The Western Corridor-Bullish About Subang-Klang-Shah-Alam Connurbation

The Towering Empire in Subang

A forum titled “Property investment opportunities in the western corridor of Klang Valley: Is Shah Alam sustainable in the long run?” is bullish about the Western corridor of the Klang Valley; namely the Subang-Shah Alam-Klang connurbation.

According to speakers in the forum, Selangor is the richest state in Malaysia in terms of Gross Domestic Product (GDP), and of the many urban centres in the state, Petaling Jaya (PJ) is the most active in terms of property development. The areas that are hot on buyers’ radar is the stretch from PJ/Subang Jaya to Shah Alam, and goes way way west to Port Klang. 

Though for the past two decades, property projects remained almost unchanged in the western corridor, the landscape is fast changing with the launch of new township developments in Shah Alam and Klang. These are - Bandar Bukit Tinggi, Setia Alam, Setia Eco Park, Aman Perdana, Cahaya SPK, Denai Alam, City of Elmina, Bandar Botanic and Tropicana Aman. 

Today, the western corridor is transforming into one of the more exciting corridors where the entrance of big developers has changed the property landscape and beckons more to come. .

S. P. Setia is credited as one of the first developers to introduce master-planned community living in northern Klang through its Setia Alam project in 2004. It has been a game changer. Though never been favoured as a local for residency, S.P. Setia changed the face of Shah Alam with the development of Setia Ecopark and Setia Alam. 

Shah Alam’s has a growing population of approximately 750,000, among the highest in Selangor. Besides this healthy threshold population size, job creation is also seen as a corollary when corporate headquarters moved there and supply chain and service companies do like-wise. 

Value Creation in Setia Alam

In Klang, the population is approximately one million, and there is potential spillover from those living in Klang to invest in Shah Alam as Shah Alam is closer to the centre of gravity. Greater Kuala Lumpur’s centre of gravity has shifted towards Kinrara, spurred by the proposed new Serdang-Kinrara Putrajaya Expressway, Kinrara-Damansara Expressway, Sungai Besi-Ulu Kelang Elevated Expressway, and Damansara-Shah Alam Highway (Dash).

Shah Alam will remain on investors’ radar because it is close to Port Klang as the Japanese have chosen Penang and Port Klang as their manufacturing hub for the long-term.

As for current and future infrastructure, the western corridor is now home to modern award-winning township developments and all the necessary amenities including sports stadiums, tourist attractions, golf courses, recreational parks, higher learning institutions, and shopping centres.

The key factors contributing to the growth of the western corridor is infrastructure and accessibility. The network of highways serving the corridor include:

    Federal Highway (connects KL to Klang)

       NKVE (Jalan Duta to Bukit Raja)

      Federal Highway Route 2 (Batu Tiga to Sungai Rasah)

       Kesas (Sri Petaling to Pandamaran)

      Guthrie Corridor (Shah Alam and Rawang)

       Elite Highway (connects to Nilai and a few highways)

      Kemuning-Shah Alam expressway (LKSA)

       Proposed Dash highway (Damansara Perdana to Shah Alam)

Additionally, the KTM Komuter connects Batu Caves to Port Klang, with stations in Shah Alam, Padang Jawa and Batu Tiga.

The extension LRT project that is being built will connect to Bukit Jalil and to Kelana Jaya while the MRT blue line will cover from Sungai Buloh to Kajang. The Prolintas highway development connects Damansara to Shah Alam, and can be linked to Sprint or the LDP, which will help to enhance the value of property in these parts.

Additionally, the LRT 3rd line’s (Bandar Utama–Klang) is awaiting approval and alignment has yet to be released. According to a speaker of hte forum, “The main thing is not to be near the alignment, but position properties near the stations.”

Klang - Moving up the Price Ladder

From 2011 to 2013, there has been a consistent decrease in the number of transactions from 430,000 to 381,000. Despite this, the transaction value has steadily increased from RM137bil to RM152bil.

According to Siva Shanker, the Malaysian Institute of Estate Agents president, he opined, that “If there is GDP growth, it is usually between 2% and 5%. During recession, it is minus 2% or minus 3%. We are now at minus 11%! What people don’t recognise is that we are already in the middle of the bubble and it is already here. Is it right time to invest? Looks like there is no wrong time to invest in Malaysia, as it seems to be on the uptrend all this while and we are in the middle of the bubble.”

