The right property mix

Making housing affordable, avoiding a property bubble and ensuring there is no over or under development are some key issues.

FOR the vast majority of people property means getting a respectable roof over their heads with proper amenities in a decent neighbourhood, and getting it affordably.\

For others, it is about getting a second or third property or more for the sake of investment – a good return eventually for the price they paid and as a hedge against inflation because property prices mostly continue to rise in the long term much faster than inflation.

The most sophisticated of them don’t just restrict their investments to the residential market but dabble as well in commercial and industrial space such as shops, offices and factories, wherever they may be located.

Socially, there has to be regulation of property development not only to ensure that it is done up to certain standards but to ensure a proper mix between the various kinds of development such as residential, commercial and industrial and the various segments within these broad sectors.

It would be a mistake to micromanage however and within broad guidelines, it is often best to leave it to the market place to adjust things. But it does take a long time for things to adjust in property because of the gestation period before a property can be brought to market.

Ideally, property development should take place under the aegis of a broad master plan which has been formulated after intense study and research, taking into account projected population growth and other demographics. It should be dynamic to take into account changes.

Unfortunately we don’t stick to a plan in terms of development and even when there is a master plan it is often overruled by those in authority for other reasons which are often not compelling from an economic viewpoint.

In residential development, the greatest challenge is, of course, providing decent housing at affordable cost to the vast majority of the population. Unfortunately that is also a function of income – if people are poor, they won’t be able to afford nice houses no matter what.

But we are a middle-income country and we can do some things to keep prices of properties within reasonable levels. The best gauge of that is in relation to our own income level instead of making comparisons with countries with much higher incomes (eg Singapore) or those where special situations make property expensive (eg Mumbai).

Prices are always a function of demand and supply. Some moves simply increase demand, often without a fundamental increase in demand for actual occupation. Opening up property purchases to foreigners often result in a spurt in demand at the time of sale but properties may not get occupied. Look at some high-end properties in Mont’Kiara and around the twin towers area in Kuala Lumpur for illustration.

Also, making a leveraged property purchase easy encourages property speculation. If you pay 5% down and if your next payment is two years later and if the property appreciates just 10%, you have made 100% (before transaction costs) in two years or 50% a year roughly. That is powerful incentive for speculation, creating an artificial demand that can collapse two years out.

To curb such kinds of speculation which lead to temporary surges in house prices and a potential bursting of the bubble in future, it will be necessary to curb foreign property purchases and easy financing schemes.

Meantime, the state and federal governments and their agencies must be more circumspect about handing out their landed assets to developers at very low cost to develop. Developers naturally want to maximise their returns and high-end, high-density properties offer the best returns.

Instead governments and their agencies should develop a master plan for the land they have and allocate the areas meant for low-cost, medium and high-end residential as well as commercial and industrial. Then they can invite the developers to bid for the parcels they will develop.

All that would take a lot of work, yes, but nothing worthwhile comes without proper effort. Examples to emulate for low-cost to medium-cost housing might be the Singapore Housing Development Board which has strict criteria for purchase of property, resale and standards.

Examples not to emulate would be Singapore again which has adopted a free and unfettered stance as far as sale of property to foreigners is concerned which has priced high-end property beyond the vast majority of Singaporeans to become the domain of multi-millionaires.

Incidentally, this is one of the major complaints of Singaporeans who otherwise have little to complain about in terms of economic development and living standards given their tiny space and resources. That has been reflected in voting trends too, leading the government to descend from its mighty perch of “I know it all” to re-examine its policies.

In commercial development, the trend in Malaysia has been to cramp it all in as little space as possible to maximise development profits. Abetment comes from authorities who give approvals with little or no thought of proper planning considerations such as availability of parking, public transport and whether it will cause congestion.

Many developers are willing to take the plunge into commercial development because of high profits. The danger of over-development is the greatest here, especially with plans to set up a new financial district called the Tun Razak Exchange, which will result in plenty of commercial space coming on stream in Kuala Lumpur city. Developers in this area have been granted tax exemption which will cause market distortions by giving them an advantage over others.

Under the circumstances, authorities have to be extra-vigilant to ensure that there are no untoward pressures on the property market, both in terms of a boom or a bust.

Speculation and ill-considered development can cause a volatile, mercurial mix which if it explodes can cause years of agony. Better a sensible, more stable brew that stands the test of time and ages gracefully.

A QUESTION OF BUSINESS By P. GUNASEGARAM starbiz@thestar.com.my

P Gunasegaram (t.p.guna@gmail.com) is an independent consultant and writer. He believes strongly in the old adage that prevention is better than cure.

How to avoid future complications when buying a house?

Points to consider when buying a house to avoid future complications

CAN you afford a house now?

