DrMortgage-at-work

Volatile year for real estate investment trusts

2012-01-16T16:52:00.000+08:00

By ANGIE NG
angie@thestar.com.my | Jan 16, 2012
Volatile year for real estate investment trusts

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The recent listing of the Pavilion REIT has improved the liquidity of the domestic market

PETALING JAYA: Headwinds from the gloomy global economic and financial fronts, particularly in the United States and the eurozone, will pose challenges to the performance of the local real estate investment trusts (M-REITs) this year.

According to Malaysian REIT Managers Association chairman Stewart Labrooy, the M-REIT sector will face slower growth and competition for tenants as an oversupply situation emerges in the office market leading to lower rental yields.

“It is going to be a volatile year ahead with the eurozone uncertainty coupled with low growth in the European and US markets. These markets are very important to growth in Asia and the impact would be felt in all export-led countries. Capital market activity will remain muted worldwide in 2012,” Labrooy told StarBiz.

In Kuala Lumpur, property prices are expected to remain flat for 2012 with some weaknesses in the high-end residential and office markets.

In the office sector, the seven million sq ft of new office space scheduled for completion this year would result in softening in rental and occupancy.

Despite the gloomy outlook, Labrooy said the Malaysian capital markets were expected to remain healthy this year with a significant number of deals – notably the listing of Felda’s assets in the first half of 2012.

“We are fully aware of the issues involved as some of the M-REITs have been through the 2008 global financial crisis and are taking a pro-active stand to retain their tenants through this period and manage their gearing leverage conservatively.

“Most M-REITs have strong tenant covenants and long leases to counter cyclical financial events. They also practise very conservative valuations so we don’t see any downward pressure on them in 2012 and beyond.

In addition, the average gearing of most M-REITs are in the range of 20% to 40%, precluding any event of a default on their loan covenants,” he said.

Labrooy said a silver lining from the uncertainty and volatility of the global markets was that investors and fund managers had started shifting to dividend stocks with strong asset backing and renewed their interest in M-REITs as defensive stocks in uncertain times.

“I believe that we will continue to see a strong subscription in the M-REIT sector this year bearing in mind that the sector performed fairly well to outperform the KLCI in 2011,” he added.

He said the local market still faced liquidity problem as the size of M-REITs was still small by international standards with only five having market capitalisation of over RM1bil. This has contributed to the weak participation among retail investors.

Although the combined market capitalisation of M-REITs has climbed to over RM15bil, its market capitalisation is still way behind that of Singapore which has US$27bil in market capitalisation.

Labrooy, who is also the chief executive officer of Axis REIT Managers Bhd, said the recent listing of Sunway, CapitaMalls Malaysia Trust and Pavilion REITs had improved the liquidity of the domestic market.

Labrooy also said there was an absence of listing of foreign assets as REITs on the local bourse, adding that those who wanted to go for listing had opted to do so in Singapore due to its much higher liquidity and better tax structure. The local regulatory and tax framework must be improved to be on par with Singapore, and a comparable tax code would assist in getting greater retail participation.

On whether there was a scope for other types of REITs to come into the market, Labrooy said: “Malaysia probably has one of the most diversified REIT offerings in Asia. We are currently offering hospitals, plantations, office, retail, education, hospitality, industrial and diversified REITs.

“In addition three are syariah-compliant to cater to the Islamic investors.

“The sectors that will see growth are in industrial, medium cost housing, healthcare, education and tourism. These growth areas are in the Iskandar Malaysia in Johor, Greater Kuala Lumpur and Penang.”

Al-Hadharah Boustead REIT chairman Tan Sri Lodin Wok Kamaruddin concurred that the prospects for the REIT market has not been fully tapped in terms of awareness among potential investors.

He said M-REITs were viewed as a safer investment compared with other REITs in the region. This was due to the domestic-centric focus of their property investments, lower refinancing risks and relatively lower foreign shareholding.

“Malaysia is in a strong position for greater growth and has the potential to lead the REITs market in Asia given its good track record and stable market conditions in Malaysia.

“Generally, potential investors are not well informed about REITs. We believe the level of awareness can be increased nationwide as knowledge plays an important role,” he said.

Lodin pointed out.

On the types of M-REITs, he said: “It would be good if the market could diversify to different types of REITs. Malaysia has a lot of property related assets with the potential of being “REITed”. The only factor at play right now is time. Once the conditions are favourable, industry specialists should develop these assets into REITs.”

Source: The Star

Public Talk on Mortgage

2012-01-16T16:42:00.000+08:00

Hi All,

Some Photos of my public talks with Milan Doshi.

GUIDE TO BUYING AUCTION PROPERTIES

2012-01-16T16:30:00.000+08:00

10 BIGGEST HOME LOAN MISTAKES TO AVOID

2012-01-16T16:27:00.000+08:00

Dear All,

Sorry for not updating my blog for quite some time. Attached is a copy of article I wrote for NST which was published recently.

EPF: Withdraw savings at 75

2010-10-28T15:26:00.000+08:00

KUALA LUMPUR: All contributors to the Employees’ Provident Fund (EPF) should withdraw their savings upon reaching the age of 75.
This is because no contribution would be accepted upon contributors reaching that age and no dividend would be paid on their savings.
EPF Corporate Communications Unit head Nik Affendi Jaafar said contributors’ savings would also be transferred to the Registrar of Unclaimed Monies when they reached the age of 80.
“The EPF is not like a bank. That’s why we don’t encourage contributors to continue saving with the EPF because after the age of 75, we will no longer pay any dividend.
“We will also transfer the money to the Government if it is not claimed when the contributor reaches the age of 80,” he said yesterday.
Nik Affendi was asked to comment on the confusion relating to EPF contributions after members reach 75. — Bernama

Source: The Star
Thursday October 28, 2010

Take up long-term housing loans, buyers told

2010-10-23T17:37:00.000+08:00

PETALING JAYA: Home buyers are encouraged to take up two-generation loans and financial institutions should support the move.
“The most important thing is for the individual to own a house for his family to live in.
“If loan repayment is extended to the second generation, that means the family will remain intact,” Housing and Local Government Minister Datuk Chor Chee Heung told a press conference here yesterday.
He had earlier launched the MBSB Ultimate mortgage programme by Malaysia Building Society Bhd, which offers loans for customers up to the age of 70 years.
Chor said Budget 2011 encouraged the two-generation loan term, refuting suggestions that stretching the loans that far would be a burden to the younger family members.
“I don’t think it is a burden for the next generation because the repayment is spread over a long time,” he said, adding that the younger generation is financially strong and can even afford to buy another house.
MBSB chief executive officer Datuk Ahmad Zaini Ithman said the idea of offering longer-term housing loans was to preserve the value of assets or investments.
“Ownership in the past meant buying for investment. But now, a house is a place for the family to stay.
“I think more financial institutions should pursue this approach,” he said.

