Pre-Launch Property Sales, Investor Clubs in Malaysia Could Come Under Scrutiny

PUBLISHED JANUARY 23, 2014

Pre-launch property sales, investor clubs in M'sia could come under scrutiny

BY

PAULINE NG

IN KUALA LUMPUR

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Mr Abdul Wahid: 'I don't think we should continue to allow this, as it will lead to property speculation' - PHOTO: THE STAR

ARE property pre-launch sales and bulk purchases by investor clubs distorting the prices of homes?

Abdul Wahid Omar, the Minister in Malaysia's Prime Minister's Department, seems to think that pre-launch sales, at least, do, going by his remarks on Tuesday, which could pave the way to such practices being more closely watched.

He was quoted by The New Straits Times as saying at a Cagamas event: "While we appreciate that developers want to sell their products and that the move (to hold a pre-launch sale) is part of risk mitigation, I don't think we should continue to allow this, as it will lead to property speculation."

He was referring to the developers' practice of holding pre-launches, but the National House Buyers Association (HBA) jumped in and fingered investor clubs for fuelling speculation, which is sending home prices spiralling, since their en bloc purchases at hefty discounts are ultimately borne by other homebuyers.

HBA secretary-general Chang Kim Loong said that investor clubs are given discounts of up to a quarter off the purchase price; some developers are more open to giving large discounts as it helps them meet the sales targets set by the banks, without which a draw-down on bridging loans cannot take place.

The Sun newspaper reported Mr Chang as saying that there are at least seven such clubs in the Klang Valley and suggested that the authorities look deeper into the issue.

Developers defend pre-launches as a way to "test the market" - even if it is often their staff, friends and associates who get first dibs on units in the property development, followed by select groups such as returning customers or premium customers of banks.

Tang Chee Meng, managing director of Henry Butcher Malaysia, a real estate consultancy, does not fault pre-launches per se: "There is nothing wrong with them. What is wrong - or rather morally wrong - is if the developer marks units as 'sold' when they are not, to give the impression of good sales."

He said that it is quite usual for a builder to hold three to four pre-launches over two months before advertising the launch of the development, during which time 30 to 40 per cent of sales would have been achieved at discounted prices. "Of course if he has achieved 80 to 90 per cent, he would be kicking himself because it means he has under-priced his products," said Mr Tang.

He added, however, that the way investor clubs operate is a cause for concern because they distort the market.

It would be different if these clubs buy the remaining units of a development, instead of purchasing them before the launch and getting 20 to 25 per cent discount, he said, because the developer would have to ensure that other homebuyers end up shouldering the discounts given.

In his view, investor clubs make excessive profits, since they often sell the units to members at a discount of about 8 per cent and pocket the rest.

Even so, he does not see how such clubs can be regulated, though he agrees that their practice warrants a closer look. "The club pays the deposit so it is a business arrangement, but because it acts as a middleman, prices do get bumped up."

The interest in properties in Iskandar Malaysia has attracted Singapore-based investor clubs into that market as well.

Concerned about rocketing home prices, Malaysia has already introduced a number of measures to cool the market, such as more stringent lending guidelines, higher tax penalties and scrapping easy-financing schemes.

Anton Casey and Son Made Racist Video.... It's More Serious a Than You Think...

http://youtu.be/a_piYaHJBd0

I watched the video by Anton Casey with his son and was horrified that the well-heeled couple has taught their son to be racist at such a young age. Watch the video. The son's eyes were taped by the sides to make them look like slits. In western countries, racist thugs make "chinky eyes" to insult the Chinese. Anton and his son also showed their two front teeth, another racist parody of the Chinese people and their so-called buck teeth appearance.

http://newnation.sg/2014/01/poor-sporeans-apologise-to-rich-white-guy/

His son does not naturally have slit eyes so I believe it was intentional. What do Singaporeans make of this racist family? I know that Bernice Wong has also made sweeping statements of Singaporean makes, accusing the, of being effeminate and sheltered.

http://forums.hardwarezone.com.sg/eat-drink-man-woman-16/sorry-insensitive-topic-but-anton-caseys-son-4550768-2.html

Danga Bay's Country Garden Project Has 10,000 Apartments!!

http://eevon.sg/country-garden-danga-bay-a-discussion/

http://www.virtualtourist.com/travel/Asia/Malaysia/Negeri_Johor/Johor_Bahru-1280844/Warnings_or_Dangers-Johor_Bahru-TG-C-1.html

Equity Outlook for 2014

This is something that I do for my own enrichment and investments. I score the markets based on 1) valuations, 2) earnings growth expectations and 3) yield curve (steeper the better).

 

Valuation wise: Cheapest: 1) China, 2) Japan, 3) Russia and 4) Mining.

 

Most expensive 1) Vietnam, 2) Philippines, 3) Singapore and 4) Latin America.

 

Earnings Growth: Strongest in 1) Eurozone, 2) Japan, 3) South Korea.

 

Weakest in 1) Singapore, 2) China, 3) Russia.

 

Monetary policy: Steepest yield curve 1) Vietnam, 2) US, 3) Singapore.

 

Flattest yield curve: 1) China, 2) India 3) Japan

 

Best overall markets (potentially > 20% upside over 12m): 1) Europe, 2) Japan, 3) US, 4) Russia and 5) Mining sector.

 

Worst overall markets (likely < 0 return over 12m): Philippines and Latin America.

Chinese equities, along with Russia are the cheapest. However, China is let down by two things.

1) it's EPS growth is just horrendous, probably because of the high percentage of State Owned Enterprises that dominate the HSCEI. It achieved only a 4% EPS growth per year over the last 3 years.

