Experts share insights on property market in Malaysia

  Speakers Chris Tan (left) and Dr Choong Kwai Fatt sharing their thoughts to attendees of StarProperty Prime Investment Forum at Nexus, Bangsar South. - RAYMOND OOI/ The Star

PETALING JAYA: Malaysians should start thinking about home ownership before it becomes out of reach, said a property consultant.

Chur Associates founding managing director Chris Tan said property buyers were living in an era of the best home owner protection where incentives and attractive financing plans were provided to genuine home buyers.

“Firstly, one must understand one’s risk profile, metaphorically by setting your investment style either as a hare or tortoise’s pace, as well as any other method that falls in between,” he added.

Tan shared his insights on Malaysia’s agenda of “Housing the Nation” during the StarProperty. my’s Prime Investment Forum 2016 held on Sunday.

Over 400 registrants attended the forum, sponsored by Mah Sing Group Bhd, at Oak Room, Nexus, Bangsar South.

Tan pointed out that “property investment is low-risk and is one of the most important portfolios, even for richer and successful nation groups, as property investment is tangible and is constitutionally guaranteed.”

For first time home buyers, Tan advised that it would be best for each individual to own their very own home, only if they can afford it.

Tan added that property investment was one of the methods to overcome inflation due to property valuation.

Dr Choong: ‘In order to purchase a property, one should first select a developer that has a good track record.’ Advocate and solicitor, tax and GST consultant Dr Choong Kwai Fatt said: “In order to purchase a property, one should first select a developer that has a good track record.

“This is the first assurance of a successful property investment.”

He added that now is the best time to buy a property.

“If the currency drops in value in future, it will be harder to purchase properties.

“Therefore, while the Malaysian currency still holds good value, it is best to invest right away.”

Meanwhile, Mah Sing Group sales and marketing director James A. Bruyns said the company has a range of properties in the northern region and scattered areas in Kuala Lumpur.

In fact, the forum has brought together all Mah Sing’s astounding offerings to property investors, he added.

Among the leading developments presented at the Prime Investment Forum include Ferringhi Residence and SouthBay City in Penang as well as the central region developments, Cerrado residential suites from Southville City in Bangi and Lakeville Residences in Taman Wahyu, Kuala Lumpur.

Bruyns concluded that there wasn’t a good or bad time to invest and if one has the means to invest, they should go ahead and invest.

He said: “Investing in property is a good way to build up the market sentiment especially when people are still investing, where there are good take-up rates as well as good property products.”

By Viknesh Ashley Clarence The Star

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Lessons from Penang affordable housing

AS we all know, affordable housing is the saving grace for the middle to low income group in our common dream to pursue the “roof over our heads”.

Most often, aspiring homebuyers are sandwiched between increasing property price and developers’ tendency to build high-end apartments especially in greater KL for the last decade.

The introduction of PR1MA and other affordable housing agencies by the federal government is aimed at addressing this gap and to promote better home ownership as part of the prime minister’s national transformation programme. Nonetheless, not many realised that affordable housing is also a state initiative whereby state governments are free to introduce affordable housing schemes given that land and development are within the exclusive power of the state under the Federal Constitution. For instance, Penang is fully behind the notion of affordable housing by placing their top priority on increasing homeownership ratio within the state.

Checking online, there are currently 29 affordable housing projects in Penang with 12 being developed by the state government and the other 17 by the private sector. Penang is delivering a commendable amount of affordable housing by trading plot ratio of built-up area in exchange for more units to be built.

The state government is constantly reviewing and updating the criteria for the purchase of affordable housing in Penang. A person who already owns a property can still purchase affordable housing in Penang provided the person can satisfy the conditions imposed.

For example, the house to be purchased must be of higher value than the one already owned.

In addition, for those who are not born in Penang, under the talented and skilled category, they may also purchase affordable housing in Penang provided they undertake to reside there for a minimum of five years. In short, affordable has become a driver for talent retention. This ultimately helps to upgrade living standard in Penang.

On the flip side, Penang has uncovered a problem. Those who are entitled to affordable housing may not qualify for financing, especially those from the lower income group as they are considered as high risk by banks.

Job and income security at this level are extremely vulnerable given the high cost of living that in effect reduces disposal income. Bank and financial institution are after all profit-making entities. Loan disbursements below a certain threshold amount does not always generate their desire margin. Many expiring home owners are left helpless.

While nothing is perfect, one can only achieve success through lessons learned along the way and from history. The federal government is aware of the high loan rejection rate. It has, therefore, provided a 10% loan guarantee and First House Deposit Financing to help purchasers with their downpayments. The “Rent to Own” scheme was also introduced to circumvent the stricter loan financing situation.