Source: The Star
October 23, 2010

My View:-

It is better to do a proper planning on the loans instaed of taking a 2 generation loan. Imagine how much you have to pay in interest. Instead of paying for a house, at the end you have to settle for 5 becuase of the interest. This will only benefit the Bank.

Please choose wisely, if you want to take up a bank loan. Don't be trapped by the wrong decision.

Ministry: No property bubble

2010-10-22T15:58:00.000+08:00

SHAH ALAM: The Housing and Local Government Ministry does not foresee a property “bubble” in the country, where a rise in prices will be followed by a rapid reduction.

Minister Datuk Chor Chee Heung said that so far this year, property prices had increased by 37%, unlike Singapore and Hong Kong where the figure had already exceeded by 35% last year.

He said the increase in property prices since 2008 was due to the high cost of land, building material and entry of foreign companies into the sector.

“We still have a long way to go before reaching a property bubble,” he told reporters after the launch of Setia City here yesterday.

Chor said local property prices were still much lower and “nowhere near” those in Jakarta, Hong Kong and Bangkok.

“Last year and this year, the most sought after homes were priced between RM150,000 and RM180,000,” he pointed out.

Chor said the ministry and Bank Negara were monitoring the situation in the industry and if need be, action would be taken to prevent hardship to the people and economy.

He said that even developers had realised that there would be a drop in prices if they continued building properties.

“That is why since late last year, there was a reduction of 19% in the number of houses built nationwide,” he said.

On another matter, Chor said the ministry had proposed to the Cabinet the incorporation of pro-green features, like the rain harvesting system, as a requirement in the Uniform Building By-Laws.

In his speech, the minister said “green builders” held a competitive edge over their traditional counterparts as the norm now was towards energy-efficient buildings and water conservation facilities.

“The Malaysian Green Building Index (GBI), a rating tool that was launched early last year, provides an opportunity for developers and building owners to design and construct green and sustainable buildings.

“Going green is important but it is equally vital, if not more, that the maintenance of such initiatives over the long term is sustained,” he said, complimenting SP Setia Bhd, the developer of Setia City, for building an integrated green commercial hub.

Setia City is a 97ha integrated green commercial hub that will comprise office towers, hotels, service apartments and a retail mall.

Source: The Star (Oct 22,2010)

Banks Rejects Loan less than RM50,000

2010-10-18T11:26:00.002+08:00

Hi All,

Just to share some info with you. I noticed that after attending to some customers and also feedback from my consultants some banks (or the loan officers) are not keen to finance property below RM100,000 (especially for loan financing below RM50,000) which caters for the low income groups.

I think this is not right because we should be helping them instead of rejecting them. To the low income people owning a home is a dream come through.

I hope all of you will agree with me. Please give me your comments.

From the Desk of

Michael Yeoh

FULL LOAN FOR FIRST TIME BUYERS

2010-10-16T09:04:00.001+08:00

Source: THe Star

Major projects to build high-income nation

2010-10-16T08:47:00.001+08:00

Dear Readers,

GOOD NEWS.......... for the new budget announce by the Prime Minister

Please take note that for first time house buyers and for houses costing below RM350,000 there will be 50% stamping exemption.

Previous exemption is only RM250,000 an increase of RM100,000.

For first time house buyers with salary below RM3,000 and house costing below RM220,000 are applicable for 100% loan financing.

This will definetly spur the local housing market and also make housing afordable for everyone.

Please reed more on the articles attached.

From the Desk of

Michael Yeoh

Saturday October 16, 2010

>KUALA LUMPUR: Malaysia is geared for bigger growth – and a push towards becoming a high-income nation – with major public-private investment-driven infrastructure projects that are set to kick off next year.

Under Budget 2011, the Government intends to “reinvigorate private investments” to develop what it termed as high-impact projects such as the Mass Rapid Transit, Ampang-Cheras-Pandan Elevated Highway and construction of a 300MW Combined-Cycle Gas Power Plant in Kimanis, Sabah.

“Change is not an option but an imperative,” Prime Minister Datuk Seri Najib Tun Razak said in presenting Budget 2011 as he spoke about achieving the developed nation status.

For the layman, the Government, among other things, has promised not to raise toll rates in four highways for the next five years, besides helping first-time house buyers who earn less than RM3,000 get a full loan without paying the 10% downpayment.

However, the anticipated personal tax cuts did not materialise but there were other goodies for first-time house buyers, civil servants and those with ailing parents.

The Budget in brief

Toll highways and PPP projects

> The government plans to build six highways

> Toll rates on four highways owned by PLUS Expressway Berhad will not be increased for the next five years.

> Greater KL MRT to be implemented from 2011.

> A new 100-storey landmark, Warisan Merdeka, to be completed in 2020.

Tax incentives/hike

> Import duties for around 300 preferred consumer items to be abolished.

> Service tax to be imposed on paid television broadcasting services.

> Service tax for restaurants, hospitals and car rentals to be increased from 5% to 6%

> Sales tax will be exempted on all types of mobile phones.

Housing and Community

> Stamp duty exemption of 50% for first time house buyers on a house priced less than RM350,000

> RM350mil to implement various programmes to combat crime

Family and women

> RM70mil for programmes with selected NGOs to strengthen the family institution and address social ills.

> 40 1Malaysia TASKA to assist women to obtain quality childcare and early education for their children.

Civil service

> Maternity leave increased from 60 days, not to exceed 90 days for civil servants.

> Housing loan for civil servants increased to a maximum of RM450,000 from RM360,000 currently.

Education

> RM576mil allocated for scholarships for those wishing to further their studies.

> RM213mil allocated to enhance proficiency in Bahasa Malaysia and the English Language.

Health

> RM15.2bil to build new hospitals and increase the number of doctors, nurses and supplies of medicines and equipment.

> Another 25 1Malaysia Clinics will be established, bringing the total to 76.

Environment and green tech

> RM1.9bil to finance environmental preservation projects.

> To further encourage ownership of hybrid cars, import duty and excise duty exemption will be extended until Dec 31, 2011

Welfare

> RM100mil allocated to implement various orang asli programmes.

> RM218mil to benefit 80,000 disabled individuals through various programmes.

