Since then, the world’s central banks have flooded the markets with an unprecedented liquidity tsunami that has lifted prices of assets like stocks and property. Liquidity comes in many forms, the most evident and tangible is lower interest rates, which immediately lower mortgage costs and allow potential borrowers to borrow more with the same level of disposable income.

It also reduces the returns on deposits which make it more attractive for depositors to redeploy their funds into higher yielding and more speculative assets like shares and property. Other forms of less tangible liquidity measures involve providing cheap funding for banks and printing money.

In China, the liquidity came in the form of generous lending by state-owned banks which boosted lending in the first half of 2009 by 7.37 trillion yuan (RM3.8 trillion) – 2.3 times the amount of loans issued during the same period last year.

Some would argue that policymakers are creating a bigger bubble to counter the effects of the one that just burst. It was the bursting of the property and debt bubble in the United States that precipitated the global financial crisis.

The global liquidity tsunami appears to have succeeded in arresting the fall in global property prices. The mother of all property indices, the Case Shiller Composite 20 Home Index – which measures property prices in 20 US metropolitan cities – saw its first month-on-month rise in May 2009 after falling 33% from a peak in July 2006. The peaking of US house prices was followed by the global financial crisis two years later, so hopefully a bottoming of US house prices is a lead indicator of better economic times. Home prices in the United States are less overvalued after the price correction but are not particularly cheap as they have risen more than the inflation. Nevertheless, the affordability of the homes has improved as interest rates have declined.

The stabilisation of the US housing market is crucial as it means household wealth will also stabilise. Higher household wealth, closely tied to property and stock prices, will boost consumer sentiment. This in turn could boost US consumer spending and, hence, Asian exports. It would also boost the US economy as consumer spending accounts for 70% of the US economy.

However, it would appear that any recovery is likely to be muted as unemployment remains high and households are still deleveraging from high debt levels.

Ironically, a weak recovery and the deflationary effects of excess capacity will allow policymakers to keep interest rates low for a long time. After all, policymakers are unlikely to want to raise interest rates prematurely and be blamed for tipping the economy back into recession. Property prices and transactions in Asian countries like China, Hong Kong, Singapore, Taiwan and South Korea have risen from depressed levels in the first quarter of 2009.

In fact, the prices for the Housing Development Board (HBD) units, in which the majority of Singaporeans live, are at an all-time high. Low mortgage rates of less than 2% in Singapore have helped boost property prices. This is good news for property owners but bad news if you are a new graduate aspiring to own a property.

In Malaysia, lower interest rates, a buoyant stock market and better consumer sentiment have combined to boost demand for properties. Bargain hunters queued for properties launched by Island & Peninsular in Bandar Kinrara and Glenmarie and IJM Land in Jelutong, Penang.

Property companies are generally seeing better demand for property, and property agents are seeing renewed interest from home buyers.

Ironically, the rental market is not improving due to the ample supply of new property at a time when economic activity remains weak. The new supply of high-end condominiums and office space in KL is arising at a time when some multinational companies are downsizing. Higher supply and weak demand are likely to translate into lower rentals but not necessarily lower property prices as the alternative is to invest in deposits yielding only 2%.

This phenomenon has been observed in many countries like Hong Kong, Singapore and Taiwan where rental yields are at only 2% as deposit rates in those countries are at 1% or less. In the end, the effect of this liquidity is to punish the savers and reward borrowers with high risk-taking behaviour. Nothing much has changed despite all the touted reforms and we are on the way to creating a new bubble which would hopefully compensate for the current downturn before it eventually bursts.

In the meantime, property prices and property stocks are likely to rise in the liquidity-induced asset price inflation. The prices of property stocks have risen sharply from their lows in March 2009. The larger property stocks in Malaysia and the region are priced more than one times book. Many smaller property stocks are still trading at below one times book and offer more attractive valuations.

The party is on, the participants are intoxicated with liquidity but when the music stops, make sure you are not the player caught without a chair in a game of musical chairs.

Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd. Readers’ feedback is welcome. Please email to starbiz@thestar.com.my

The Star – 17th August 2009

PETALING JAYA: Following the recent positive policy changes to liberalise the Malaysian property sector and news that Hap Seng Consolidated Bhd acquired a 50% stake in Menara Citibank, analysts have mixed views on the local property market outlook and the performance of commercial properties.

In its latest report, OSK Research said in 2009, office space in the Golden Triangle and central business district should fare relatively better than other areas, given the limited new supply of office properties.

This is despite the impending strong competition from Bangsar, Pantai and Petaling Jaya areas commencing this year, coupled with other factors such as over-congestion and astronomically high rental rates in centralised areas that are likely to intensify the decentralisation trend.

“Having said that, we do not expect many multinational corporations to move into cheaper outer suburban office alternatives.

OSK Research sees Hap Seng’s acquisition of a 50% stake in Menara Citibank (pix) in Kuala Lumpur for RM235.4mil as a fair price

“Most foreign CEOs are likely to prefer close proximity to the city infrastructure and city-based clientele,” the brokerage said in a note to clients.

OSK said to date, office space buildings which had been in existence for years had an estimated gross cap rate of 7%-10% (or higher) in the Klang Valley while new upcoming office buildings were estimated at an average gross cap rate of 6%-7%.

The brokerage sees Hap Seng’s acquisition of a 50% stake in Menara Citibank in Kuala Lumpur for RM235.4mil as a fair price.

“The estimated acquisition price of RM828 per sq ft would translate into a gross cap rate of about 7.5% for the office space component.

“We think this is rather a fair valuation, especially given the fact that the office space market is currently in a transition mode into a tenant’s market,” it said.

As companies would be more aggressive in cutting their occupancy costs amid the subdued business outlook in 2009, the Klang Valley prime office market would be hit hard by the incoming new supply this year, especially in the decentralised regions, OSK said.

However, centralised areas like the Golden Triangle and central business district would likely escape from the over-supply cycle in 2009.

OSK expects 2012/13 to be more painful, not only to the decentralised regions but also the centralised ones. The economy during that period would have to absorb the slack left over from the 2009/10 downcycle, it noted.

Meanwhile, HwangDBS Vickers Research said it expected more transactions by local investors in the near future, and possibly the return of foreign investors due to the improved global credit markets and economic outlook/sentiments.

“We find a return of large commercial transactions following recent positive policy changes to liberalise the Malaysian property sector. The abolishment of local equity requirement for mergers and acquisitions and Foreign Investment Committee approvals is encouraging,” it said.

HwangDBS said Malaysia Property Inc, a joint public-private sector initiative, could go a long way in helping to promote Malaysian properties which were still cheap viz-a-vis regional markets with no restriction on foreigners buying freehold properties.

It maintains its positive view on the local property sector and developers with significant exposure to the commercial segments, including KLCC Property Holdings Bhd, Malaysian Resources Corp Bhd (MRCB) and IGB Corp Bhd.

It recommends a “buy” call on KLCC Property and MRCB with a target price of RM3.70 and RM1.50 respectively, while IGB is not rated by the research house.

ECM Libra Investment Research said it anticipated the property sector had bottomed out and was recovering given that several developers had planned new launches after a difficult period over the last 12 to 18 months.

It maintains its “neutral” call on the sector and remains selective on its stock picks, preferring mid to small capital property developers where valuation is more compelling.

ECM Libra upholds its “buy” call on Sunway City Bhd and Sunrise Bhd at a target price of RM3.60 and RM2.85 respectively.

The Star – 11th August 2009

If the relaxed measures are able to attract more foreign direct investments (FDIs) in the country’s business and property sectors, there should be greater demand for commercial and residential property from these foreign investors.

In fact, the removal of the Foreign Investment Committee ruling for foreigners purchasing commercial property has the potential to turn Malaysia into a vibrant commercial property market as more foreign investors are attracted to the market.

The commercial market has turned a lot more liquid and there could be more en-bloc transactions down the road.

The market has proven its resilience with capital values and rental rates for commercial space holding out quite well despite the onslaught of the global financial crisis.

However, to give a further boost to the local business environment and inflow of FDIs, it will certainly help if the Government can further liberalised the tax structure for businesses and individuals to raise the country’s competitiveness.

