Malaysian housing developers ignoring freebie guidelines

There are dangers in this. As developers do not follow the guidelines, it feels like they are getting desperate when comes to selling their launches. I did come across rebates by developers but I thought that it was them being creative in bypassing the laws, but never did I thought that they do not bother about abiding the laws itself.

The below article, is from Chang Kim Loong (The Star as highlighted to me) post as a warning sign that properties are cooling down but hopefully not to the tune of collapse. I can see that some of the properties in the secondary market are softening, but unless the government are clear on this, we do not know to how much.

PUBLISHED JUNE 13, 2014

Malaysian housing developers ignoring freebie guidelines

BY

PAULINE NG

IN KUALA LUMPUR

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SOME seven months after more cooling measures were introduced, home prices continue to inch up as developers prefer to offer rebates than price their products lower - PHOTO: BLOOMBERG

SOME seven months after more cooling measures were introduced, home prices continue to inch up as developers prefer to offer rebates than price their products lower.

Many appear to be not abiding by guidelines on "freebies". Some banks are also still basing their financing on the sales-and-purchase agreement (SPA) price rather than net selling price, a survey by the national House Buyers Association (HBA) has found.

On a more positive note, except for one small developer, the projects surveyed by HBA volunteers did not offer the easy financing developer interest bearing scheme (Dibs), which the government had banned from this year.

Brochures and other materials gathered by volunteers at various property fairs, however, indicate that many developers - even the bigger ones - are ignoring the guideline on so-called freebies.

"The guideline effectively bans all freebies from January unless they are converted in monetary terms and buyers given the choice of whether to deduct them from the house price," said HBA secretary-general Chang Kim Loong.

Some 20 large and established developers were caught flouting the guidelines as were 10 smaller or newer players. "If the big boys don't follow the rules, you can't expect the smaller ones to," he observed, adding that details of HBA's findings have been conveyed to the Housing Ministry.

Perhaps because Dibs is no longer available as an inducement, the practice of rebates has intensified compared to previous years.

In some cases, purchasers continue to get away with not putting down any cash upfront. Based on a rebate of a tenth (they typically range from 5-10 per cent) of the SPA price, a buyer only needs to apply for 90 per cent financing from the panel banks. But because legal fees on the sales and loan agreements are thrown in, the buyer can effectively buy a home without an initial down payment.

Using an established developer which had implemented such a practice as an example, Mr Chang said that its properties in a recent launch were sold at above RM700,000 (S$273,000) when the true value after rebates and freebies is closer to RM600,000. "Would it not be better to launch at RM600,000 and ask buyers to pay the required down payment of a tenth instead of artificially hiking up the price to RM700,000 and then hood-winking house buyers by giving rebates and freebies?"

While developers - and perhaps homeowners - prefer to see property values rise, new buyers are saddled with higher prices. And more affordable housing becomes a distant dream for many.

Developers maintain that prices of new homes will not dip because of a number of factors including the cut in electricity and fuel subsidies, as well as the introduction of a minimum wage, all of which have pushed up costs.

Meanwhile, the HBA also urged banks to stop abetting developers by offering easy loans. Mr Chang said that while the housing ministry has been very cooperative, the HBA would like to see greater enforcement and the "empowering of information" via the ministry's website. It should provide a list of errant developers so that house buyers can make more informed choices.

Oldtown: Large funds are for easy to be understood companies

Usually large funds may seem to be going after difficult companies - in actual fact, they are not. Fidelity made large investments into Jobstreet only to reduce its holdings upon announcement of the sale to Seek.com. Just announced, Oldtown is invested by Franklin, a fund managed under Franklin Templeton (one of the largest funds in US).

Oldtown may seem to be complex but in actual fact it is a very easy to be understood company. It is one of the better performing IPOs of recent times and for a company to reach its current size in a short period of time, it is no easy feat. Recently, Oldtown has experienced a stagnation in revenue and income but over the long run I suspect it will be able to adjust itself. Oldtown is no doubt the type of company which I like - still.

Because South East Asia is one of the few pockets of growth for many foreign companies, typically companies such as Oldtown would be an attractive target for them. Over the last few years, companies like Heineken over its purchase of Asia Pacific Breweries, insurance companies in looking for targets in South East Asia, it would not be a surprise if over time some of these brand names are acquired at a high PE premium.

YFG: If it is a bet on a penny stock, this could be it

Penny stocks have again made some headways. I though am very careful at most of them. Some are really bad stocks with no directions. Some are even worse, as they do not just have no directions, over time, it possibly could be a stock that may be in trouble. Some though are gems and if we do detect them early, they are much to gain from. In this group, these companies have decent businesses, priced cheaply, not in financial trouble and definitely if the company's execution is continuing to be strong, one day investors (or speculators) might just take notice. Opensys is one of them although when I wrote of them, nobody took notice. Another, which has potential and was in trouble until a rescue was made is Silk Holdings which sold its Silk Highway to IJM. I did not write anything about this one though, but really I saw the growth potential in the concession at that time.

There is a new one which I am just taking notice. It is called YFG, formerly known as PJI Holdings. While I am just trying to find a trend, I could not see one except for the followings:

- revenue trend is on the increase;
- it has a changed in management and I believe in some of the people behind it to do the right things;
- it was a poorly run company, linked to a politician whose party is on the decline, hence without the political influences it was of no use to the investors at that time.

Revenue trend at the increase

If one is to look below, YFG had a nice steady climb towards FYE2013 and towards its last 3 quarters, it has made significant progress for FYE2014 - which can be seen in the following 2nd diagram.

Why is then the margin so low? This is for me very hard to understand. There could be more than one reasons to it. Firstly, because of the company was in trouble, it has to slowly write-off some of the bad debts, which one may not be able to notice in the accounts Or, the management themselves do not reveal. DO not ask me why this happens, but let's just say it happens. Even auditors sometimes may close one eye - the largest among them. SHIT happens, OK. This one is not shit though as the balance sheet shows that at this moment it is manageable, hence the auditors may just let it go. (This is something which I am not able to qualify by looking at the accounts for this one)

Secondly, it could be another case of building the momentum towards a better company. When an acquisition takes place, it needs time to adjust and phase off the dead woods. Hence, for the first few years, operational costs may even be higher rather than lower, as the company may just need to have 2 person to do 1 person's job as it is just waiting for the dead wood to resign.

3rd quarter results for FYE2014

Thirdly, it is still a poorly run company. Sometimes, although there is a will and idea, it may not be executed as plan. Look at MAS and many other companies that were rescued time and again.

YFG though, to me may not be that type as it is in a space that is seeing some growth - electrical and mechanical engineering for buildings, civil etc. Over the last few years, Malaysia is seeing lots of activities in this space due to domestic driven initiatives by the government - i.e. MRT, WCE, other rails etc. One can notice that in YFG's revenue as well and it is not stopping at now. YFG as I see it is looking for growth - as can be noticed in its MOA for the small hydro power plant in Indonesia.

And if the management manages to turnaround the company, which I am putting some bets on this, it will not be a RM70 million company, where it is trading at for the moment.

YTL Power: It takes a consortium to get back into IPP business

There is no denying that YTL Power is hungry for another power IPP award after its current IPPs are ending in a year or two-s time. After losing out to several others mainly 1MDB, this time it manages to get what it wants. But only through a consortium - one tend to think that YTL will not get it if it is not a consortium?