Source: The Star

Property loans safer bet for banks

2010-10-03T00:54:00.000+08:00

EXUBERANCE is often an indicator of an unsustainable pattern, be it for equities, collectibles or real estate. A rumbustious atmosphere in any asset class, more often than not, eventually leads to a deflation, which can be painful to swallow for its participants.

The two asset classes that have seen their fair share of bubbles are stocks and property, fuelled by euphoric expectations of higher profits and easy credit. The banking sector has always been in the forefront of such situations.

Prior to the 1997/98 financial crisis, banks had lent most of their money to businesses while a lot of cash was also diverted for the purchase of shares.

Then, household debt was much lower as a percentage to gross domestic product (GDP) than it is today and residential loans accounted for about 16% of total loans.

When the economy crumbled during the crisis more than a decade ago, the banks were severely hurt, not just in Malaysia but throughout much of South-East Asia and other countries that saw their currencies attacked and a spooky flight of capital.

Many banks in Malaysia had to be recapitalised and that was the catalyst to the consolidation of the banking sector that today, has resulted in the creation of nine anchor banks in the country.

Learning from the causes of troubles back then, companies shifted their funding needs to the debt capital market, which defrayed the risks and funding needs of corporations away from banks.

That transition by all accounts has been a success. Malaysia’s debt capital market is one of the most robust in Asia but the migration of corporations meant banks had to look for a new source of business.

Financial institutions then steered their sights to the household sector, which was prime for more credit as debt levels within homes were low as a percentage of GDP.

Household debt demand

As it stands today, household debt has grown by leaps and bounds. As a percentage of GDP, it was 40% in 2000 and that has grown by more than 50% to around 65% today.

Much of the credit demand has come by way of providing financing for the purchase of cars and of late, a surge in giving money to people for consumption needs. But the lions’ share of that funding constitutes home loans, largely owing to low interest rates and a steady rise in income levels.

“Interest rates have fallen and that has attracted people to borrow more,’’ said ECM Libra head of research Bernard Ching.

Housing loans are also seen as a safer bet for banks as traditionally, the non-performing loans for houses are low.

Margins for housing loans are not the best for banks as competition in the segment means that most financing packages out there today charge rates that are below the base lending rate.

Analysts say banks can afford to take a margin hit as funding for such loans, and for all loans in general today, comes from their own deposits where the cost of funds are the lowest.

Banks are awash with cash as, on average, the loans-to-deposit ratio is around 80% for the industry compared with above 100% during the financial crisis.

Also, lending towards the residential sector is a way of diversifying risk. Business loans tend to be lumpy and riskier.

Analysts say for the same amount of money, banks would lend to a single large business and they can carve that out into smaller slices and lend to multiple borrowers in the housing market.

The main difference is the amount banks lend to the value of collateral they get. As property prices in Malaysia tend to rise over time, so would the collateral, usually the home itself.

Financing packages

As interest rates remain low and competition in the housing loan segment has become a cut-throat war for many banks, real estate loan packages have also morphed.

In the past, larger downpayments were needed from homebuyers to purchase houses and the tenures were extended to 25 or 30 years.

Today, reports indicate that some properties, depending on the customer, can be fully funded by a bank loan and the amount of downpayment in general can be as low as 5% or 10%. The tenures are also elongated, up to a borrowers’ age of 60 years.

Also to help households afford homes, the minimum threshold for monthly payments have increased beyond the historical norm of 30% limit.

Analysts say this is possible as long as income rises and interest rates remain low. That risk would, however, compound should the interest rate environment flip in the future.

Mortgage broker Chew Thiam Hock says the low interest rate environment is enticing more people, even those who can afford to pay, to the banks for a higher loan amount.

“In the past, people did not want a high margin of financing but with interest rates so low, they have no problem taking a 90% loan,’’ he says.

The growth of the housing loan industry has also created business opportunities for brokers like Chew who have astute knowledge on the credit appetite of the panel of banks they represent.

Are banks taking too much risk?

With residential loans now accounting for 27% of all loans for banks, the question is are banks are over exposing themselves to housing loans?

Defining a housing bubble is not easy. Prices of property do experience periods of swift rises but the general understanding of a property asset bubble is when the price increase is too rapid devoid of fundamentals.

Some basic indicators include income levels, jobless data, rentals against the cost of a property or even affordability ratios can be used to gauge whether a bubble is forming.

“The risks are essentially the same for the banking sector, whether it’s corporate or housing loans, as consumer loans are a large part of the total banking sector loan,’’ says an economist.

“The ratio was the same in the business sector in 1997/98.’’

But based on the example of Hong Kong market, one analyst disagrees.

Sunil Garg, a banking analyst at JPMorgan Securities, says the housing loan represents one of the safest segments for banks.

“During the Asian financial crisis, losses taken on properties and residential loans were small,’’ he says, adding: “It’s a sector where there is real tangible collateral.’’

With housing loans by banks in Hong Kong accounting for roughly 40% of their loan books, one would think they would have suffered badly when the property market tanked during the 2008 global financial crisis.

However, property prices have since, not only rebounded off their lows, but have scaled new heights, and the loan-to-value ratio in banks means those assets are in a healthier state than before.

Still, the threat of a housing bubble and its far reaching impact can be damaging to any economy. The repercussions are only too well documented world over.

“We need to make sure we do not put our guard down against such risks,’’ says the economist.

Banks becoming more prudent?

One worry surrounding the property market is that building activity tends to ratchet up to take advantage of a boom in prices.

As it stands now, the anecdotal evidence points to a surge in the building of high-end properties. For developers, this segment represents the cream of their business as margins are always the fattest.

According to National Property Information Centre, the ratio of unsold units in the property sector is rising.

While those percentages in Kuala Lumpur and Selangor, where concerns that prices are rising way too fast, are below the national averages, it is nonetheless rising.

With that, analysts say banks are becoming cautious over their lending patterns as internally, they are scrutinising loans with a fine tooth comb.

“Banks might have their own assessment on the value of properties and the intrinsic value, which is the force sale price of a house,’’ says the analyst.

One proposed measure involving the loan-to-value ratio has generated significant debate. Still, it is widely perceived that genuine homebuyers would not be penalised with having to fork out a large downpayment. Those who could be penalised are the third or so on home buyers who will have to come up with 20% or more of the cost of the house.

“It’s a paradox for banks. When loans growth is strong, people will say banks are contributing to speculative activity and the bubble. When they are conservative, people will say banks are not supportive,’’ says a banking analyst.