Another interesting aspect: Malaysians have become brand conscious as they evaluate both the project’s and developer’s image.

In Shah Alam, i-City could be the go-to destination for the area when it starts building a brand name for itself. i-City was conceived as an MSC hub, but it is much more than that as it is self-contained with leisure, office and residential components. i-City is a fully integrated digital city comprising a shopping mall, corporate office towers, Cybercentre office suites, hotels, apartments, data centre, innovation and theme park.

In purchasing properties, Gen-Y are perceived to be more receptive to new areas, looking particularly at the uniqueness of these developments. Despite the  availability of social media, Gen Y are trained almost always to look at new things and fail to look at subsales of old houses which are truly hidden residential nuggets. 

Gen-Y should also switch on their “trading up” mentality. By going for things that they cannot afford, and ignoring those that they can, Gen-Y will constantly complain about properties being out of their reach.

Gen-Y should think about purchasing lower priced properties first. After all, property is a good hedge against inflation. When the lower-priced property increases in value, capital appreciation can be used to slowly trade up to better properties.

For those who are looking into purchasing commercial properties such as SoHos, and SoFos, a forum participant, SkyBridge International’s Un has this to advise:  “With the implementation of the Goods and Services Tax in April 2015, developers should educate Gen-Y buyers. As they are on a tight budgets, they thought they might have factored in all the financing, only to find that six months down the road, they might be unprleasantly shocked to discover that they have to pay for the 6% upon full loan disbursement.”

Shah Alam and Klang have definitely outgrown their image as sleepy old towns. In the past decade, there has been an influx of infrastructure, connectivity and townships which opened up the western corridor of the Klang Valley. 

The western corridor is now truly the new Canyon Del Oro!

Housing and Construction: Future Views

Pricing in the Higher Costs?

Will prices of real estate go up in 2015 and thereafter?

Let us look at some issues.

Now that the issue of water may be settled soon with the impending water transfer from Pahang and the building of the Langat 2 reservoir in tow, let us look at the closer-to-home issues.

Apart from water which constitute about 45% of the woes for developers in the utilities category, higher costs has impacted development of new projects generally.

Developers have now cited the higher cost of doing business in the first half of 2014.  The increase is 20% higher than before.

What are the causes?

The increase cost has been attributed to such items as higher compliance cost, scarcity of land, higher infrastructure contribution funds and higher conversion premium.

There were also claims that building material steel bars, cement, bricks, sand and river sand and wages have risen in the first six months of 2014.

The latest REHDA survey paints this picture:

Overall, 45 percent of the respondents are neutral of the property market in 2H 2014, while 33 percent are pessimistic.

Moreover, 41 percent of the respondents are pessimistic for 1H 2015.

What’s in store for 2015?

Currently, developers are holding back new launches.  Take up rates have dropped to 49%.

Despite this, with the looming GST imposition comes April 2014, many experts have predicted that prices will continue to increase, not discounting the 8% rise already experienced in 1H 2014.

Thought residential properties may be GST-exempt, higher building costs will inadvertently be passed on the buyers via higher launch prices.

So, it does not look too good for house and real estate buyers comes 2015. 

What say you?

To Buy or To Rent?

The Better Option

Buying a house has been the talk of would-be-buyers since the imposition of 30% RPGT  coupled with the clampdown loan criteria imposed by BNM way back in 2013.

Expectations are such that there is a strong belief that the price of houses will slowly decline to be within the reach of the common wage earner once more.

Is that so? Any early indications? Can you but an affordable unit anytime soon as we reach the mid-year mark of 2014?

Then there is the other school of thought.

Why buy when you can comfortably rent so that it will not create a dent on your savings and life-style.

Let us look at the pros and cons of renting a house.

On the surface, renting a house or an apartment seems to be the more economical of the two choices. With only having to pay the monthly cost of rent and basic utility bills, people need not concern themselves with the details that come with housing loans and avoid a lot of the risks that comes with the possibility of not having the capability of paying off those mortgages. It is certainly a far less complicated scenario.