Penang has introduced a similar Rent to Own scheme. Under this scheme, the state government provides 30% of the home price so that the house buyer can seek a 70% loan margin.

PR1MA, on the other hand, is facing difficulties finding suitable land as land is state matter. There is also a tendency for the state government to allocate land for this purpose in areas they want to urbanise, but which are often far from amenities and transportation links.

We all know that to develop affordable housing is not the best commercial decision to make because profit margins are definitely lower. As such, we cannot expect private sector developers to always bear the cost.

Penang, on the other hand, is able to overcome this problem by reducing the development charges via an increase in plot ratio. This then attracts private sector developers to come in.

A recent survey conducted by PR1MA shows that buyers prefer to purchase residential projects close to schools, clinics and shops. They also prefer access to transportation. Penang is closer to achieving its objective in the affordable housing arena because it “focuses on the homeowners”.

Under the recently announced Penang Transport Master Plan, the state government is mulling over RM8bil worth of projects that will enhance connectivity.

The development of an underground tunnel from Gurney Drive to Bagan Ajam, Gurney Drive to Jelutong Expressway and an alternative road connecting Gurney Drive right up to Batu Feringhi will really improve connectivity.

Penang is ambitious in executing its affordable housing plans. It is also spot-on when it comes to addressing the different issues connected with this subject.

The banking sector must buy into it. Banking and financial institutions are governed by the fiscal policy of the federal government. Maybe some mandatory quota or corporate social responsibility initiatives can be imposed on banks to provide loans to deserving house buyers. So it is timely that Bank Negara has called for a comprehensive and carefully designed National Planning Policy to support the Government’s aim in delivering more social housing in its recently released annual report.

By Chris Tan

Chris Tan is the founder and managing partner of Chur Associates.


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Real estate crowdfunding in Malaysia

CROWDFUNDING – the practice of funding a project or venture by raising small amounts of money from a large number of people typically using an online platform – has gained popularity due to the massive demand and supply in today’s competitive market.

In one way, it benefits start-ups and entities that require funds to either commence or expand their business portfolio.

Investors have the opportunity to participate in any potential investment that they are comfortable with and which corresponds to their personal investment portfolio via a simple click online. It is a chance to participate early in something potentially very big.

The Securities Commission has approved six equity crowdfunding platforms for issuers to offer share subscriptions to interested investors. This comes with strict compliance and regulations imposed on the platforms providing such equity crowdfunding services. The good news for investors is that these platforms, which represent another type of investment option, are expected to be launched very soon.

Rising property prices have increased the investment cost for real estate investors. Consequently, real estate investment trusts, which offer liquid stakes in real estate complemented by constant dividend yields, have become fashionable. Alternatively, real estate investors may also leverage on the informal real estate investors club that attracts a lower acquisition cost with bulk purchasing arrangements with developers.

We can draw one conclusion from these real estate investment options – that property investment is no longer an individual game but a team sport that thrives on leverage and collective bargaining.

There are even suggestions that political parties raise funds via crowdfunding in a bid to promote transparency and efficiency. This makes it easier to comprehend the call for crowdfunding in a sector like property. So, how does real estate crowdfunding work?

Online platform

The basic concept of crowdfunding is an online platform operated by an approved operator and regulated by a certain ministry that provides services to matchmake the issuer and the investor. The obligation of the operator is to conduct sufficient due diligence on the issuer and its product prior to allowing the issuer to campaign for fund-raising on its online platform.

To promote independence, there should not be any relationship between the operator and the issuer, and the operator should not personally join the fund-raising campaign by the issuer. Besides this, the operator has to approach private financial institutions or trust companies to set up trust accounts for the investment funds to capture, as trustee, those investors who are willing to invest in the issuer.

Similarly, to remain independent, the operator should not be related to the private trustees or financial institutions.

In this investment option, the utmost requirement for the issuer is that they shall be either a developer, a real estate agency or a land owner who owns the property slated for development and who is seeking to raise funds for that purpose. The operator may perform due diligence on the land background and require the issuer to show proof of ownership of the said land and also the proposed development plan. These are to be advertised on its platform as convincing tools to attract investors.

Nonetheless, contrary to conventional real estate investment where you would get the key to the property and may use it as a tangible asset for further financing in the future, any investment into the real estate crowdfunding platform does not give you ownership of an immovable property, unless it is agreed upon and offered by the issuer based on its fund-raising campaign.

The upper hand here is that the expected term for your return on investment (ROI) may be fixed and shorter. Investors may receive the expected ROI upon completion of the development. The investment amount is also within an affordable limit, and information is easily accessible via the Internet. Crowdfunding also promotes transparency in one’s investment and with collective investors, the bargaining power with the issuer is also greater as compared to individual investors.

