector developers, we could have a far more efficient system and everyone can make far more money,” says Charon.

“If someone is doing this for profit, it doesn’t matter how their profits are made, whether from selling penthouses or affordable housing. As long as they make sufficient returns.”

He says developers will provide houses for those who have the money and want to buy into a country club kind of lifestyle.

“But developers can and should provide other products to fit other people’s income level. And they can do it making reasonable returns.”

Charon says in Malaysia houses take a long time to get built.

For him, a more innovative and efficient way would be to build prefabricated houses in a factory that can be assembled on site.

“The 8990 is a home-grown system.

“That comes through innovation and the supply chain and people being responsive to the sector.

“That idea hasn’t caught on here,” he says.

The Khazanah Research Institute report makes some policy recommendations on how to reduce the pressures leading to rapid house price escalation.

One is to impose a five-year moratoriumon selling the new stock of houses built through the “new designated procurement route” so as to curb short-term speculative behaviour.

The second is to undertake a national housing survey because at present there is a mismatch between supply and demand for affordable housing; the survey can provide guidance to the federal and state governments as well as local authorities to plan for a steady supply of housing at affordable prices.

The report also says that if the information in the survey is made public, it would be helpful because it would give people the “requisite knowledge” to plan for the purchase of a house.

They would be able to choose between the different types of houses at different prices, which will lead to better financial planning as a whole, especially since a house takes up a huge chunk of one’s income.

Developers need to buck up

But is renting such a bad idea?

Dr Suraya says studies in many countries show that renting is not a choice.

“It happens because you can’t own but it is not what you want.”

She points out that many Malaysians finish off their EPF savings within three years after retirement, which is worrying.

“So it is better to give them the ability to own a house.

“Because we don’t have a social welfare system that is robust,” she says.

However, Charon says some people might argue that it is better they put what they save in paying house instalments into a well diversified portfolio of assets, which will earn higher returns than owning a home.

And that will pay for their rent.

Dr Suraya says that over one million have registered with PR1MA because these people believe the private sector cannot give them “affordable housing”.

She says the Philippines 8990 example the Khazanah Research Institute used as a case study shows Malaysian developers that they have to buck up and be competitive because others can do it.

But wouldn’t liberalising the housing sector and opening it up to foreign developers force Malaysian developers to be competitive and help bring house prices down?

“Let’s advocate to our own developers and contractors to be more competitive, innovative and efficient rather than open up and get someone else do it.

“Advocacy and awareness is the first step before we open up,” she says.

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Luxury condo market to remain subdued

AN oversupply situation, as well as cautious buyer sentiment will see the luxury condominium segment remain subdued for the rest of the year.

According to Savills Malaysia’s latest Asian Cities report, there were 21,069 luxury residential units priced above RM800 per sq ft in Kuala Lumpur as of end-2014.

This represents a 21% increase year-on-year.

“Six new completions were recorded in Kuala Lumpur over the last quarter of 2014, with a total of 1,800 units.

“These projects include Setia Sky Residence Block C (Jalan Tun Razak), The Greens (TTDI) and Icon Residence Mont Kiara (Tower 1 & 2) at Dutamas KL.

“Luxury developments launched at the end of 2014 included The Residences @ Platinum Park along Jalan Stonor, KLCC and The Robertson (South Tower) at Jalan Pudu, KL.”

According to PPC International CEO (Agency) Siva Shanker, the property market has been experiencing a slowdown since the beginning of the year.

“In the first quarter, many people adopted a wait-and-see approach due to the goods and services tax (GST), which came into effect in April.

“In the second quarter, things were still quiet as people were still trying to digest the impact of the GST.”

Siva says the initial expectation was that the property market would have picked up by the second half of the year.

“However, the political situation at the moment is not really helping, and the plunging ringgit has also spooked many investors and buyers.

“So there’s a lot of worry at the moment and it’s causing turmoil in the market.”

Because of the oversupply situation, the luxury condo market is the hardest hit of all property sub-segments.