Assuming you can afford a house, how much can you afford to pay? These are important questions that many people do not research. This oversight can lead many people to bad debt and even bankruptcy.

Your monthly expenditures will be more than just the housing loan. There will also be insurance, electricity, water, telephone bills, contributions to maintenance fund, medical bills, groceries, unexpected household/auto repairs, lunch money and many other obligations.

They must all be accounted for in your budget spreadsheet. For many of us the purchase of a house or property is the largest financial commitment we will ever make. This makes arranging the most suitable housing loan just as important.

Make sure you know the costs of entering into the loan for the purchase of the property. They include conveyancing, application fees, valuation and legal fees, mortgage insurance (if necessary) and sometimes, extra life insurance premiums.

Some lenders will tell you the advantages of whatever housing loans they are trying to squeeze you into, but rarely will they tell you the disadvantages.

According to an article in a business magazine, the banking system is flush with RM180bil liquidity. This explains the increasingly aggressive sales promotions undertaken by financial institutions for the housing industry.

Always look at the total deal, not some dangling carrots in front of you. Compare the entire housing loan cost of different lenders to determine which is best for you.

I would like to discuss some of the lenders' offers that may not be as attractive as they appear. I will start with the special low interest offered for the first year. Such an offer is usually given during a sale campaign and it usually carries a fixed calendar period with a run-out date. Thus, even if a house buyer commenced his application process immediately upon the launch of the campaign, by the time the loan is approved and disbursement commences, the period remaining to enjoy this special low interest rate will certainly be less than one year.

If he were to start the application process a few months after the campaign, it is likely that he will enjoy the special low rate for only a very short period.

Due to our unique system of progressive payments to the developers, the mean average of the amount disbursed by the banks during the “first year low interest offer,” is really lower than the loan amount. Thus, any saving on interests is really much less than it seems. And these have all been figured out already by those marketing experts in the banks.

A more sincere approach would be to offer the special low interest rate to apply during the progressive payment period and to continue to run for one year after the date when the loan is fully disbursed. Only then can such offers bear some element of sincerity. I believe that anything short of that makes the offer a sales marketing gimmick.

There are other clauses that put house buyers in a disadvantaged situation. Some lenders include clauses in the loan agreements that give them the absolute rights to alter both the Base Lending Rates and/or the margin of interests.

Doesn't this in effect nullify their typical attractive offer of “BLR plus X% for following years?”

One cannot make a special low interest offer in the sales campaign and then contractually (through the loan agreement) creates a clause to allow that special offer interest rate to be invalidated. Make sure you know all the costs of early discharge of the loan.

One other clause to look out for is the redemption of the loan. A house buyer may wish to sell the house and wished to fully-settle the loan.

This is where the conditions for full-settlement differ from one financial institution to another. Think long term.

When one takes a loan, one spends a much longer period servicing the loan beyond the first year or even the second and the third year. So do not be taken in by the very attractive offers during the honeymoon year/s of the tenure of your loan. Remember, the remaining of the 25 years is more important. Do not go for short-term gains only to lose out heavily on the long remaining years.

I would advise house buyers to look beyond the first year of so-called low interest when shopping for housing loans. With the stiff competition among the various lenders today, one should seriously shop around and scrutinise each and every offer before commencing the application process. Talk to your bankers, lawyer friends or seek advice from the National House Buyers Association.

One really has to scrutinise the fine print before making a decision as to which financial institution to go to for a loan. It is about time to standardisde the terms and conditions in the loan agreement so that there will be orderliness in the banking industry.

No more “embedded” clauses within the voluminous stakes of papers one has to initial giving the impression that one has truly read and understood them. It is obviously impossible to read and understand those 40 over pages of legal language that comes with appendixes.

BUYERS BEWARE
By CHANG KIM LOONG 
Chang Kim Loong is the honorary secretary-general of The National House Buyers Association, a non-profit, non-governmental, non-political organisation manned by volunteers. For more information, check www.hba.org.my or e-mail info@hba.org.my

Credit-tightening cooling down property market

 Loan approvals for home purchase decline

The banks' tighter lending rules have slightly diminished the actual sales in the residential property market, according to real estate consultants as well as Bank Negara Malaysia data.

Bank Negara's website revealed that the percentage of loan approvals for houses have declined to 46.8 percent in 1H2012 from 50.1 percent over the same period last year.

The amount of mortgage applications for home purchases rose by 2.9 percent year-on-year to RM96.7 billion in 1H2012. However, the value of loans that were approved fell from RM47 billion to RM45.26 billion.

Paul Khong, Executive Director of CB Richard Ellis Malaysia (CBRE), noted that residential property prices could be affected if the mortgage approval rate continues to decline.

"In order to conclude transactions, residential property sellers may now need to realistically adjust their selling prices as many of the buyers cannot get their loan applications approved," added Khong.