2) The Chinese government is trying very hard to reduce shadow banking, hence there will periodically be spikes in short term rates, causing the yield curve to almost invert. In liquidity crunches, stocks and real estate usually don't perform well. It will be an extremely slow grind upwards.

US and Eurozone stocks are not cheap. But they are buoyed by the following:

1) strong EPS growth. You will be surprised that the US, EU and Japan can achieve higher EPS growth than Asian countries. It goes to show that high GDP growth often don't translate into better stock performance. GDP measures all economic activity, not profitability. A fast growing country can have many listed companies which achieve very high revenue growth just based on domestic business alone. However, with poor productivity, horrendous corporate governance (companies issuing shares all the time), share price performance can lag behind.

2) Steep yield curves. US, EU and Japan are in a sweet spot. Inflation is low due to high unemployment rates. Hence short term rates are anchored at zero while long term rates start to rise in expectations of future inflation. When monetary policies are expansionary, stocks and real estate tend to do well.

Somewhere in the middle of 2014, developed markets equities may experience a steep correction of between 15 - 20% as valuations reach 2007's peak and earnings expectations become unrealistic. This will bring valuations back to median and fuel a continuation of the bull rally in the later half of 2014.

However, as we reach the second half of 2014, Asian / EM equities may start to outperform as the recovery in EU and the US fuel exports from the developing regions.

If the US 10 year Treasury yield reaches 4% in late 2014, investment grade corporate bonds of long tenors may be an interesting bet.

 

 

 

 

Why I Am Venturing Into Commercial Properties

Residential Property Is Highly Politicised

Residential property has become a highly politicised area. All over Asia, from Singapore to Hong Kong, to Shanghai and Beijing, to Kuala Lumpur and Johor Bahru, governments implement anti speculative measures to curb prices running out of reach of aspiring home owners. Stamp duties were raised in Singapore, lending ratios reduced in all countries, capital gains tax implemented on non resident owners in UK and Malaysia.

The residential market affects all residents and banks who provide mortgages. For good reasons, governments step in whenever price to income ratios move 16 - 18x, to ensure political stability.

http://www.theguardian.com/money/blog/2014/jan/04/renting-scandal-ignored-politicians

http://www.theguardian.com/money/2014/jan/04/buy-to-let-landlord-evicts-housing-benefit-tenants

If you own many residential properties, you are often vilified by the press. Click on the hyperlinks above. Landlords are accused of depriving aspiring home owners of their cherished first home. Yet few understand that without investors, property developers may not build as many when profit margins are low. The biggest beneficiary of booming property prices are land owners, who are either the government, companies or individuals. They should be the ones vilified for profiteering from the housing boom, forcing developers to pass on the high cost of land to end buyers.

Steps That Governments Can Do To Make Housing Affordable and Allow Capital Appreciation for Home Owners

There are many things governments can do to keep homes affordable to first time buyers, get as many people on the property ladder and yet allow the existing home owners to increase their wealth through home ownership.

1. Governments worldwide need to learn from Singapore's public housing program. The Housing Development Board (HDB) provides affordable homes to first time buyers, often at half the price of a resale HDB. Every citizen is allowed to buy one directly from the government, often at between USD200 - 500k for a 800 - 1200sf apartment depending on location. about 78 - 80% of residents in Singapore live in HDB.

2. Once a young couple owns a new HDB, they will have to hold it for a minimum occupancy period of 5 years before selling it in the open market. For example, if one bought it five years ago for USD350k, it would be worth around USD500k by the time they decided to sell it. This profit allows the young family to either upgrade to a private apartment or to buy another resale HDB at a better location or for a bigger size.

3. Do not encourage residents to rent the flats instead. Home ownership forces owners to work harder, because they will have "skin in the game". Home owners tend to invest more to beautify their homes to improve the value. They will also work harder to pay off their mortgages in the hope that one day they can sell their homes at a profit. Home owners will fight harder to defend their nation, their way of life and their economic stakes.

4. Leave the private residential sector for the free market to decide.

5. Do NOT implement rent controls. In New York City, rent controlled buildings are often in very poor conditions as owners resist repairing lifts and common areas to keep their yields up. Very few investors like to buy rent controlled buildings so developers don't like to build them. This pushes up the rent for the private sector because rent controlled apartments hardly become available. Rent controls are one of the worst ideas around. Governments should instead focus on increasing supply of new properties.

Pros and Cons of Commercial Properties

Recently, a landlord of a shophouse in Ann Siang Hill doubled the rent on a tenant, a restaurant. Here are the reasons why you should invest in commercial units:

1. Tenants hardly disturb you due to small things like leaky taps etc. Their businesses depend on continuous operation and they usually keep the place in good condition.

2. There is no need to do home improvements. Commercial tenants will invest in interior decors.

3. No diplomatic clauses. Tenant pays the rent for the entire tenor.

4. Rent can be increased without causing a commotion by the press / social justice fighters.

Cons of owning a commercial property:

1. the value of your unit depends on the quality of the tenant and the rent that they pay. If you rent it to a Seven Eleven, your rent will be paid on time every month. If you rent it to a business that is unstable, e.g. a poorly run spa, you could have a high turnover.

2. A change of development in the surrounding area could ruin your investment. If the shop has a lot of foot traffic because of a bus stop or a popular mall nearby, and these two factors are changed suddenly, the rent and value could plummet.

3. You often need to pay a hefty goods and services tax but this could be circumvented by forming a GST collection company in Singapore.