A look at different developers GDV in Malaysia (as at April 2015)

One of the various measurement for property developers especially for those established ones in Malaysia can be the total remaining Gross Development Value (GDV) that each of them have. Of course in establishing that, one should also not discount the factor of location, balance sheet strength, business margin and their individual business strength.

While I am not really into buying property, I have made substantial visits to launches and new development over the last 2 years. In Malaysia, I would say several developers are in the upper league and these are large scale developers usually one which have township development. I would say those are:

- SP Setia;
- UEM Sunrise;
- Sime Darby;
- IJM Land;
- EcoWorld - whom have made a name in less than 2 years;
- Tropicana - through an exercise it has become a prominent brand with sizeable landbank;
- IOI Properties;
- Mah Sing;
- UOA Development - a company which focus on high rise and city development.

Few more are in the smaller development companies league and they probably have almost the same pricing power. These are Gamuda (due to lack of available GDV), TTDI, Paramount, I&P, OSK Properties, Malton, DRB-Hicom, Hong Leong Properties and several others.

In the past one year, one can notice that the prices of properties have sort of stagnated and total transacted properties have probably reduced. This is a positive sign and in the past few years from 2009 to 2012, I have wondered where does the rise in property prices stop at. If it is not in check, it may experience the past experiences of Japan (1990s) and US (sub-prime crisis).

In any case, I still think there are lots of opportunities for well-established (or regarded) developers as some of them have either the ability to sell at above average prices - such as EcoWorld and SP Setia - hence they have no problem in buying land at current high prices. Just look at the purchase by Eco on the Batu Kawan land. Understood that they were no other bidders. Some others have significant landbank which were owned at very low costs - UEM Sunrise, Sime Darby, IJM Land.

In terms of location, I would think that Klang Valley has the most potential and sustainability as they are just too many new young families that are to be brought up in KL and Selangor. The government has projected that Klang Valley will be homes to some 10 million people by 2020 - up from 7 million now. That represents 2.5 million households (4 people per household) at the very least and that also means the need for about the same number of homes by 2020. If one is to judge how many households are there in one township development - Kwasa Damansara which covers 2,330 acres of land is building homes for 28,000 households and IJM Land which is building Rimbayu on 1878 acres of land is building homes for 10,000 households. How many new homes and how many more townships of that size would there be by 2020 in Klang Valley?

Next in my preference is Penang, then only Johor in which case at the moment is facing oversupply situation, largely due the presence of developers from China. We just are not able to figure the scale the Chinese builders can do, I guess. (Read this where Country Garden Danga Bay just launched a RM18 billion GDV in one launch.)

So how do we value a property development company? I am not in favour of PE as for example in the case of Sunrise in the past, they were pretty much a very strong developer in just one area - Mont Kiara. But its brand and ability attracted UEM to purchase them. Whether it created value for UEM, I do not think so. Property developers need their most important raw material which is land.

Price to Net Asset is also not as preferred due to some land can be cheaper when purchased while its GDV approved may be higher in respect of GDV per square foot.

In any case, one of the stronger ways to look at the value of these guys is the GDV (shorter term i.e. 3 to 5 years) against their market valuation as well as their balance sheet strength. I have hence picked up several companies - those which are purely a listed property counter.

The above are basically those that have market capitalisation of RM1 billion and above (I did not include Sime Darby as it is just too complex and UOA Development.) As for comparison, not all of them are apple to apple comparison (example IOI has significant Investment Properties portfolio). IJM on other hand is a much bigger group which includes construction and plantation.

If one is to look at the market cap to GDV, I am attracted to Tropicana as not only it has a significant development over the next few years with strong GDV but its market value to those is substantially lower to as compared to Mah Sing, SP Setia or even IJM Land prior to it being absorbed into IJM two months ago. (Prior to the delisting IJMLand was valued at around RM5.4 billion.) Additionally, while it had problems with regards to its sizable debt, its sale of several businesses i.e. the Tropicana Mall(and office), Austin Powder, land in Kota Kemuning to EcoWorld and a piece to a Chinese Developer would have reduced its net debt to below RM1 billion.

Below are the presentation made by several developers in terms of acreage and GDV.

IOI Properties GDV. It has a significant landbank in Johor just like several others.

EcoWorld's GDV without including the Batu Kawan purchase

MahSing's GDV. Notice its significant landbank in Greater KL as compared to the rest

SP Setia.  Notice the very significant GDV in Battersea.