CBRE's recent report on Kuala Lumpur's housing market also noted a decline in the percentage of loan approvals in Q2 2012. The report revealed that the rate "was as high as 60.5 percent during the first five months of 2008, and has declined steadily since."

The report also highlighted that the lower rate could be due to the central bank's new lending guidelines.

Anthony Chua, Director of KGV International Property Consultants, commented that although the demand for homes continues to be high, the tougher lending measures have somehow cooled the market.

"We are still monitoring the situation. There is less transactional activity in the market this year for both new property launches and the secondary market compared with last year," said Chua.

Related Stories:
Bank Negara should extend guidelines to non-bank lenders
New guideline axes loan approvals non-bankable borrowers
Loan demand remains stable

 Actual sale of residential properties declining

PETALING JAYA: The residential property market may be cooling down in terms of actual sales due to credit-tightening measures by banks, according to real estate consultants and Bank Negara data.

Bank Negara's website showed loan approvals' percentage for residential properties in the country declined to 46.8% in the first half of this year from 50.1% during the same period in 2011.

The number of loans applied for purchases of residential properties increased by 2.9% year-on-year in the first half of this year to RM96.7bil.

However, the number of residential property loans approved during the six-month period declined to RM45.26bil from RM47bil in the same period in 2011.

It is also worth noting that the loan approval percentage for non-residential properties was stable at 52.3% in the first half of this year, compared with 52.4% during the same period in 2011.

The number of loans applied (RM50.35bil) and approved (RM26.35bil) for purchases of non-residential properties was also stable in the first half of this year.

CB Richard Ellis (Malaysia) Sdn Bhd executive director Paul Khong said if the housing loan approval rate continued to decline, it will affect residential property prices.

“In order to conclude transactions, residential property sellers may now need to realistically adjust their selling prices as many of the buyers cannot get their loan applications approved,” he said.

KGV International Property Consultants director Anthony Chua said although the demand for residential properties continued to be high, the credit-tightening measures by banks had resulted in the market “cooling somewhat”.

“We are still monitoring the situation. There is less transactional activity in the market this year for both new property launches and the secondary market compared with last year,” said Chua.

Property consultancy CB Richard Ellis (M) Sdn Bhd had, in its recent report on the Kuala Lumpur residential market for the second quarter of 2012, also noted that there was a significant decline in the loan approval percentage this year.

“The loan approval rate was as high as 60.5% during the first five months of 2008, and has declined steadily since,” said the report.

The CBRE report said that the lower rate of loan approvals this year could be attributed to the implementation of new lending guidelines by Bank Negara.

Effective this year, banks have started using net income instead of gross income to calculate the debt service ratio for loans.

“Anecdotal evidence from real estate agents suggests that transactional activity has also declined as a result.”

The property consultancy also pointed out that despite the lower loan approval rates, buyer interest in new property launches, typically of smaller housing units in secondary locations, during the second quarter remained strong with developers continuing to offer attractive incentives to the purchasers such as the developer interest bearing scheme (DIBS), early bird discounts, free built-in cabinets and free legal fees.

“We expect 2012 to be a period of stabilisation especially within the luxury residential market, with transactional activity depressed by uncertain economic conditions and the reduction in loan approval percentage, which remains well below 50%.”

The CBRE report also said speculative property purchases were expected to be reduced for the rest of this year, as a result of tighter lending conditions, uncertain economic outlook, and concerns about the outcome of the upcoming general election.

Meanwhile, another property consultant said the tighter lending conditions had taken a visible toll on the secondary residential property market.

“Newly-launched properties are selling well thanks to better financing access, especially with the DIBS offered by many property developers.”

The consultant said slower sales activities in the secondary residential property market had resulted in innovative offers from marketing agents.

“This includes transactions where buyers sign the sales and purchase agreement but take the bank loans only a year or twolater. In effect, the buyers lock in the unit price now (perhaps in anticipation of further increases in market prices) and defer payment until much later. This works just like an informal DIBS,” he said.

In a recent report, Kenanga Research also said based on its channel checks, the secondary market appeared to be very weak and prices of secondary and primary products have diverged further.

The research unit opined that buyers were more focussed on new launches due to financing and promotional schemes.

“From a bank's perspective, we think there is a preference to lend to the primary market as it means better asset quality whilst banks can get all-in' deals with developers (for example, end-financing to bridging to land financing) to ensure a more balanced systems loans growth.”

Kenanga Research also opined that as a result, property developers can continue to grab greater market share and chalk-up high sales, although it expected Malaysia's overall residential transaction value growth to be relatively unexciting at 5% year-on-year.

It was noted that despite the tighter lending criteria, Malaysia's total residential transaction values have remained stable in the first quarter of this year.