“Over the past few years, the market has been great.

“Developers jumped on the bandwagon to build these properties.

“Iskandar (Johor), Penang and KL are oversupplied with these properties, and when times are bad, it’s the sector with the oversupply that is most affected.”

According to Savills, the secondary market of the luxury condo sector in KLCC, Bangsar and Mont Kiara continued to see increases in values in 2014.

Siva: ‘Only asking prices are dropping, not their values.’

“Average transaction price for the three areas was RM871 per sq ft at the end of 2014. The secondary market in these prime locations continues to remain very attractive to buyers and investors, compared with new developments in other areas.”

Savills adds that asking rents saw some stability or little change in 2014, with rents in KLCC at about RM3.95 per sq ft month. Rents in Bangsar and Mont Kiara, meanwhile, stood at RM3.35 per sq ft per month and RM2.97 per sq ft per month respectively at the end of 2014.

On the outlook for the market this year, Savills says the subdued overall property market sentiment in 2014 is expected to extend into the second half of 2015.

“However, the weakening of the ringgit may attract foreign buyers as property prices will be more competitive.”

Siva says the current market situation will see prices falling as sellers struggle to find buyers.

“High-end condos will be difficult to sell. As such, asking prices will start to fall. This trend will cause buyers to perceive that the market is crashing, but that is not the case.

“Only asking prices are dropping, not their values.”

According to CH Williams Talhar & Wong’s (WTW) property market report 2015, the luxury condo segment saw a slowdown with fewer transaction activities recorded in 2014 compared with 2013.

“As of 2014, total luxury high-rise residential units was 31,402 units, with the prime locations being Kuala Lumpur City Centre, Ampang/U Thant, Kenny Hills, Mont’Kiara/Sri Hartamas and Golden Triangle area where luxury developments remained highly sought after by both foreign and local investors.

“Last year witnessed the completion of more serviced residences compared with condominium units. As recorded in 2014, serviced residence was 54% of the total cumulative supplies of high-rise residential, which had surpassed condominiums.

Newly completed serviced residences units were priced between RM701 and RM1,500 per sq ft.”

In Kuala Lumpur, WTW says the average transacted price per sq ft for luxury condominium had decreased 6.1%, to hover around RM1,070 psf in 2014.

“Luxury high-rise residential located outside the Golden Triangle area has seen an upward trend since 2011, with average transacted prices increased by 10.5% to RM840 per sq ft in 2014.”

It adds that there were few newer launches in 2014.

“These include Anjali North Kiara (365 units; RM580 per sq ft), Block B of Residensi 22 (270 units; RM800 per sq ft) and The Mews (256 units; RM1,700 per sq ft). “Serviced Residences developments that were launched in 2014 were Dorsett Residences (252 units; RM2,100 per sq ft), Ritz Carlton Residences (287 units, RM2,500 per sq ft) and The Establishment (646 units; RM1,200 per sq ft).”

Overall, average occupancy rate in Kuala Lumpur remained stable in 2014 at 68%, says WTW.

“Developments in Bangsar outperformed other localities, registering an average of 84% whilst Mont’Kiara/Sri Hartamas have seen only a satisfying occupancy rate, averaging at 61%.”

According to the report, condos that were completed in 2013 are still experiencing low occupancy rate in 2014 although all units were fully sold.

“Moving forward, the completion of on-going construction is expected to exert more pressure on the existing condominiums/serviced residences, resulting in the decrease of the average occupancy rate in 2015 and a more competitive rental market, one that is favourable to tenants.

The rest of 2015 is expected to be “lacklustre” as 2014 due to the stringent lending regulations and the implementation of GST where some buyers are cautious over their decision making, the report says.

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PR1MA Launches Rent-To-Own Programme To Assist Potential Homeowners

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The 1Malaysia People’s Housing (PR1MA) Corporation has introduced its “Rent-to-Own’ (RTO) scheme, a solution for Pr1ma home-buyers who are not eligible for housing loans.