Another advantage of renting a home is the mobility it provides. Considering how it is very likely that one will encounter a situation wherein packing up and leaving on relatively short notice (like a job opportunity in a far away land), merely renting a home makes it simpler to change addresses without having to sell the house or find someone who would take care of the house.

Renting, particularly an apartment, makes sure that certain small problems are taken care of. When the need for repairs and maintenance occurs, the responsibility usually falls on the landlord, instead of the tenant, to take care of such matters.

There are also a few disadvantages to renting. The lack of security is one of the most glaring of those disadvantages. At the end of the day, the house you live in is not yours. There is also the regular increase in the price of rent that regularly occurs. This would throw you off budget or prompt you to look for other lower rental  neighbourhoods to live that commensurate with your financial capabilities .

Let us now look at the pros and cons of owning a house.

Having your own home is a benefit in itself. While there are going to be financial obligations that come with purchasing your own home, the one thing to take away here is that you will end up owning the house you live in, giving you peace of mind, and a paid up property at the end of the day.

One thing you can do with an owned house, which you generally cannot do with a rented one, is to  to have a go at home improvements that suits you. Since you own the house, barring local building by-laws, you can basically do with it whatever you please.

Having your own home also guarantees that you can leave behind a legacy for your kids, which is a big deal these days. If you have a family, then living in your own house ensures that your kids will have somewhere to go to whenever they need it. Essentially, you guarantee that you and your family have a roof over your head for the foreseeable future.

The disadvantages of owning a house are also several. As alluded to earlier, having your own home makes moving out complicated and difficult. Sometimes, it can be immobilising, having to choose between an owned home and a career opportunity.

Funding your own home may also take a long time, thus the enjoyment of owning a home may come after years and years of paying it off.

So what is your verdict?

With both housing options brandishing their own set of pros and cons, it is really up to which one fits your lifestyle more. If you are a mover, rent. If not, plant your roots in your own home.

Quite a simplistic evaluation, don't you think?

The Buyers Club: Inflating Property Prices

Chang's Revelation

I took this article from the  online Sundaily dated 21 January 2014 which exposed another side of the construction industry and how it impact negatively on new pre-launch residential properties .

Here is it.

"Investor clubs are buying new houses en bloc from developers, leading to the sky-rocketting of house prices. Comprising groups of individuals, they are usually led by self-proclaimed property gurus who use their numbers to secure huge discounts from developers.

National House Buyers Association (HBA) secretary-general Chang Kim Loong (pix) claims some even get discounts as high as 25% on purchase prices.

This has resulted in developers passing on the "losses" sustained in those purchases to the average buyer in subsequent phases of the project to compensate for the reduced profits in the first phase.

Chang said that to his knowledge, there are at least seven such clubs in the Klang Valley. The HBA wants the authorities to investigate the growing number of such clubs in the Klang Valley area.

As at press time, REHDA had not responded to SunBiz's queries while the Minister of Housing and Local Government did not respond to calls for comment.

Bank Negara also declined to comment on the issue.

Chang said property gurus openly advertised, even showing off who "their" developers are.

"They say they 'front for them (developers)' which means the clubs already have deals with the developers," he told SunBiz.

"Such clubs have been mushrooming in the housing industry, manipulating prices by representing an average of 100 to 200 purchasers, even up to 500 buyers.

"Some even dominate 50% of housing units and commercial development."

"The modus operandi of the operators of these clubs is to negotiate as a block purchaser with cash-strapped developers and bargain for pre-launch discounts of up to 25%," he said.

Developers, for example, fall in with the plan in order to draw-down on bridging loans from banks, where, in most cases, they will only be allowed once 50% of the project is taken up.

"So here, they've got these purchasers who say they will buy en bloc, up to 50% or 60% of the units with a certain discount.

"They may ask for a 25% discount, which is a lot, and the developer may agree, but the property 'gurus' may not tell their members they have got a 25% discount. They tell their members that they got a 15% discount, even better than the bumiputra discounts of 7% for housing and 10% for commercial (units)."

Chang said buyers get excited when they see the discount but they do not realise that the other 10% has been pocketed by the property gurus."