As for the residential market, the existing low interest rates for property financing and the housing packages that are still offered by most of the developers are attracting stronger buying interest.

Those who have yet to purchase their own property and are shopping around for one still can take advantage of the low entry cost until developers decide to put a stop to these facilities.

Going by the strong take-up for some of the recently unveiled condominium projects around the peripherals of Kuala Lumpur, it looks like more Malaysians are resorting to investing in property to hedge against inflation.

After all, bank interest rates for property financing are at one of their lowest and it will be wise to lock in at the current levels.

Meanwhile, industry players are also anxious to get on with their project launches once again after having to defer their plans over the past three quarters since the crisis broke out last September.

After having laid low for much of the past few quarters, it is not surprising that developers are eager to unleash their products and are lining up a string of projects for launch. A variety of property products will be making a beeline for the market soon.

They may feel that delaying the launch further will mean higher holding cost for them.

But, a word of caution for developers. The local economy is not yet out of the woods and the gross domestic product for the second quarter is likely to remain in the negative terrain, although the contraction is expected to ease and bottom out by year-end.

There is still an imbalance in demand and supply in the property market for now and it will take a few more months before a more balanced market sets in.

Developers should be prudent and conduct proper feasibility studies before launching their projects, especially new greenfield projects that take many years to complete.

Gauging the market response through project previews and pre-launch registrations will show whether a project is ready for launch.

To register sustainable earnings growth path going forward, developers have to come out with holistic plans for their residential and commercial properties.

There should not be a sudden clamour for project launches but they should be based on market fundamentals and actual takeup rates.

As the market is just about to make a turnaround and it is still very much a buyers’ market, developers have to be prepared with more quality projects and the right product offerings at the right pricing.

Deputy news editor Angie Ng hopes to see more vibrancy back in the property market soon.

The Star – 8th August 2009

The 133 freehold units, located from across a Perodua service centre, were sold in two hours.

At RM750,000 for an intermediate unit, the offerings from Island & Peninsular Bhd (I&P), known as Temasya Suria, were by no means cheap.

Even as you are reading this today, I&P is selling another series of double-storey housing in Bandar Kinrara, Puchong.

Known as Sentosa, the 80 units of double-storey terraced houses are priced between RM462,000 and RM694,000. As with previous week’s launch, buyers were known to have been queuing up several days.

General manager (group marketing and communications) Noor Lida Nazri says both situations reflect the confidence in the market. “Although many invest in different types of assets, there are those who find property to be the most reliable. They are essentially going back to what our forefathers have always believed in,” she says.

More than half of the buyers bought to stay, she says. It has been quite some time since freehold double-storey terraced housing, a staple in Malaysian housing market, has been put on the market and the interest generated is interesting.

Noor Lida says the other reason for the positive response is the financial package they are offering. Buyers pay 10% and their next payment is due when they get their keys. In the interim, the banks will pay the progressive payments and interest. Stamp duty, transfer and legal fees are absorbed by the developer. The fact that Temasya Suria is about 75% complete when they reached the market is also a selling point, Buyers will be able to move in the first half of next year. Its second project in Puchong will take two years to complete.

On Aug 14, Selangor Dredging Bhd (SDB) will be launching what will be Petaling Jaya’s most pricey condominium project in SS2/72. It will be SDB’s branding vehicle.

The last time they had an outing there, it was with Ameera in 2007, which had prices starting from RM380,000 onwards. Although it is building Ameera which will be ready next year, that project is a legacy from Luxor group, the previous land owner.

With this second project, known as Five Stones, SDB managing director Teh Lip Kim has a clean slate to put down her mark. It will be different from Ameera in terms of ambience and landscaping with lots of open space.

The 185-unit freehold project comprises three low, medium and high-rise blocks with prices starting from RM800,000 onwards, a jump of about RM500,000 from its Ameera launch.

Size ranges between 1,700 sq ft and 2,400 sq ft while Ameera comes in smaller packages.

Over the last three months and in the months ahead, developers had, and will continue, to dangle a carrot in terms of financing to get sales moving again from Penang to the Klang Valley. This has been a strong factor in pushing up sales. Most of these developers are among the country’s top players in the sector (see table).