Social justice

As developers make a beeline to build costlier homes in the hot markets in the country, more people are feeling they cannot afford to buy homes these days.

With workers’ salaries no where close to keeping pace with asset inflation or even the cost of living in the country, the issue of social justice – where every Malaysian should be able to afford a home for themselves – has cropped up.

“There is always a need for affordable housing, so prices remains within the reach of people. You don’t want the banking system to allocate too much money for speculative home-buying purposes,’’ said an economist.

Analysts say banks already have a social obligation to provide a certain amount of financing for the purchase of low-cost housing.

“Banks have a quota. If they don’t meet that, they will be penalised,’’ says an analyst.

As property prices rise, financing packages too tend to evolve alongside. In the past, the minimum downpayment for housing loans used to be much higher than today largely because housing was much more affordable back then.

For banks, the business of home lending has long been viewed as a safe bet. Houses have sound collateral value as they tend to appreciate over time; the downpayments paid for those houses when loans are disbursed act as a buffer for many banks.

Source: The Star Online

Bank Negara states its views

2010-10-03T00:51:00.000+08:00

MALAYSIA’S steady economic developments and stable labour market conditions have contributed to growing affluence, continued wealth accumulation and greater demand for financing by the households.

In the recent four years, total household borrowings grew at an average annual rate of 9.5% to RM561.5bil as at end-August 2010, and accounted for 78.1% of gross domestic product (end-2006: 68.8%).

About 45% of household borrowings are to finance the purchase of residential properties, while financing for car hire purchase accounted for 20% of total debts.

On aggregate, the debt accumulation has been supported by strong financial buffers of households, with household financial assets accounting for more than two times of total debts.

The banking system’s exposures to financing for the purchase of residential properties grew at an average annual rate of 9.6% in the recent four years to RM228.3bil as at end-August 2010, and accounted for 26.9% of total banking system financing or 46.3% of total financing to the household sector.

The potential credit risk exposures from this portfolio has remained within prudent levels, with delinquent or impaired financing (on gross basis) for the purchase of residential properties accounting for 3.4% of total house financing.

The banking system capitalisation remains strong, supported by excess capital buffers of more than RM60bil, and is expected to remain above the minimum regulatory requirement, even under a severe stress scenario.

With strong capital position, banks are readily equipped and willing to proactively assist borrowers faced with temporary income and cashflow problems in continuing to service their debt obligations.

The capacity of households to adjust under more difficult economic conditions was evidenced by the stable loan quality of the banking system during the recent global financial crisis and domestic economic slowdown.

In addition, banks are subjected to maximum limit on exposures to the broad property sector.

Supported by improved credit risk management, infrastructure and processes, banks in Malaysia have strengthened capacity to manage the exposures to the broad property and household sectors.

Banks have generally continued to observe sound underwriting standards amidst increased competition, particularly in the retail lending segment. Banks’ offering of flexible financing packages has been on selective basis, taking into account the debt repayment capacity of the borrowers.

Overall house prices, based on the Malaysian House Price Index, have grown rather steadily with an average growth rate of 3.4% for the period 2006 to 2009.

Some locations have nonetheless seen more rapid increases in residential property prices in the first half of 2010, driven partly by investment and speculative activities.

Such price increases may reduce the affordability of houses for the public, and contribute to imprudent debt accumulation by households.

Developments in property prices are being closely monitored by Bank Negara. If necessary, the central bank will take pre-emptive policy measures to promote a stable and sustainable domestic property market, and to ensure continued housing affordability and promotion of home ownership, as well as preserve financial stability in Malaysia.

Source: The Star Online

Home financing forms a big chunk

2010-10-03T00:45:00.001+08:00

THE numbers speak for themselves. Most banks, especially those with a strong retail banking orientation, see property loans as an important part of their loan portfolio.

As at end-June 2010, property loans accounted for 37% of the total banking sector loan portfolio. This is from an estimated 17.5% level in the beginning of 1997.

However, some banks such as Public Bank Bhd (PBB), Hong Leong Bank Bhd (HLB) and Alliance Financial Group Bhd (AFG) have a much higher exposure to the property sector, with property loans accounting for about half of their total loan portfolio.

Within the property loans segment, residential property loans remain the main focus for the banks as a result of the perceived low risk of the residential property segment.

As at end-June 2010, residential property loans accounted for a significant 73% of property loans and 27% of gross loans in the banking sector (versus 12% as at the beginning of 1997).

When it comes to the individual listed local banking groups, this composition can vary from 12% to close to 40%.

AFG has the highest exposure to residential property loans with 39.4% of its total loans book, HLB with 38.7%, PBB 27.9% and CIMB Group Holdings Bhd 24.5%.

Banks with a strong retail banking orientation are observed to have home loans making up 30% to 40% of their loan portfolios on average.

MIDF Research banking analyst Kelvin Ong believes the larger capitalised banks such as PBB, CIMB and Malayan Banking Bhd (Maybank) are market leaders in terms of housing loans as they have the advantage of better distribution channels such as stronger sales force, marketing network as well as more branches for greater penetration and customer service.

“These banks also have a wider network of solicitors and real estate agents. Another reason is their stronger retail deposits such as current account savings account which provide a low cost of deposits to support a lower credit cost,” he says.

According to Ong, PBB leads with a 17% share of the mortgage loans market, followed by CIMB with 13.8% and Maybank 13.4% as at June 30, 2010.

Ong says the key focus of banks will be to finance properties developed by reputable developers with good track record and properties in good locations.

“They will also have to closely monitor properties located in areas which are already highly priced (showing signs of a property bubble) to avoid over financing,” he says.

Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings Anandakumar Jegarasasingam says residential property loans are generally considered low risk for banks.

This is because most borrowers will strive to service their loan commitments, especially for their primary residence, due to the economic utility of the residential dwelling and the “social stigma” associated with a loan default and the subsequent auction exercise, he says.

“Even in the event a residential property is put to auction, the recoverable collateral value is likely to be sufficient to ensure a full loan recovery as long as there isn’t a major property price correction.

“While most banks have been prudent in ensuring that the market and forced sale value of a property is appropriately appraised at the time of loan sanction, recent anecdotal evidence suggests that intense competition has resulted in some relaxation of credit underwriting standards,” he adds.

Anandakumar says in general, non-performing loan (NPL) ratio for residential property loans of local banks has been more or less on par with NPL ratio for their broader loan portfolio while the NPL ratio for non-residential property loans has been lower than the gross NPL ratio.

According to MARC, PBB has the best residential property loans NPL ratio of 1.1% while Affin has the highest at 11.7% (based on data at bank level).