Iskandar's Super Property Buyers

High End Landed Wealth

Yes, according to the Malaysia Chronicle (23 September 2013), three out of five buyers of the high-end properties in the Southern Johore corridor of the Iskandar regional townships are the Singaporeans.

They account for 74 per cent of purchases made at the various developments by non-Malaysians. Most Singaporean buyers are people who go to Johore frequently for business and those wanting a weekend home.

"They buy more of the upmarket products, as foreigners can only buy units (both landed and strata-titles) that are above RM 500,000 (S$195,000) in value.  This they can do with ease especially with the increasing value of the Singapore dollar day after day.

UEM Sunrise is the master developer of Iskandar's Nusajaya area. Its developments include East Ledang, a 111ha project with bungalows and villas and several condominiums at Puteri Harbour, Iskandar's mirror answer to Singapore's Keppel Harbour.

UEM data shows that Singaporean buyers usually outnumber all other foreigners combined. At the Imperia project, Singaporeans made up 39.1 per cent of buyers, eclipsing even Malaysians at 24.3 per cent. Foreigners of other nationalities made up 36.6 per cent.

At neighbouring condo Teega @ Puteri Harbour, 36.5 per cent were Singaporeans, 51.8 per cent were Malaysians and 11.7 per cent were of other nationalities.

It was also pointed out that a substantial proportion of non-Singaporeans who bought units in Iskandar have strong links to Singapore.

Many are Malaysians who live and work in Singapore, while others are expatriates or foreigners who visit often.

"These are people who travel to Singapore regularly for various reasons, like health care, education for their children, business and commerce or for lifestyle."

The high number of investors flocking to Iskandar has pushed prices up considerably.

For instance, prices of bungalows at UEM's East Ledang development have surged 44 per cent on average in the resale market since 2011. Even so, prices in Iskandar are still much cheaper than in Singapore and so continue to appeal to Singaporeans.

A 1,500 sq ft three-bedroom unit at the upcoming Marina One condominium in Singapore is likely to be "in the region of RM 11 million". For the same amount of investment, one can buy two swimming pool villas in East Ledang of 5,500 sq ft sitting on land of about 10,000 sq ft.

As they say, the world is a playground only for those who have money and the Singaporeans are leading the way by making Southern Johore just that.

As the song goes," Money Makes the World go Round."

How true!

Malaysian Housing Shortage in 2013?

SOFOs

A property company is predicting a shortfall in residential properties in 2013?

Do you believe him? What are the premises for his deduction and conclusion?

His rule of thumb-every year an average of 110,000 new units of houses enter the market. This apparently did not occur in 2012 due to some salient factors. Instead, possibly only 65,000-70,000 units came in, leading to a shortfall of 35-40%.

Of the many reasons he ponied up was developers hesitate on their launches. Because they feel investors were taking a longer term view of the market as stricter lending guidelines firstly confused and then started to bite.

Icon City

His concern: "The shortage will be felt next year…when we will run out of properties to sell next year on the secondary market."

The realtor said that the new guidelines imposed by Bank Negara Malaysia had resulted in slow transactions for residential properties in the first half of 2012, which will take at least about six months to recover.

He added, "At the end of the first six months of the current year, bankers started to realise that they were not hitting targets. Also (by then), buyers began to understand the guidelines better," he said, and transactions thereafter began to pick up in the second half.

MIEA president, Nixon Paul said residential property prices are unlikely to fall next year, but may stay at their current level. So, that would be good as the bubble may be prevented from bursting any time.

He said, "There is a misconception in the condominium market where many clients feel it will crash, that they cannot rent out (their units) or there is an oversupply.

"Those highly geared and dependent on rental income to pay their mortgage will definitely be affected but generally, prices are holding," he said. So, watch out o n these weak holders. You may get a bargain on the fly.

Paul added however that many sellers have holding power today and most investors are no longer "flipping properties", but instead taking a longer term view before selling their properties.

"Instead of buying and flipping (to profit in real estate), most investors are holding on to their properties for five years before selling."

Paul also said that most sellers today will not sell unless they get the price they want, therefore property prices are unlikely to fall. So it continues to be a seller's market?

So, that is their take.

Do you agree?

The Mortgage Isn't Really worth the Paper......

The Paper gets useless as you aged

When you are old and do not have an income, even having a house to mortgage isn't any good.