But will sales continue to be buoyant when this carrot is taken away?

Two sources, an analyst who has been tracking the property market, and another from a locally incorporated foreign bank, say “for sure, it is still a buyer’s market”.

Says the bank source: “The attractive financing packages worked out by developers and their banking partners today reduce the price by between 5% and 7% for the buyer. This will eat into their margins. They may have the sales, but profit will slack.

“This trend of dangling the carrot has triggered a lot of forward buying. Many of the buyers may not need a house but because they have the savings, and all these costs are being absorbed by the developer, they enter the market.

“If an apartment costs RM600,000, I need only to pay RM30,000 under a 5/95 scheme where I pay only 5% downpayment and nothing more until I get the keys in three years. It is not far-fetched that the price will increase by 10% if the economy picks up. If it increases to RM660,000, I’d make 100% profit. If the economy does not pick up, with so much forward buying, a time may come when developers will have difficulty selling.”

Every developer is selling at a discount because they have to sell. Because the buyer are billed on a progressive basis, the sales are recognised only a few years later, until the house is built. There is a delayed revenue recognition. Hence, although the pickup rate is positive, profit will be slack because of the carrot they have been dangling since the beginning of this year.

Only when the carrot is taken away and the sale is as good as before, then one can safely say the market is rosy again, he says.

In the 1997/98 Asian financial crisis, the property market only picked up late 2000 and early 2001 and peaked at 2006. The pickup took time.

Between a V and a U-shaped recovery, he would prefer a U, says the bank source.

An analyst who has been tracking the sector says the optimism throws into focus how bad the situation was in the last quarter of 2008.

“Things are looking rosy today because we are starting from a very low base since Q408.”

As the year comes to an end, he says, developers will end their financing schemes because they eat into their margins.

“We will continue to see sales but this may be less compared to what we saw the last few months. Hopefully, the good run seen in June and July will continue into the coming months in what has been an erratic year,” he says.

The Star – 8th August 2009

It was attached, with five bedrooms – but, sadly, at RM700,000, it was beyond her price range.

See, who was renting in the interim, finally bought the property this year for just RM525,000. She completed renovations three weeks ago and intends to move in once the new patio is ready and the decorators have left.

“I was so pleased, because I couldn’t afford to pay more than I did, and I had been looking at it for sometime,” See says.

“It’s a fascinating location and it’s all gone smoothly,” she says.

A wise person once said “don’t buy the house, buy the neighbourhood”. It certainly pays to know what’s the going rate per square foot in your neighbourhood.

It seems to be a cracking time to be buying residential properties especially in strategic locations.

The general consensus is that 2009 is shaping up to be a good year for the country’s housing market.

According to an analyst with a local research house, it is generally a good time to buy property now especially for owner-occupier residential property.

“Interest rates are at an all-time low while developers are willing to absorb much of the upfront property ownership costs such as stamp duty, legal fees, and interest,” he said.

He adds that buyers who are waiting for cheaper prices are going to be disappointed as prices have generally been stable (some even higher).

“Unlike during the Asian financial crisis a decade ago, there is no fire sale in the secondary market now. Even the developers are in stronger financial footing as the current gearing level is half of the level seen during the Asian financial crisis. This means developers can wait for sentiments to improve before launching new properties rather than dumping them at fire sale prices,” he says.

He says although much of the recent revival in residential property transactions was due to the attractive housing loan packages offered by developers and there is a possibility of buying activities easing once these packages are terminated, it does not mean that prices will start falling.

“As consumer sentiments improve and fear of job losses dissipates going forward, buying activities will continue even without the housing loan packages,” he says.

There are also bargains to be found in forced sale situations for whatever reasons they are placed on the market by mortgage lenders who have repossessed them from landlords who were unable to keep up with their mortgage payments.

A banker with a local bank who handles auction sale says that it has been improving from year to year.

“This year auction sales probably have the best improvement due to fewer options in the primary market and fair value as compared to new properties,” he says.

He says year to date there has been an increase of 20% in terms of value and 11% in terms of transactions under his portfolio.

He adds that the increase is due to public acceptance towards auction and an increase in participation of real estate agencies in auction marketing.