RAM Ratings head of financial institution ratings Promod Dass says the home loan market is very competitive and successful banks are the ones that have been able to act nimbly to meet customer demands both in terms of pricing and range of product offerings.

“In general, banks’ lending criteria and standards have remained prudent.

“Banks also look at various aspects of the property being funded such as market valuation, location, developer, price and property type in their underwriting process as part of the loan-to-value (LTV) determination,” he says.

However, he notes that more residential mortgages had LTVs of 90% or more for the past few years.

“Putting things in perspective, LTVs are only one part of the loan approval process. A borrower’s capacity to service his or her home loan is a key determinant that banks analyse,” he says.

Promod says among other steps, banks also examine the Central Credit Reference Information System (CCRIS) records to determine the number and quantum of other loans that the borrower has as well as the payment track record. CCRIS is a key decision-making tool when it comes to retail loans.

Anandakumar does not foresee the demand for residential property loans to be significantly impacted by the proposal to reduce the LTV ratio to as low as 70% for third and subsequent house purchases.

“Any individual who is purchasing a third residential property is either likely to be sufficiently affluent or a reasonably savvy property speculator.

“In either case, a 10% to 30% reduction in the LTV ratio is not sufficient to deter a potential purchase,” he says.

A more effective way to control an unhealthy appreciation in property prices would be to reduce the expectation of potential gains that triggers speculation, he adds.

“This could be done via the implementation of a robust property gains tax that can, if appropriately structured, reduce the incentive to speculate,” he says.

TA Securities says while the proposal should not have any impact on first-time home buyers, it could curb speculation and dampen loans growth.

“Assuming residential loans fall by 10% in 2011, this could lower our 2011 loans growth assumption to 10.6% from 13.6%.

“We also estimate that a 10% decline in mortgages should shave some 8% off our average financial year 2011 net profit forecast for banks under our coverage,” it notes.

TA Securities believes AFG will be the hardest hit due to a large proportion of loans in residential mortgages. Its exposure to the residential mortgage segment represents some 39.4% of its loan book.

Source: The Star Online

Loan-to-value cut will deter speculative buying

2010-09-27T10:52:00.000+08:00

By ELAINE ANG

elaine@thestar.com.my Sep 25, 2010

PETALING JAYA: The potential reduction in the loan-to-value ratio for the third and subsequent house purchases to as low as 70% will bite into property speculation activities as well as banks’ loans growth and earnings to a certain extent, analysts said.

A property analyst said a loan-to-value ratio of 70% would wipe out some speculative buying in the property market.

“It will be significant, especially for the high-end and high-rise residential property segment, as this segment typically attracts more speculators.

“Banks which traditionally have exposure to such loans will be affected if this ruling takes place,” she told StarBizWeek.

To recap, there is speculation that the loan-to-value ratio for the third and subsequent house purchases could be further reduced to as low as 70% from the assumed rate of 80%.

This followed Prime Minister Datuk Seri Najib Tun Razak’s comments on Tuesday that Bank Negara might impose a limit on financing to 80% from 90% for subsequent purchases after the second property while first-time buyers can borrow up to 90%.

The move is aimed at curbing speculative property transactions in a bid to contain escalating property prices.

An analyst with a local stockbroking firm foresees slower loans growth for residential mortgages if the loan-to-value ratio of 70% is implemented.

“This could result in more competition among banks, with some resorting to giving more discounts on base lending rates thus affecting net interest income and earnings.

“Assuming a 1% drop in residential mortgage growth, banks may suffer a less than 1% drop in net profit,” she said.

Nevertheless, she said the impact might not be very significant as the number of property speculators buying third and subsequent houses in the market was small compared with genuine buyers.

“Most banks actually have mortgages to genuine buyers in their books rather than to speculators,” she added.

The analyst said hypothetically, banks with the biggest exposure to the residential property sector would be the most affected by a lower loan-to-value ratio.

According to statistics, Alliance Financial Group Bhd has the highest exposure to the residential mortgage segment, representing 39.4% of its loan book. This is followed by Hong Leong Bank Bhd with 38.7% and Public Bank Bhd 27.9%.

The analyst, however, stressed that the quantum of effect would depend on how much of the residential loans was given out to speculators as opposed to genuine house buyers.

“Then again, most banks tend to be pretty prudent and may already have a stringent credit policy in place when it comes to lending to borrowers who are not buying residential property for their own stay.

“If this is the case, then the loan-to-ratio of 70% would not have an impact on them,” she said.

Source: The Star

Base Lending Rate Increased. What's Next?

2010-09-13T22:56:00.003+08:00

Dear Readers,

You will notice that whenever Base Lending Rate goes up or come down you still pay the same amount of installment.

I have customers who called me and told me happily that the Bank made an error on the interest calculation and thus they still pay the same installment amount although the interest rate has increased.

Unhappily, I have to bring them down to earth. The bank will not make a losing business and they don't make such mistakes. What actually happen is that instead of incresing the installment, the bank increase the tenure of the loan. As such, the installment still mantains the same but you are going to finish your loan at a much later date.

I noticed that some banks do not write to the borrower and let them decide whether to pay more or to maintain the existing installment. Even my own loan with CIMB Bank face similar fate. In my latest statement, I saw that the principal portion has decreased. I will have to personnally go to the bank and sign a form to change to higher installment amount.

From the Desk of

Michael Yeoh

Rising demand for Prai property

2010-09-13T22:44:00.001+08:00

By DAVID TAN

mailto:davidtan@thestar.com.my Sep 13, 2010

Rising demand for Prai property

Completed terrace houses in the Pearl Garden project by Tambun Indah Development in Simpang Ampat

GEORGE TOWN: Residential property prices in the prime locations of Seberang Prai have seen their most pronounced rise in years with prices having advanced by between 10% and 20% for the past six months.

The prime residential locations in Seberang Prai are in Alma in central Seberang Prai, Simpang Ampat and Bukit Tambun in southern Seberang Prai, and Butterworth town.

Henry Butcher Malaysia (Seberang Prai) senior manager Fook Tone Huat told StarBiz that a double-storey terrace house in Alma, Bukit Mertajam was now priced at around RM280,000, compared with RM240,000 about a year ago, an increase of about 17%.

A similar type of house in Simpang Ampat and Bukit Tambun in South Seberang Prai is now selling for about RM260,000, compared with RM220,000 a year ago.

In Butterworth town, a double-storey terrace house is priced around RM320,000, compared with about RM260,000 a year ago.