So, remember when you do have a valuable asset in hand like a property that is unencumbered, do use it as a leverage to buy another property while you are still earning.

The longer years you have right up to 70 years old will also ensure the payback amount per month is really bearable.

Otherwise, that property is only good if you become a guarantor for your children.

As property prices are really crazy in the Klang Valley, it pays to take a risk and buy a property now.

As your children may have just started working and would not have the wherewithal to put down even a small deposit for a home, parental assistance goes a long way to ensure they have a property pat down while the price is still affordable.

Imagine buying a small pigeon-hole of a unit at the Icon near the Sunway Bridge will cost you more than RM1,000 per square feet. God forbid!

The risk taker will be rewarded as property goes into boom and bust cycles.

If you can ride these speed bumps you will emerge the winner!

No Country for Old Man

Woe,betide!

If you are a pensioner,and you want to buy a property at this advanced age;what are the options that are open to you in Malaysia?

First, most banks will shut the door in your face.

"Go away,no banking facilities for old folks".

Absolute no respect for silver haired, senior citizens!

If you are not yet 65, some banks may want to poke fun at you.

They offer you a loan perhaps at a lower support level and then they drive the stake through your purse and then your heart. Pay back all before your 65th birthday.

Wahloi! Macam mana?

Nasty! Nasty!

Then there is this one bank that is more longgar.

Can wan! you got guarantor...ah? Must be working one...ah...okey dokey?

Also susah, here because old folks do not have a guarantor who is also working one,lor....

So, apa macam.

Pay cash for your house or mortgage if you are already having a property.

If not, don't bother,..lah!

Risk Capital and REITS

REITS are Defensive

Doing Well

With the impending IPO of IGB and KLCCP planned REITs,investors will have another go at this better than FD category of investment.

Star Performer

If you are happy with Malaysian bonds and sukuks that regularly pays out 5% dividend, then REITS could be your cup of tea.

Glittering

Looking at the way Pavilion Reits and Stareits have ascended in its stock price as well as the gross dividends paid out thus far,those who have spare cash should seriously look into this type of investment. Other reits from Quills to Capitalmalls have also done well.

High End Office Reit

Let us look at some of the merits trotted out.

It is claimed that they bring in higher-than-market average yields

They have defensive qualities in the current uncertain economic and market environment [a low-beta proxy to the economy]

These days, analysts do not discount the possibility of eventual increased attention on REITs, saying that this could be a prelude to a re-rating for the sector.

“These two REITs are huge in terms of potential flotation volume and market capitalisation. For IGB REIT, its asset valuation of RM4.6bil will make it the largest retail REIT to date,”  RHB Research Institute's REIT analyst Loong Kok Wen said over the telephone.

Loong said the huge asset base due to high liquidity in the financial system would also attract the attention of institutional investors.

“This is a good opportunity to buy into such initial public offering REITs amid the sustained global uncertainties,” he added.

Loong noted that interest in REITs was currently high and this could be sustained, moving forward, should global uncertainties persist.

“There has been a lot of attention lately on consumer-based dividend-paying stocks and their prices have been going up.

“It is the same for REITs their asset revaluation had seen increased prices on the backdrop of high liquidity in the economic system,” Loong added.

A property analyst with TA Research said the other qualities of REITs that would be appreciated by investors in these volatile times were their dividend yielding nature compared with other fixed-income securities.

“I am positive about retail REITs as their dividends are stable because these cash stream comes from their rents.

“Retailers are resilient amid booming economies in the East. And locally, consumers here are always shopping and buying goods during the weekends,” the analyst said.

However, the analyst noted that while REIT yields had declined slightly from the past, one could still find yields as high as 8%.

Yields today still offer 2%-3% premium over fixed-deposit (FD) rates.

“For example, if I am a person with a lot of money, I would like to diversify my returns and risk. So REIT is the next best alternative after FD.

“Today, we are also looking at richer valuations for REIT stocks,” the analyst said.

In a report, Hong Leong IB said foreign funds and investors were continuing to show strong interest in Malaysian retail assets due to their attractive yields and pricing.