Meanwhile, Kim Realty business development manager Azlan Adnan who has sold four properties last month says that a notable trend in this low interest climate is that government servants are opting to take bank loans instead.

“We’re getting to the stage where civil servants are opting for bank loans and saving their government loans until they get a promotion and are entitled to a higher loan later,” he says.

“People are actively looking for properties,” Azlan says adding that current low interest rates make it a good time to buy now.

Apparently, it is a message that appears to be getting through to would-be buyers as well.

Dean Tan, 35, a lawyer, is hoping this will work for him: He is planning to add another property to his portfolio.

“Because I haven’t moved for 10 years, I’ve built up quite a lot of equity,” he says. “So I should be able to get a loan at this rate and earn extra income from my rental property.”

According to the Valuation and Property Services Department, the residential property sub-sector continued to spearhead market transactions last year by contributing 63.7% and 46.8% of the transaction volume and value, respectively. In total, 216,702 transactions worth RM41.30bil were recorded in 2008 against 199,482 transactions worth RM36.5bil in 2007.

For SK Brothers (M) Sdn Bhd managing director Chan Ai Ching, sentiments seem to be returning.

“There are quite a number of positives in favour of it being a good time to buy: attractive incentives for easy property ownership offered by developers including low payments, zero interest during construction, subsidised legal fees, freebies and lots more making it easy for buyers to purchase and some are designed to reduce the fear of uncertainties; attractive interest rates; and loan packages offered by the banks and the availability of choices/options.”

However nothing beats doing your homework to ensure that the price, package and property meet your requirement.

“It would not be wise to buy for the sake of buying,” she says.

So instead of leaving your money in the bank, earning little interest – put it in bricks and mortar. But unlike stocks and money, which can lose value on any day, you cannot dump real estate in a single day and try something new tomorrow.

The Star – 8th August 2009

In its latest report, HwangDBS Vickers Research said the local high-end property sector had been on an uptrend, with developers raking in quick profits from project launches.

Among them were DNP Bhd’s Verticas condominiums in Bukit Ceylon, Kuala Lumpur, which saw 60% of the 50 units soft launched being taken up.

En bloc buyers also snapped up 93% of non-bumiputra units launched (last month) at IJM Land Bhd’s Light Linear project in Penang.

“We see demand for high-end units returning, which could re-rate the sector,” said HwangDBS.

It also highlighted Eastern & Oriental Bhd’s St Mary serviced apartments in Kuala Lumpur (launched in June, 80% take-up in five days) and SP Setia Bhd’s Sky Residences condominiums in KL (previewed in September 2008, with an average 70% take-up so far).

“Developers are more confident now to resume launches, which should lead to faster earnings recovery. Selling prices may soon be raised and incentives gradually pulled back, resulting in margin expansion for developers,” HwangDBS said.

An analyst from a local bank-backed brokerage said the take-up rates were not surprising, given the developers’ good reputation.

“These developers aren’t your fly-by-night type of developers. They have very good reputation and solid track record. The average investor or house-buyer is more likely to park his money with a well-known developer, knowing that his money would be safe,” he said.

Another analyst said the property sector was making a comeback in the region. In the last few months, Hong Kong, Singapore and China had seen strong surges in property demand, she said.

“There’s so much liquidity with nowhere to go. This is one of the safest ways to fight inflation. Putting your money in the bank basically means being eaten up alive by inflation.

“Malaysian property is generally still very affordable. If you don’t buy one now, it will be even more difficult to afford it next time. The 2% interest you get from banks is nothing,” she noted.

HwangDBS also highlighted the Malaysia Property Inc, a joint public-private sector initiative aimed to attract foreign investments worth RM20bil in the domestic real estate sector over the next 10 years.

“The recent liberalisation measures (abolishment of local equity ownership requirement for mergers and acquisitions and Foreign Investment Committee approvals) should help boost both foreign and local demand for Malaysian properties.

“Previous policy changes (waiver of real property gains tax and monthly EPF withdrawals) introduced just before the financial crisis have yet to be fully felt and could be strong catalysts during a recovery,” it said.

The Star – 4th August 2009