For condominiums in prime locations such as the Pinang Laguna Water Park condo project in Seberang Jaya, Fook said the prices had increased by about 10% from last year to about RM200,000.

For example, the recent launches of Pinang Laguna Water Park Condo units in July by Island LandCap Properties were priced from RM208,888, up about 10% from RM188,888 last August when the project was first introduced.

The Pinang Laguna Water Park Condo project, comprising 350 condominiums with built-up areas of 935sq ft and 1,010sq ft, is over 90% sold.

“In last three years, condominiums are becoming increasingly popular in Jalan Raja Uda and Jalan Telaga Air in Butterworth town.

“The original selling price, which started off from about RM160,000 for a unit with over 1,000 sq ft in built-up area, has risen over 30% over the past three years to around RM210,000 and RM230,000 today,” he said.

For the second half of 2010, three condominium projects, the Dahlia Park, Tanjung Heights in Butterworth town, and Palma Laguna Water Park Condo in Seberang Jaya, are already being planned for launching.

Although the price of residential properties had risen, Seberang Prai is still far from being a speculative market.

Fook said this could be seen in the low volume of sub-sales transaction of residential properties in the secondary market.

“Since January 2010, our company’s sub-sale transactions are just over 50 units.

“The appreciation for sub-sales properties is about 5% yearly,” Fook said, adding that Henry Butcher Seberang Prai’s main focus was on sales transaction of light industrial properties.

Fook said the speculative element in the Seberang Prai residential property market was not strong, as there was a strong supply of new houses.

From Asas Dunia Bhd alone, a major developer in the mainland, in the first half of 2010, the group had already launched 231 units of landed residential properties with an approximate gross sales value (GSV) of RM82mil, compared with the 169 units with an approximate GSV of RM44mil launched by the group for the whole of 2009.

Tambun Indah Development Sdn Bhd general manager Teh Theng Theng said the sub-sales for its Juru Heights project in central Seberang Prai in the past three years were only about 10% of the 482 units of landed residential properties in the scheme.

The demand for workers from multi-national corporations such as Ibiden Electronics Malaysia Sdn Bhd, First Solar, and Osram is also stimulating the demand for affordable residential properties on the mainland.

Ibiden, for example, has announced that it would hire some 900 workers for its first plant that is scheduled to start operations in the second quarter 2011.

Osram Opto Semiconductors and First Solar had earlier this year announced their plans to hire 1,000 workers for each of their respective plants in Bayan Lepas and in Kulim Hi-Tech Park (KHTP).

Meanwhile, Real Estate Housing Developer Association (Penang, REHDA) chairman Datuk Jerry Chan said the rise in Seberang Prai property prices had to do with the increase in land and construction costs.

“In hot locations such as Butterworth and Bukit Mertajam towns, where land is limited, the price of land with vacant possession is now about RM50 per sq ft and RM40 per sq ft respectively.

“In Alma, the price of land with vacant possession is about RM30 per sq ft, while in Bukit Tambun it is around RM18 per sq ft.

“Inclusive of land and construction costs, the cost to build a double-storey house on the mainland is about RM200,000, compared with about RM160,000 a year ago,” Chan said.

Chan said the scheduled completion of the second Penang bridge in 2013 was another important factor in pushing up property prices. “Now that is over 24% completed, people are now confident that it would be completed on time,” he said.

DNP Land Sdn Bhd general manager KC Tan said one of the reasons why property prices in Bukit Mertajam was appreciating had to do with the effort to improve the road infrastructure.

“For example, the roads near Bukit Mertajam town are now gradually being widened to accommodate the construction of a flyover that will reduce traffic congestion.

“The opening of Tesco hypermarket in Alma before the year ends also explains why the area is now booming as a prime residential zone,” he said.

Source: The Star

Property launches worth RM571m planned in H2

2010-09-13T22:39:00.001+08:00

Sep 13, 2010

Property launches worth RM571m planned in H2

GEORGE TOWN: The second half of this year will see the commencement of property launches in Seberang Prai for 1,981 landed and high-rise property units with an estimated gross sales value (GSV) of RM571mil.

Asas Dunia Bhd, Tambun Indah Development Sdn Bhd, and Island LandCap Properties Group are among the developers launching the projects

Of the 1,981 units, some 664 are high-rise properties developed by Tambun Indah Development Sdn Bhd and Island LandCap Properties.

The highlight of the high-rise projects is the 38-storey RM100mil Palma Laguna Water Park Condo, touted as the tallest building in the mainland, by Island LandCap Properties.

“The 382 condominiums, measuring 1040 sq ft and 1,100sq ft in built-up areas, are priced between RM228,000 and RM265,000, depending on whether the units are facing the sea or the facilities.

“There are four penthouses, with built-up areas of 1,600sq ft and 1,970sq ft, priced between RM400,000 and RM490,000.

“We have already sold 20% of the units during a preview recently,” said Island LandCap executive chairman Oon Weng Boon.

The official launch of the project is on October 23.

Also scheduled for launching in the fourth quarter are Tambun Indah’s RM40mil Dahlia Park and the RM41mil Tanjung Heights high-rise condominium project, comprising 282 units.

“The Dahlia Park in Butterworth town comprises 134 condominiums with built-up areas ranging between 1,395sq ft and 1,689sq ft, priced from RM209,800 onwards.

“The Tanjung Heights project in Butterworth town comprises 148 condominiums of 1,300sq ft units, priced at around RM200,000,” Tambun Indah general manager Teh Theng Theng said.

“The recent launches of Carissa Park werepriced at RM182,000, compared with RM160,000 when the project was introduced early this year,” she said.

Teh added that the group’s Carissa Park condominium project, comprising 144 units in Butterworth town, had sold about 70% of its units since the launch early this year.

Tambun Indah is also launching, in the fourth quarter, 467 units of landed residential properties in Simpang Ampat, South Seberang Prai, and in Alma, central Seberang Prai, with an approximate GSV of RM160mil.

“Some 335 units are for the group’s Pearl Villa gated project in Simpang Ampat.

“The terrace and semi-detached properties are priced respectively from RM270,000 and RM398,000 onwards.

“The Impian Residence, comprising 132 terrace and semi-detached units, is in Alma.

“The selling price starts from RM260,000 for terrace units and RM350,000 for semi-detached types,” she said.

Asas Dunia will launch soon 850 units of landed properties planned for central and southern Seberang Prai.

The 850 units of landed properties have an estimated GSV of RM230mil.