CEO Datuk Abdul Muttalib Alias said RTO allows potential home-buyers with poor credit ratings to lease the house for up to 10 years.

This is to help the buyers to build up the deposit equity needed for them to be eligible for a bank loan, he said.

“There are two options for applicants of the RTO scheme. There is the Basic RTO and the Zero RTO. Successful balloted applicants of PR1MA homes whose loan applications were rejected by banks will be provided these two options,” explained Abdul Mutalib in a media briefing on Friday.

Citing an example, Abdul Mutalib said in one of Pr1ma projects in Johor, 20% of applicants who won the ballot were unable to secure bank loans.

“They were happy when their names were balloted, but when their loan applications were rejected, some of them came to us and pleaded with tears. We did not have this RTO scheme back then,” he said adding the incident actually triggered Pr1ma to come up with a remedy for all applicant to own a house.
He said RTO was part of the ‘Homebuyer Assistance Programme’. The other two are the PR1MA Care insurance programme and end-financing packages from six participating banks.

Meanwhile, Perbadanan PR1MA Malaysia (PR1MA) and Maybank Bhd signed an agreement for a RM3 billion bridging loan facility to partly finance the development works of PR1MA Homes housing projects, witnessed by Prime Minister Datuk Seri Mohd Najib Razak.

PR1MA was represented by Abdul Mutalib while Maybank was represented by its Group Head, Global Banking, Amirul Feisal Wan Zahir.

Under the agreement, Maybank will provide comprehensive financial facilities for the construction of PR1MA Homes for the next five years.

“We are confident this financial facility provided by Maybank will allow us carry out the development work of PR1MA home projects as planned, within the given timeframe.”

“We are committed to build PR1MA Homes nationwide in an effort to ensure more middle income earners in Malaysia will be able to afford to own a house,” Abdul Mutalib said.

To-date, 153,807 Pr1ma homes have been approved for construction of which 41,587 units are under construction while 112,000 others are still in planning stages.

By end of the year, 26 projects comprising of 60,000 homes will be balloted, said Abdul Mutalib.

As at end of July 2015, more than 1.02 million registrants interested in owning a PR1MA Home have registered under the National Registration System.

*Bernama and The Malaysian Reserve

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Malaysia: hottest spots for property investing

Following the 2008 financial crisis, Malaysia has re-emerged as one of the hottest spots for property investing. Here are a few surprises about our country’s real estate market:

Malaysia ranks 9th as the hottest real estate market in the world

In 2012, globally influential real estate consultancy Knight Frank put together their list of the ‘10 hottest real estate markets in the world’, based on a series of factors including house prices, market growth and investment opportunities. Malaysia was awarded 9th place in the rankings, and was commended for its rapid growth in house prices, openness to foreign investors, and most importantly its future potential.

Annual GDP growth of over 5 per cent

All good property markets need to be built on the foundation of a strong economy, and Malaysia’s has gone from strength to strength in recent years. Despite the recent economic crisis, GDP growth in Malaysia has consistently remained at an average of 5 per cent for the last decade, while other countries have seen their economies grind to a halt.

8 per cent increase in house prices in 2014

Often the best indicator of a real estate market’s potential is house price increases, and Malaysia’s have been consistently rising – by 8 per cent in 2014 alone, and a huge 77 per cent since 2004.

The prolonged nature of this growth in house prices is a clear sign that the ‘property bubble’ that has devastated so many housing markets around the world has not affected Malaysia.

$2,616 average square metre property prices

The rapid development of property markets in other South East Asian real estate hotspots like Singapore and Hong Kong combined with their small size means that space is now at a premium.

In Singapore, average property prices are $15,251 per square metre, and a similarly sized area of real estate in Hong Kong will cost you an eye-watering $22,814.

Malaysia blows these prices out of the water, with an average square metre of property only costing $2,616.

This highly competitive pricing is down to a combination of factors, including the relative infancy of Malaysia’s property investment market, and the wider range of sought after development locations.