“The retail segment is blessed with a highly favourable macroeconomic backdrop sustained consumption theme in Malaysia, rising disposable income and discretionary spending, high consumer confidence, strong employment market (and) the tourism boom of Malaysia,” Hong Leong's REIT analyst Sean Lim wrote in the report.

Perhaps, I will do a posting on how reits have fared. 

High House Property Prices-Locking out Young Housebuyers

An entire generation of young adults risk being locked out of the property market due to runaway house prices warns The National House Buyers Association (HBA)

HBA secretary general Chang Kim Loong said the rapid inflation of assets has put house ownership
beyond the reach of young adults.

“The prices are exorbitant and beyond the reach of young adults,” Chang told The Malaysian Insider. “The
price increases are not commensurate with salary increases. How are young adults going to catch up
(with house prices)?”

Property prices in urban areas such as Penang and Kuala Lumpur rose by up to 40 per cent last year
fuelled by low interest rates and a surge in speculative buying.

The average price of a KL residential property is now about RM485,000, or roughly nine times the average
urban household annual income of RM54,000.

The Demographia International Housing Affordability Survey rates markets, whose property prices are 5.1
times median income or more, as “severely unaffordable”.

The high prices of property in urban areas prompted the Najib administration to introduce a first-home
ownership scheme in March in addition to the loan-to-value ratio cap in a bid to stave off discontent.

However, lawyers and bankers say the first-home ownership scheme will not help those who take home
RM3,000 in total household income as the amount will not cover loan repayments due to rising prices for
food and other basic necessities and utilities.

The government’s My First Home Scheme launched in March will enable young adults aged up to 35 and
earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and
RM220,000 with a repayment period of up to 30 years. The measures also pale in comparison, however,
to efforts seen elsewhere in the region, such as China and Singapore.

The Chinese government last year introduced curbs on foreigners buying property and raised the
minimum downpayment for first-time buyers to 30 per cent from 20 per cent and banks were ordered to
suspend mortgages on third homes and above in some cases — in addition to hiking interest rates three
times since October.

Singapore, meanwhile, raised stamp duty on new properties to as much as 16 per cent of the sale price
to be paid by the seller if the house is offloaded within a year of purchase.

The amount that banks can lend for a second property has also been lowered to 60 per cent of the
home’s value.

So another problem looms on the horizon for eager beavers hoping to buy a house under the government's first home ownership scheme. It appears that they are just ripe for the burgeoning rental market, don't you agree?

CIMB-Another Booming Year for Property

Malaysia is likely to see another record year for property transactions says CIMB Investment Bank Bhd in a  report today (29 April 2011)adding that home price appreciation could accelerate,

The bank maintained its “overweight” rating on the industry and said Mah Sing Holdings Bhd was its top pick,

Meanwhile, CIMB Research is bullish on the performance of the properties sector for 2011 after hitting a record transaction of RM107.44 billion last year.

It said the potential re-rating catalysts for the sector are news-flow on land-banking, strong sales from most developers and accelerating earning growth.

"We remain bullish on the property sector, especially the residential properties, as house prices are likely to trend higher and volumes should scale new highs," it said in a research note today.

CIMB Research said the price direction was determined by major cycles and negative external events such as the Asian and global financial crisis.

It said the cycle was currently in the property sector's favour. - Bernama, Bloomberg

New Accounting Method likely to Affect Property Stocks

The International Financial Reporting Interpretations Committee on Real Estate Development (IFRIC 15), which will become applicable for the accounting period commencing July 1, is likely to affect investor sentiment in property stocks, analysts said.

Under the new ruling issued by the Malaysian Accounting Standards Board, property developers are to recognise revenue based on the completion method instead of the percentage-of-completion method in current practice.

ECM Libra Capital Sdn Bhd research head Bernard Ching said the new ruling could deter shareholders that based their investments on a company’s earnings.

“Investors that are not so sophisticated and less informed about the company’s operations will be deterred when they notice that the company’s earnings aren’t so consistent,” he told StarBiz.

“Fundamentally, this new ruling does not change anything as there is no cashflow impact. The only difference is recognition of the company’s accounting profits,” said Ching.

He said developers exposed to strata-high-end projects, which often take three years (as opposed to landed residential projects that take only two years) to complete would be most affected.