They comprise 500 single-storey semi-detached houses, and 350 double-storey terrace, double-storey semi-detached, and light industrial units.

Group managing director Datuk Jerry Chan said the single-storey semi-detached unit, with built-up and land areas of 1,200 sq ft and 2,660sq ft respectively, was priced between RM150,000 and RM290,000.

The double-storey semi-detached unit, with built-up and land areas of 2,557sq ft and 2,724sq ft, is priced from RM358,888.

Source: The Star

Foreigners Purchasing Property in Malaysia

2010-09-09T11:38:00.003+08:00

Dear Readers,

For those who are not from Malaysia and would like to purchase Malaysian properties, please take note on the guidelines:

RESTRICTIONS

10. Foreign interest is NOT ALLOWED to acquire:

10.1 Properties valued less than RM500,000 per unit;

10.2 Residential units under the category of low and low-medium cost as determined by the State Authority;

10.3 Properties built on Malay reserved land; and

10.4 Properties allocated to Bumiputera interest in any property development project as determined by the State Authority.

Source: Economic Planning Unit

Additional Info:

1. Any purchase will require local state approval (State Consent). It will take between 1-2

months.

2. There will be a holding period of 3 years from date of purchased before property can be

disposed.

3. There is no restriction of number of properties purchased.

4. Bank's financing for the purchase ranging from 60-80% depending on cse to case basis

5. Real Property Gains Tax applicable to First 5 years at 5%.

Hope this helps.

From the Desk of

Michael Yeoh

Hot property market still grabbing attention

2010-09-08T11:26:00.000+08:00

PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.

The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.

According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.

In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.

The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.

Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.

The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.

They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.

Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.

Bank sources said Bank Negaras aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.

A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.

Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.

Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.

The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.

Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.

To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.

Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.

In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.

But things have changed substantially in the past six months or so, and it should be time to review these housing packages.

If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.

We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.

Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.

Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market

Source: The Star Online

Steps to check household debt

2010-09-08T11:17:00.001+08:00

PETALING JAYA: There are plans in the pipeline to impose stricter credit-card and personal-loan limits to maintain household debts in Malaysia at a healthy level.

According to a banking source, Bank Negara is said to be looking into elements of household financing and may come out with preventive measures.

Chatter within the financial circles reveals that such measures are to ensure that total household debt is kept under control and may see new and tougher limits on the number of credit cards a person can hold as well as a lower cap on how much a person can borrow as personal loan.

The central bank is still in discussion on the matter and has not reached any decision yet. But, if it decides to implement the measures, it is all purely prudent and pre-emptive as the general non-performing loan ratio is still at a sound level, the banking source told StarBiz.

The steps being considered are to prevent a build-up of household debt to gross domestic product (GDP), which stood at 76% or around RM516.6bil last year against 63.9% in 2008. The figure averaged around 67% from 2005 to 2008Checks with banks showed that the credit-card limit was at the banks discretion but first-time applicants were usually given limits of between 2.5 times and three times their salaries. And the credit limit was likely to be gradually increased based on payment history and usage.

For personal loans, the average limit is about four to five times a persons salary. Some banks offer a flat interest rate of 10.5% while others give between 8.5% and 17%, depending on the loan amount and repayment period.

On average, the maximum amount for a personal loan is between RM100,000 and RM150,000 but it could also be higher if a persons monthly income is high.

On Monday, StarBiz reported that although household non-performing loan ratio had been on an improving trajectory since December 2008 to 2.5% as at June, the sectors debt burden had also been increasing steadily, partly due to greater appetite for borrowed funds and also as a result of strategies used by banks.

Personal loans and credit cards on average made up 5% and 3% respectively of banks total loans.

Under Budget 2010, a RM50 service tax for principal credit-card holders was introduced with an aim to reduce the nations credit-card debt.

Kenanga Research, in a recent sector update, said the consumer segment was still the sole driver for banking system loan growth.

In July, hire-purchase loans continued to register strong growth rate of 8.8% year-on-year (yoy), the strongest growth rate over the past 12 months, it said. Hire-purchase loans in June was 8.4% yoy.

Housing loan growth of 14% yoy in July was marginally higher than 13.7% in June, it added.

The move to curb excessive household debt obligations comes about a week after the news of a possible 80% loan-to-value ratio for mortgages to avert the risk of a property bubble.

As at end-2009, home loans represented 25% of the banking systems approved loans.

However, the 80% loan-to-value ratio may not be implemented across the board as some banks have suggested it should be more for high-end properties and investments.

Source: The Star

EPF'S FLEXIBLE HOUSING WITHDRAWAL SCHEME

2010-09-08T10:56:00.000+08:00

Entitlement for EPF Members Based on Current and Potential Growth in Savings

Effective 1 August 2010, members of the Employees Provident Fund (EPF) who have not withdrawn under the EPF Withdrawal to Purchase a House or Reduce Housing Loan will have the opportunity to purchase a house of higher value under ‘Flexible Housing Withdrawal’ designed to give qualifying members greater purchasing power.

Under this facility announced by the Prime Minister during the tabling of the 2010 Budget, a member’s current and future savings with the EPF will be taken into consideration when an application for a housing loan is made to financial institutions.

In a statement issued today, EPF Chief Executive Officer Tan Sri Azlan Zainol said, “This move is in support of the Government’s objective to enhance the quality of life of the Rakyat in the spirit of 1Malaysia. Members will now have a chance to realise their dream of a better home for their families via increased home loan eligibility.”

“What's more, ‘Flexible Housing Withdrawal’ does not in any way affect a member’s retirement savings as savings that have been set aside under this facility will continue to earn the yearly dividends paid by the EPF,” Tan Sri Azlan emphasised.

The facility is available to members below the age of 54 at the point of application and must be applied together with their application for EPF Withdrawal to Purchase/Build a House or Withdrawal to Reduce Housing Loan.

For the purpose of this facility, a member may transfer part of their savings in Account 2 to the ‘Flexible Housing Withdrawal’ account and then followed by a monthly transfer of a specified amount of contribution to this account.

Savings that have been set aside under ‘Flexible Housing Withdrawal’ cannot be withdrawn or utilised for any other pre-retirement withdrawals namely Housing, Education, Medical and at Age 50 before the end of the ‘Flexible Housing Withdrawal’ term.

Members however can still utilize the remaining savings in Account 2 for other pre-retirement withdrawals.

Each application is to be submitted by the member to the financial institution from where the member is obtaining the housing loan. All application forms would then be submitted to the EPF by the headquarters of each participating financial institution.