Household income growth of 175 per cent

Any experienced property investor knows that the strength of their investment is heavily reliant on the spending power of the local population.

Malaysia’s recent investment into the local workforce, thanks to the introduction of the New Economic Model in 2010, has led to an increasingly skilled population who are earning more money than ever before.

26.6% GDP investment

Continued growth in GDP has allowed Malaysia’s government to invest money back into the economy in a series of development initiatives, many of which have either directly or indirectly benefitted the housing market.

In 2014 26.6 per cent of Malaysia’s GDP was investment, including work on improving public transport infrastructure, training of the labour force, and programmes to help people buy their first home. This was above the world average of 22 per cent.

These high levels of internal investment have also led to a Growth Competitive Index score of 5.16 in Global Property Guide’s real estate world rankings, which puts Malaysia in the second highest bracket of competitiveness.

*City Scape Malaysia

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10 Financial Tips For Property Investors

Enter the market slowly but surely with this tips.

1. Reduce your credit card limits and cancel any credits card you don’t use

Reducing your credit card limit can make a huge difference with how much you can borrow for your property. If you don’t use any credit cards you have you may like to consider cancelling them as lenders take credit cards into account when calculating how much you can borrow regardless of whether you use these or not.

2. Consolidate personal debt

Always look for the opportunity to consolidate any personal loans which have a higher rate of interest as these don’t only cost you more in interest but also impact on your borrowing capacity. This includes any interest on store cards from a department store.

3. Use different lenders

Loyalty and convenience is the main reason people continue to use the same lender to borrow money. Unfortunately this is reducing the amount that you are able to borrow and increasing your risk as one lender funding your whole portfolio results in them assessing all your properties as a whole rather than individually. By using different lenders you can always find the best deal, increase your borrowing ability and stay control of your assets.

4. Avoid Cross-Collateralising securities

This refers to providing a lender with security over more than one property. This can cause enormous problems when the properties increase in value and you want to release some of the newly created equity. The lender has your assets tied up so if you want to go to another lender that is offering a better deal, the current lender may not partially discharge their mortgage to allow you to refinance the property. Furthermore, if you are having financial problems and you wish to sell part of the portfolio to solve it, the lender may call in their loans which may mean selling all the properties in a manner which may be detrimental to you.

5. Have a plan or strategy

No one plans to fail… they just fail to plan!
We’ve all heard that saying before. Like any successful business, an investor should prepare a detailed business plan detailing the strategy to grow their property portfolio, the finance that is required to achieve this and a cash flow analysis of how the debt and other costs are to be serviced.

6. Regularly review your security

Giving too much security to lenders can greatly restrict your investment potential. As far as lenders are concerned there is never too much security. Review your property values annually and have them re-valued with the bank whenever there is a reasonable increase of around 7%. Over time you will be able to remove the security from your home or from one of the investment properties.

7. Have a Line of Credit or Redraw Facility

Focus on the positive but be prepared for the negatives! Unfortunately too few investors take this advice. They have done nothing to ensure that their cash flow is protected if times get tough. By having a cash reserve set up properly from the start through a line of credit or redraw facility you have this buffer in place to give yourself peace of mind.

8. Have the correct loan structures in place from the start

A poorly structured loan portfolio reduces your flexibility, increases your risk profile and can create reporting and tax nightmares. A poorly structured loan portfolio reduces flexibility through cross securitisation. Increases your risk if you have not separated your home and investment lending. And will not adequately separate tax deductible and non-deductible expenses which could mean losing out on deduction.

9. Interest only versus principle and interest

Structuring your investment loans with interest only increases your borrowing capacity and still allows you in most case to pay down the principle if you wish.

10. Use an experienced mortgage broker who specialises in investment home loans

The biggest finance tip is to have the right experienced and connected mortgage broker which specialises in investment property on your team. Contact a financial advisor to learn more about easier investing.

*RealEstateView