Tropicana. Still significant landbank and GDV in Johor, but as per above it is focusing in Central region which will keep it busy for many years

If one is to notice above, Johor seems to have more total GDV than Klang Valley and Penang combined. Is Johor so much more attractive? We have yet to include UEM and Country Garden which seems to have few hundred mbillion GDV in partnership with the Johor Sultan.

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

PRINT |EMAIL THIS ARTICLE

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.

Chinese property spree

Over the last 24 hours, there were 2 articles or news that possibly points to where the property direction is heading.

The first: Tropicana sold a piece of very prime land in Bukit Bintang to Agile Property (Chinese owned and Hong Kong listed) for RM3280 sq ft - much higher than previous book valuation in 2012. This pretty much value that area very highly, although I do not know what was valuation in an adjacent area in previous transactions. The interesting thing is that it is a Chinese company which has footprint in 40 cities in China and Agile does have property launches in Iskandar as well. This shows that there are demand coming from China nationals into buying overseas property. That was what I read happened to Australia as well - especially Perth and Melbourne.

Then another story: in US. Apparently, the last quarter, there was a huge jump in cash transactions for properties in US. This story says that interest are shown in nice holiday areas in US and much more transactions were in the form of cash (compared to before), partly to do with interest rates charged by banks have increased and many banks are quite stringent in terms of lending. The story did not mention who were the foreign buyers but I would guess that many could be Chinese (non Malaysian) and Russian.

At the same time, there is this jittery feeling among stocks investors especially on China's properties. Some of these developers - Agile Property inclusive whose bond ratings are being monitored. Their bonds issuance are no longer hot properties.

We know that there many rich ones which have cash to buy, but yet property prices are probably not holding well, and the feeling is that it can be very soft moving forward.

I am just not able to piece things together in this. Is China facing the Japan syndrome of the 1980s? When Japanese were buying properties and assets offshore while its properties at home was collapsing.

Doing away with DIBS may not solve the problem

There have been much talk about Bank Negara outlawing DIBS or Developer Interest Bearing Scheme. You can basically read about DIBS here and here.

DIBS are bad for the market as it is misleading especially to those whom are unaware of the risks that they are taking. Obviously, the S&P lawyers as well as the banks whom most of the time are representing the developers would not be warning the buyers of the risks, and even if they did, buyers whom have witnessed the emanating rise of the property sector would still be willing to take the risk. I have read and heard of a young guy in his early 30s with 10 properties into his name - basically gearing himself to the maximum and riding on the property boom. Hearing from the market, there is no one such guy but many.

If you walk into the local books section of MPH, quite a number of them on display are how to be rich through properties. There is already a sense of something wrong here as whenever the market is over exuberant, there is always a huge danger. I can probably bet you that if I put a book on stocks investment, it will probably not get picked up as much as a book on property investment.

The rise of the property prices I think pose a problem to Bank Negara and as in most central banks, the trick of the trade is to slowly cool down the sector. It may seem to be easy as reducing credit, coming out with more stringent lending practice will look like able to do the trick. However as in most central banks, they would want to have what you call a Goldilocks economic results from the steps taken - i.e. not too hot and not too cold, just nice. What they are afraid of is it gets too cold after a certain measure has been put in place. That would again jeopardize the economy. Look at what Bernanke has done to the stock markets in the last few days - just from a very honest statement!

Although eliminating DIBS is a must, this I think may still not be enough, though. Why? Singapore has already outlawed DIBS in 2009. The property market in Singapore is still hot and continue to rise - that's one. China has put in place very tough measures - years ago - for those who buy their second home. It did nothing to the market. It was very hot, until very recent few days where there were talks of a probable crash in the property sector there, and obviously the banks are the ones which will get impacted due to over lending. Mark Mobius has come out and made his comment that the Chinese banking sector is seriously in a critical situation.

While eliminating DIBS is a must-do, the core of the problem is not that. It is to do with the players in the sectors - banks and property developers. They have always worked hand in hand. Some banks are giving 100% loan with low interest rates especially during the construction period. Yes, that is not as bad as having DIBS but still...And recently, the government is introducing a 100% financing scheme to families with income below certain level. That is sending the wrong message. Where has the government housing scheme gone to? The government has land, but like what it is for the Kwasa Development under EPF, most probably it will go towards the higher end market - as I see it.