It said buying interest remained strong, due to residential property buyers hedging against inflation and the lack of alternative investments, but this will be reigned in by more prudent lending criteria and the banking system's fear of real-estate tightening measures such as higher real property gains tax.

By THOMAS HUONG huong@thestar.com.my/Asia News Network

China unveils ambitious space projects, to probe black holes, search for aliens...

BEIJING, Aug. 21 (Xinhua) -- China will launch several space projects, including a hard X-ray telescope for black hole studies, between 2014 and 2016, according to a senior Chinese astronomer.

Su Dingqiang, an academic at the Chinese Academy of Sciences and former president of the Chinese Astronomical Society, revealed some details regarding the hard x-ray modulation telescope (HXMT), China's first space telescope, on Tuesday at the opening ceremony of the International Astronomical Union (IAU)'s 28th General Assembly.

The hard X-ray band is a key waveband for high-energy astrophysics studies. Hard X-rays originate mostly from regions close to black holes and have high penetrative power, making them important tools for studying physical processes in extreme conditions, such as high matter density and high energy density.

Su said China will develop another satellite, the dark matter particle explorer (DAMPE), to help detect high-energy electrons and gamma rays, as well as a telescope to study the solar magnetic field and a Sino-French joint mission to study gamma ray bursts.

Su said Chinese scientists are also planning to establish an Antarctic astronomical observatory.

Cui Xiangqun, an academic at the Chinese Academy of Sciences and president of the Chinese Astronomical Society, said a lot of work has been done to gain experience for the future construction of an observatory in the Antarctic.

An Antarctic Survey Telescope (AST) was installed there at the beginning of the year and another AST will be installed in 2013, said Cui. China's first Antarctic telescope was installed in 2009.

"We can only send scientists there once a year and each time they can stay no more than three weeks. These telescopes help us detect problems via remote control," Cui said.

"Some of the technological problems we face there are similar to those in space, like low temperatures," Cui said.

However, Cui was optimistic about the Antarctic facility. "It has drier air, better visibility and fewer background disturbances. Its turbulent boundary layer is closer to the ground compared to other sites on the ice slope," she said while describing the area near the telescope.

Chinese space exploration has developed rapidly in the past decade. Some large-scale astronomical projects in China, including the Large Sky Multi-Object Fiber Spectroscopic Telescope (LAMOST) completed in 2008 and the Five-hundred-meter Aperture Spherical Radio Telescope (FAST) to be completed in 2016, have drawn global attention.

The ongoing conference, the first of its size to be held in China, is itself a historic occasion for the country.

"China's technology has advanced markedly, and some of its buildings are really world-class. The fact that we are meeting here is an indication that China has emerged in a short period of time to be competitive on the world stage in the science of astronomy," said Robert Williams, IAU president.

By Xinhua writers 
Quan Xiaoshu, Yu Fei, Li Huizi and Ji Shaoting

 

China to probe black holes, search for aliens

Look out space, the Chinese are coming...

By Phil Muncaster 

Posted in Science, 23rd August 2012  Newscribe : get free news in real time

China will ramp up its space exploration plans from 2014, with shiny new kit to probe black holes, study dark matter and search for signs of alien life, according to one of the country’s top astro-boffins.

Su Dingqiang, former president of the Chinese Astronomical Society and member of the Chinese Academy of Sciences, revealed the plans to local media at the opening ceremony of the International Astronomical Union (IAU)'s 28th General Assembly on Tuesday.

He said that a hard x-ray modulation telescope (HXMT), currently under construction, will be sent into orbit around the Earth between 2014 and 2016 using a Ziyuan II satellite, according to Xinhua.
The HXMT project web site has the following on the telescope:

Hard X-ray band is a key waveband for high energy astrophysics study. Exploring various kinds of black holes is a major frontier of physics and astronomy in the new century. Hard X-rays originate mostly from regions closest to black holes and are highly penetrative, and are therefore important tools for studying the physical processes in the extreme conditions such as high matter density, high energy density, high electric-magnetic field, and high gravitational field.

Also planned is a dark matter particle explorer (DAMPE), expected to be launched by 2015, as well as a telescope to study the solar magnetic field and a joint project with France to study gamma ray bursts, the report said.

Always striving to be the biggest and best on Earth, China is also set to complete the world’s largest radio telescope in 2016.

The 500-metre aperture single dish giant is being built in in Guizhou province, southern China, at a cost of over 700 million yuan (£69.3m).

It’s designed to be three times more sensitive than the current world record holder, meaning that it should be able to see further into space than ever before.

For the record, it will supplant the Arecibo Observatory in Puerto Rico – known to Bond fans as the setting for the climax of Brosnan flick Goldeneye – as the world’s largest and most sensitive single aperture telescope. ®