“Developers with projects that are few and spaced would have the most impact as opposed to say, township developers that have more projects. Large companies with good track records are least likely to see any impact.”

Ching said a way around this was for developers to become more transparent with their investors.

“The bulk of the listed property companies do not engage their investors. Companies like Sunrise Bhd are great at engaging investors, as they have regular analyst briefings and are quite transparent with their projects.”
“It’s up to the developer to be more transparent with their launches. Companies that consistently make headlines will continue to do well under the new ruling.”

An analyst from a local bank-backed brokerage who requested anonymity called the new ruling “silly.”
“It’s a silly rule. What is wrong with the way earnings are reported that requires it to be amended? Whoever came up with the ruling I feel has zilch industry experience.
“In terms of dollars and cents, it’s business as usual for the developers. Only on paper does it look different. However, it would deter investor confidence as company earnings would look choppy.”

He, however, added that the reaction, if any, would be temporary.

“Investors who are not aware may be shocked and this may create a knee-jerk reaction. But I think after a while, they will adjust.”
The analyst said he wasn’t going to revise his outlook for property stocks because of a “change in accounting rules.”

“A company’s share price is based on cashflow, not on accounting profit. A change in accounting rules does not mean the company isn’t making money.”

Affin Investment Bank, in a recent research report, said earnings for developers were expected to be lumpy and volatile, and might appear negative on the surface.

“Analysis on profit and loss, such as profit margins, (including quarterly earnings) will be tough, as it will be purely based on the guidance from developers on their job completion schedule. Earnings from newly launched properties can only be seen two to three years after the properties are completed.

“As such, valuations based on earnings are not quite valid to reflect future earnings prospects. Instead, valuations based on RNAV (revised net asset value) will be widely used to assess the relative attractiveness of different property stocks,” it said.

The research house does not anticipate developers to continuously launch projects just to have a healthy balance sheet.

“The property sector is known to be cyclical in nature and pretty much depends on economic conditions. Despite the adoption of IFRIC 15, we believe developers will still launch new properties at the best and right time that they reckon.

“Rolling out new properties regularly to smoothen out earnings does not make sense as developers will have to carry higher inventory, especially during bad times, which slows down turnaround time.”

It also said developers with fewer launches and smaller landbanks could be badly affected.

“Earnings could be in the red for a few years before we see positive earnings contribution from property sales. Furthermore, companies which have established a dividend policy may not be relevant anymore and investors and analysts will have to depend on guidance from management.”

Well, this will be a great time to buy property stocks when the weak holders give out!

Malaysia: Another Aye Sayer for Property Boom in 2010

Yes, they are slowly coming out to support the possibility of a good property market this year. However, there are caveats.

In its report today, Bernama quoted the comments of MIDF Amanah Investment Bank Bhd. This investment bank is the latest aye-sayer to tell us that the residential property market is expected to thrive this year as it rides on the surge in demand, particularly in the medium-high segment.

Although new property launches in key cities like Kuala Lumpur, Johor Baru and Penang had been less encouraging lately, the expected stronger economy this year should see the launches of previously delayed projects.

“Our survey with key developers shows purchasing interest remained high with take-up rates of new projects at an average of 70 per cent just from private previews or first few days of the launch,” it said in its research note.

Despite signs of sectoral revival, it said the property sector still lacked foreign participation to drive its marketability.

More measures are needed to secure foreign participation apart from the present tax incentives and MSC-status benefits, said the investment bank.

As for property sector, MIDF Amanah Investment Bank maintained a “neutral” call as it expects property sales to undergo a minor correction when Bank Negara Malaysia begins to tighten monetary policy and foreign funds start withdrawing should the economic recovery lose its momentum.

“However, we believe local investors will cushion the downside as property buyers will seize any buying opportunity. We continue to favour counters with exposure to the mid-to-high-end residential market and industrial developments,” said the investment bank.

It said medium and high-end properties benefited from an economic recovery as consumer purchasing power increased, participation in small-and medium-scale property sector also increased from business expansion. Residential sector remained a favourite for hedging purposes, it added.

With the ringgit losing value with each passing month, there is definitely a scramble to convert liquid cash into hard property deals as well as foreign currency accounts.

Whatever happened to our once mighty ringgit?

An answer, please.