As I walk into some launches or sale at the malls, another indigenous scheme which the developers have come out with is rebates. One which I have come across is a newly-launched property put up for sale at RM1.3 million. And if I were to lock in my purchase by say 31 July 2013, I will get a RM100,000 rebate from the purchase price. That is vastly cheating, in another name. This basically mean that the price of the house is actually RM1.2 million but the developer has just jacked up the price to RM1.3 million and reduce my minimum upfront payment by 77%. That's all. I think sooner or later property developers will just go to Groupon to do their discounted sale.

Another wrong message is, now that pushing up the property price among locals would be difficult, guess what the developers have done - just go overseas to do the launches - Singapore, Hong Kong, China. Like it or not, it will just push up property prices again. That's just what happened to Singapore and many other larger cities in Asia.

I think with just Bank Negara trying hard, it will not do the trick as the other sectorial players together with authorities have not done enough and in fact sending the wrong messages and that would just be very bad for the man on the street.

Guidance on supporting sector to the US property market

The news that just came in where US March's home prices rose in the 12 months through March 2013 is the highest since 2006, just would provide positive signs for the furniture companies that supply to US.

You can read the news from here as well as on any main pages of the financial sites in US. When homes are selling, people may want to furnish their houses with new furniture. For those whom do not follow the US housing sector, despite the house of cards (which means poor structure that collapsed the housing sector) few years ago, the demand has outstripped supplies and in some places the developers are struggling to meet the sudden surge in demand.

During the financial crisis, in fact the percentage of Americans who do not own a home has increased and it is imperative that the data would reverse once situation becomes more stable. Currently, that situation is stabilizing, interest rates are extremely low, banks are still finding hard to lend out their excess money (due to the printing money policy by Bernanke) and young Americans are starting to shop for homes again. Yes, America is still a young population.

I have mentioned of some furniture companies which are supplying to the US market here, and these are probably missed out by investors due to the difficulties in connecting the link between US housing market and some of these furniture companies in Malaysia. Not many analysts or even the financial news would cover these companies due to their sizes, where most of them are sub-RM100 million market capitalization. I do foresee these cyclical sector especially the ones that supply to US to do well, and although it is cyclical, it could be still on the uptrend stage. It may not be a long term play, but for cyclicals, you do not need to play long term.

Sometimes foreigners just won't buy

How many times have I read of statement which says a prospective investment is attractive because it is under invested by foreigners...

I read an article today which claims as below...

"Meanwhile, Malaysia Property Incorporated (MPI) said only up to three per cent of property investors in Malaysia are foreigners."

Let me ask a few questions:

1. Is Malaysia yet a main destination for foreigners (high income) seeking work or as an alternative place to stay? How successful is our MM2H?
2. Is Malaysia yet a strong education hub? Look at performance of the education sector (colleges and universities) such as HELP, Paramount. The strong performance are due to strong interest in private and international schooling, not foreigners looking at Malaysian universities or colleges.
3. Are we there yet in terms of safety? 
4. Is Malaysia a destination for hot money flowing in? Or rather flowing out!!!
5. MYR cheap? MYR will always remain to be cheap. What is the prospect of Malaysian Ringgit over a horizon of 10 years? Will Malaysian Ringgit outdo other regional currencies such as SGD or RMB or even Aussie Dollar?
6. What makes Malaysian property hot - speculation? Or investments i.e. including for stay?
7. Will interest rates remain this low over the next 5 years?
8. There is a reason why Singapore and Hong Kong are trying to cool down their property prices despite the much liquidity in the market. It is hightime we do the same rather than continuing to provide more liquidity to the property market as in what the government is doing. One can't provide more than 100% loan to a buyer. That's the limit.
9. Iskandar? Singaporeans are buying for investments, speculation or stay? Will there be a third, fourth or fifth link into Singapore. MRT right through Iskandar as mentioned or planned. Has anyone thought of the security concerns and checks that Singapore does to its visitors? Has anyone gone through the Singapore security checks especially peak hours? Will there be bottlenecks for daily travels into Singapore? If Singapore is ever willing to do connections like Hong Kong Island and Kowloon or Manhattan and New Jersey then ISkandar will thrive. Travel has to be seamless. Can that happen with Singapore? If there is a bottleneck getting in and out of Singapore, then I am doubting that Iskandar will be hot over the longer term. For Iskandar to succeed, Singapore government's mindset has to change - not just Malaysia.
10. Schooling. Singapore's children studying in Malaysian schools in Iskandar? Have you seen the number of Malaysian children commuting to Singapore for schooling everyday? They basically travel into Singapore through the causeway before 6 am every morning. With Singaporean buying properties for stay in Iskandar - that will reverse? I think Singaporeans have much trust in their own public schools than our private schools - at least for now...

