Foreigners not an Issue in Property Price Hike

I Refer to Mr P. Gunasegaram’s article (StarBizWeek Aug 25) and would like to thank him for his thoughts and comments regarding a stable and sensible Malaysian property market.

As you are aware, I am deeply entrenched in the real estate market and thus my interest in his article and I have taken the liberty of sharing my viewpoints.

DBKL has the KL Structure Plan 2020 and this Structure Plan is the blueprint that will guide the development of Kuala Lumpur for the next 20 years. The plan, with its two-pronged approach, outlines the goals, strategies and policies towards achieving the vision as well as identifies ways to minimise or solve issues and problems faced by citizens.

It is unfortunate that some parts of KL’s Structure Plan are not followed but overall, I have seen very good compliance by DBKL to its Structure Plan.

Implementation is still an issue on certain sectors and I think this is what needs to be focused on.

On purchase of property by foreigners, please note that in Malaysia, foreigners make up less than 3% of residential purchases (this figure is much higher in Singapore 43% of purchasers of prime properties are by foreigners).

The highest recorded is in KLCC with an average of circa 30%. The occupancy is about 60% in KLCC and many purchasers are fine to leave the units vacant if they can’t find a good tenant.

These are serious investors who are cash rich and not speculators who invest without the capacity to hold.

My opinion is that the impact by foreigners is not an issue in the rise of property prices in KL and Malaysia as a whole.

With regards to his comment on loans, it is agreed that easy availability of loans does stimulate demand. But does it encourage speculation? Please note for a 5% easy payment scheme or what is commonly known as DIBS (Developer Interest Bearing Scheme), a purchaser still needs to qualify for the loan i.e. the capacity to service the full loan once it is drawn upon.

If he does not qualify, the loan is not approved and he can’t purchase a property. This in my opinion is a good scheme as it allows a first house buyer who does not have capital (to make a full 10% or more deposit for the house) but do have recurring income (to service the loan) to purchase that elusive home.

Another issue is the fact that Bank Negara’s new Responsible Lending Guidelines has kicked in. I don’t think the availability of easy loans creates a speculative market. Hong Kong and Singapore are speculative markets and you can observe this by the serious spikes and drops in their real estate prices.

In Malaysia, the growth of prices is generally sensible and more stable, with certain locations, due to scarcity, having steeper price escalations. In Malaysia, I do not see speculation as a serious contributor towards price movements. In my inquiries with local developers on the profile of their recent purchasers, 65% are owner occupiers, 35% are investors and most estimate that so-called speculators or flippers consists of maybe 5% of the total.

Price movements over recent years have generally been a function of the high employment rate in Malaysia, economic growth and the rise in construction cost of properties. Just a point of note, Rehda has mentioned that the regulatory cost in a development can come up to 20% of the total construction cost, which is passed to the consumer.

Now if the federal and state governments can focus on reducing this, we can at least see a 10% to 15% drop in the price of properties and may assist in reducing property prices.

Gunasegaram’s piece was also focused on providing affordable accommodation to the general rakyat. These are my thoughts for this:

1. RRI Land in Sg Buloh should be very focused on this market. Providing accommodation in the RM350,000 to RM500,000 homes. With these prices, obviously the development will have to be vertical, and this can be complemented with the 3 new MRT stations that are on the RRI Land. The MRT stations and lines have to be leveraged upon. In fact, I think all the land along the MRT line that can be developed, should be heavily skewed towards this sector of the market instead of focusing on commercial and high-end developments. Hong Kong is a good example of this.

2. Banks need to take some form of responsibility as well. If developers can provide low-cost homes, I think banks are also responsible to provide low-cost financing

3. Efficiency of the federal, state and local governments has to be increased to reduce regulatory contributions.

4. More effective use of government land, more so nearer to transportation nodes, to be used for affordable homes.

On the long-term view of the market, there has been strong talk of RPGT (Real Property Gains Tax) and stamp duty to be revised in this budget. My opinion is that a country must continuously encourage investment and as such stamp duty should be maintained as it is, or maybe even reduced, for first-time house buyers.

In the case of RPGT, I think to avoid speculation, the tax should be high for the first two years, and then back to 5% as it is now for third-year onwards (encouraged at entry and punished at early exit).

On the comments on Tun Razak Exchange, I am of the opinion that the project will take time and it’s not going to happen all at once (like KLCC when it first started) and flood the market with a huge supply.

The tax arrangement is quite normal worldwide (there are tax-free zones in India, China, Middle East and some parts of Europe and US) but I do agree with him that there could be market distortions. Authorities have to be vigilant here. Iskandar Malaysia also has tax breaks but one has to qualify for it.

I fully agree that speculation and ill-considered developments will cause volatility, and am confident that the Malaysian real estate market is actually sensible and stable, with more action required by the authorities to improve their efficiency and implementation to make it a long-term viable pillar of Malaysia’s economy.

Previndran Singhe
CEO of Zerin Properties

The Star

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