“To date, Maybank and Public Bank have confirmed and ready to participate in the ‘Flexible Housing Withdrawal’ and we expect more banks to follow suit,” said Tan Sri Azlan.

Members who wish to cancel their ‘Flexible Housing Withdrawal’ term may do so but only after one year from the commencement date of the facility and upon consent from the respective financial institution.

For more details, please visit the nearest EPF branch or contact EPF Call Centre at 03-8922 6000.

About the Employees Provident Fund (EPF)
The Employees Provident Fund (EPF) is Malaysia’s premier pension fund, providing basic financial security for retirement. The Fund is committed to preserving and growing the savings of its members in accordance with best practices in investment and corporate governance. It will always be guided by prudence in its investment decisions.

As a customer-focused organization, the EPF delivers efficient and reliable services for the convenience of its members and registered employers.

The EPF continues to play a catalytic role in the nation’s economic growth, consistent with its position as a leading savings institution in Malaysia.

Date: 29 July 2010

Source: EPF

BNM maintains OPR at 2.75%

2010-09-04T16:31:00.000+08:00

BNM maintains OPR at 2.75%

Strong ringgit, attractive UK properties lure EPF and other Malaysians

2010-09-04T16:22:00.001+08:00

By ANGIE NG

angie@thestar.com.my Sep 4, 2010

Strong ringgit, attractive UK properties lure EPF and other Malaysians

Lai Voon Hon says the strong ringgit will benefit the EPF

PETALING JAYA: The ringgit’s strength and generally lower property valuations in the UK are drawing more Malaysian investors, both retail and institutional, to London and the latest to make the move is the Employees Provident Fund (EPF).

The pension fund has allocated a war chest of £1bil (RM4.88bil) to invest in properties in the UK and has appointed ING Real Estate Investment and Deutsche Bank’s property investment arm RREEF to manage the investment. They will each invest £500mil in European property markets, focusing on the UK.

In a statement on Monday, the EPF said the investments would be for long term with expected annual yields of 6% to 7%.

Property consultants lauded the fund’s move as being prudent and far-sighted as the diversification of its property investment portfolio would ensure a more balanced portfolio and spread the risks to more developed markets outside Malaysia.

Henry Butcher Malaysia president Lim Eng Chong said London was a very active international real estate market where income asset class was a major sector of the financial market.

“Since last year, there has been an influx of foreign funds from Russia, the Middle East and the Far East, including China, into London to take advantage of the positive environment,” Lim told StarBizWeek.

“There’s much more depth and breadth in the UK market. Very often, its economy moves in different direction from Malaysia’s, thus affording a more balanced and resilient portfolio. Presently, the UK is only (barely) coming out of a recession and, although the market has started to move, there is still some way to go.”

London is also the financial capital of Europe and it is the de-facto choice capital in the EU for foreign companies.

“It is a very opportune time to invest in the UK property market now. The ringgit is at record high against the pound sterling while the historic low interest rates in the UK (interbank rate is only 0.5%) make yields attractive,” Lim pointed out.

He said commercial properties with strong convenants for at least seven years offered potential for upsides upon market recovery and there were deals which were bankable to capitalise on the low interest rates now.

Malaysia Property Inc chief executive officer Kumar Tharmalingam, who was in London when contacted, said the EPF was a well-regarded pension fund internationally with a reputation for prudent investments.

“London is no more a rock-bottom country but you have to have a permanent presence here to take advantage of investment opportunities. Using the old-boy network in the city of London that the EPF is doing is the right strategy. It has appointed probably the best property advisers and managers in Europe and I believe they will guide the fund to the right quality investments,” he said in an e-mail response.

Kumar said as the EPF had to guarantee a dividend on all contributions, “it will be looking to buy completed assets which have been tenanted and have a structured and forecast return that is tangible.”

He said at the height of the downturn in early 2009, yields of London assets went up as high as 8% but they had since gone back to their normal base of 5%.

“But with the pound sterling and the euro at historical lows since the mid-90s, this may be a good time to buy well-positioned assets where there is an opportunity for rent values and currency appreciation in the medium term,” Kumar said.

It has attracted many institutional funds, including South Korea’s National Pension Fund which purchased a building in Canary Wharf and also took a stake in Gatwick Airport in February.

Kumar, who made a quick check with some of the major property agents in London, said he was told an Asian sovereign fund had made bids for a business park near Heathrow Airport.

Ireka Development Management Sdn Bhd chief executive officer Lai Voon Hon, who was also responding from London, said with Europe heading towards a double-dip recession, a number of prime commercial properties with blue-chip tenants in the UK would be available to investors at very attractive yields.

“The advantage of UK commercial properties is that the lease is normally very long term so the income is fairly stable. As such, commercial properties with blue-chip tenants at high rental yields will be ideal for the EPF. The strong ringgit vis-a-vis the pound sterling is certainly to the EPF’s advantage,” he added.

According to CB Richard Ellis executive director Paul Khong, with the strengthening of the ringgit, investors are now able to buy more with the same ringgit compared with a year ago.

“The top favourite destinations for both institutional and individual investors are still the UK, Australia and Singapore markets,” he said.

Source: The Star

Possible mortgage cap on property not a concern

2010-09-03T13:34:00.001+08:00

By TEE LIN SAY

linsay@thestar.com.my Sep 3, 2010

Possible mortgage cap on property not a concern

KUALA LUMPUR: Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.

Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.

CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand.

“This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said.

Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.

On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation.

“We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.

Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.

Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.

Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.

NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector.

In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes.

“Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected.

“This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.

Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term.

“The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments.

“We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.”

In the longer term, Tan views the preemptive role taken by Bank Negara as positive.

“It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.

In the region, similar moves have been made to cool the property market over the past 12 months.

Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.

Source: The Star

There may be a price war to give out cheaper bank loans

2010-09-03T11:44:00.002+08:00

By TEE LIN SAY

linsay@thestar.com.my Sep 1, 2010

There may be a price war to give out cheaper bank loans

Which one shall I take? So many choices! Can't believe it.

KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.

Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.

The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.

A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.

“Previously we were offering BLR-1.9%. Now, we are revising the rate to BLR-2.1%. We had been losing some market share to foreign banks and decided to join in the price war,” he said.

The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs. The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.

This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.

StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.

It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.

While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.

“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.

The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.

Business loan is now 44.7% of total loans as at end of July 2010.

Property brokers agree that the outlook for the property sector has been improving.

Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.

“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.

A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.

However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.

She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.

The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.

This impact might be offset by the new round of price war among banks for consumer loans.

Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items

The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.

The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.

Source: The Star

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