Real estate crowdfunding might still be a new concept and some might have never heard of it until now, but with real estate investment running the risk of remaining merely a dream for the mid-range salary earner, it might be a good alternative to maximise returns on your hard-earned money without a hefty price tag.

However, as with all forms of investment, there are risks involved here despite the due diligence performed by the operators. Smart investors, nonetheless, always walk the extra mile to conduct their personal due diligence on the accuracy of the information made available on the crowdfunding platform.

The current regulatory framework only permits equity crowdfunding for the real estate business and is not yet a direct crowdfunding avenue into the acquisition of real estate.

By Chris Tan Real legal viewpoint

Chris Tan is the founder and managing partner of Chur Associates.

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Strata regime: Return on investment will always be a consideration as higher cost would certainly affect the possible margin of profit in today’s buyers’ market.

Counting the cost: Investors' profit margin may be affected under new law

PROPERTY has topped the list of investment options for those who have extra cash. Property investors and those who prefer other instruments, are trying to gain maximum returns on their hard earned money.

Property investment has gained momentum because of the price boom in the last 10 years as seen by the massive development and high take-up rate.

Because the bulk of these properties are stratified residential properties, legislations have been updated for a more efficient delivery of strata titles. Essentially, these new legislations provide more protection to house buyers.

Among these are the Housing Development (Control and Licensing) (Amendment) Act 2012 (“HDAA”), Strata Titles (Amendment) Act 2013 and Strata Management Act 2013 (both “Strata regime”). The Strata Management Act came into effect on June 1, 2015.

Return on investment will always be a consideration as higher cost would certainly affect the possible margin of profit in today’s buyers’ market. While having new legislations are good news for house buyers, these new legislations could also impact the cost of any investment in strata residential property.

For a start, there is now higher compliance cost for the housing developers, as there is an increase in the amount to be deposited in the housing development account.

There is also the new requirement to maintain the common property defects account prior to the delivery of the keys to the house buyers.

This means that under the new regime, developers will have a higher compliance cost, which may indirectly result in fluctuations of property prices. This means developers need to be financially strong and there is the possibility that they may incur financial costs as they try to maintain a feasible and sustainable cash flow.

This will discourage the smaller players. Having fewer choices is definitely not good news for the investors.

In addition, there is also a higher transactional cost for those who plan to flip their properties.

The earlier issuance of strata title upon delivery of vacant possession will require investors to fork out expenses related to the stamp duty before selling the completed property to the next buyer.

In other words, there is no longer savings on the stamp duty on transfer for those investors who bought directly from the developers. This lowers the return on investment, not to mention having to bear with the longer and complicated process of double transfers for those who are eager to dispose of the property on delivery of vacant possession.

The new template of the prescribed sale and purchase agreement HDAA (Schedule H) also requires that the payment shall be in compliance with the schedule of payment and no person shall act as stakeholder to collect such payment.

In simpler sense, the developer is no longer allowed to collect booking fee from the investors for their preferred unit and the unit they have selected is only secured upon the signing of the sale and purchase agreement with the 10% payment.

As such, there is no turning back once you have signed on those dotted lines and there is no way to secure your unit of choice with lower amount while you are working on the full 10% deposit.

Another cost that will burden property investors is the maintenance fees charged by the management office when they get their keys to their properties. The new strata regime has provided for the possibility of limited common property usage and the exclusive use of certain facilities – a privilege – which comes with a price tag. If the management adopts any limited common property, they are looking at a two-tier service charges and sinking fund, with one for those who have the use of one set of common properties and the other for the use of limited common property, to be enjoyed only by a selected few.

Despite monetary cost, time cost is also a factor for investors. A purchase into a strata development now calls for more involvement in the management as the management corporation of the development is formed much earlier now with the possibility of having the title and the keys delivered at the same time.

The new strata regime requires the active participation of all owners, as the tenure of the office bearer is limited. Other owners are required to sit in the management corporation committee on subsequent years. Despite the fact that taking up the responsibilities of committee members offers monetary gains, any misconduct or negligence may now result in a penalty.

The new restrictions on advertisement and representation by the developers also mean that the investors are required to spend time on research and do their own due diligence to better understand the investment. There is no longer permitted representation such as time/distance from a particular venue, projected monetary returns/gains and rental income. Thus, before making decision to invest, the consumers have to do more personal research on the investment.

While property investment remains feasible over the longer term, investors are advised to take these legislations into consideration to come out with a realistic projection of investment return.

By CHRIS TAN Real Legal

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