Note who all the interviewees are for the article...they are all industry players with vested interest.

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Eye on Malaysia as HK, Singapore curb property investments

KUALA LUMPUR, Feb 19 — Iskandar Malaysia, Kota Kinabalu, Kuala Lumpur and Penang are set to become hotspots for foreign property investors as the Hong Kong and Singapore governments “cool” their respective overheated property industries.

Malaysia has become a preferred country for foreign property investors and is now the main focus after Hong Kong and Singapore imposed 15 per cent levies to slow down foreign investments that had overheated their property markets.

These “cooling” measures have shifted some of the surging demand for residential and other properties to Malaysia, including a Malaysian-Singapore joint-venture iconic wellness project to be launched in Iskandar Malaysia later today.

Prime Minister Datuk Seri Najib Razak and his Singaporean counterpart Lee Hsien Loong will be accompanied by the largest gathering of Cabinet ministers from both side of the Causeway for the wellness project launch, according to officials involved in the venture.

A survey carried out by iProperty revealed that Malaysia is fast becoming a preferred investment destination for Singaporeans.

In the survey conducted among 2,099 Singaporeans, 42 per cent chose Malaysia as the number one destination for overseas investment, with Australia and the United Kingdom following close behind.

“According to Bloomberg, the Singapore dollar has risen more than 5.5 per cent in the past 12 months, the second-best performer among 11 Asian currencies.

“With a stronger currency, it is likely that even more respondents would pick Malaysia’s comparatively weaker currency (increased from 33 per cent to 42 per cent) over Australia (14 per cent) as their preferred overseas property location,” stated the iProperty Asia Market Sentiment Report (H1) 2013.

Fiabci Asia Pacific executive director Dr Yu Kee Su agrees that the cooling measures will drive up Malaysia’s property market and increase purchases in Malaysia and Australia.

“These two countries are the region’s investment grade countries for property investors from China,” he said.

He pointed out that Iskandar Malaysia, Kota Kinabalu, Kuala Lumpur and Cyberjaya will be the main hotspots that foreign investors are looking at.

Fiabci Malaysia national committee member Michael Geh concurred, saying that Kota Kinabalu and Iskandar will be the fastest growing spots due to both destinations’ flight connectivity to China.

“These two destinations are in the top tier of investments with new launches but this will not necessarily drive up prices as these investors will soak up the supply of new launches to keep the industry alive,” Geh said.

iProperty chief executive officer Shaun Di Gregorio seemed to have the same view by stating investments from Singaporeans will only have a marginal impact on property prices here.

Geh said foreign investors will only form the 10 to 15 per cent of the buyers.

“This is actually good for Malaysia’s property industry with external money coming in especially at a time when our domestic market is experiencing a credit crunch and liquidity,” he said.

Meanwhile, Malaysia Property Incorporated (MPI) said only up to three per cent of property investors in Malaysia are foreigners.

MPI agreed that the tightening of property investment regulations in Singapore and Hong Kong will likely draw more foreign buyers to Malaysian shores.

“Internally, Malaysia has also improved in the Doing Business 2013 report which would boost investors’ confidence in the country’s growth so this could help in attracting more foreign direct investment into the country and possibly translate into some property purchases,” MPI said.

MPI also said a large portion of foreign property owners in Malaysia are Singaporeans.

On whether this could somehow drive up prices in the housing industry, MPI said the industry in Malaysia was not a speculative market.

“Looking at our historical house price index, we can see that we have had steady appreciation in prices over the years with no peaks or troughs, unlike the more speculative markets of Singapore, Hong Kong or Shanghai which experience acute fluctuations during the recent economic crisis,” MPI said.

According to Smart Investors Club co-founder Jeffery Lam, Malaysia’s property industry is still one of the most affordable in the Southeast Asia region and that it still has a very huge potential to grow.

“Malaysia will definitely be one of the shining stars in the region and this is surely a good sign for the country’s economy,” he said.

No Property Bubble?

I remember I was reading the below article quite a while ago.

Property Bubble: Fact of fantasy? by Dr Ernest Cheong

Interestingly, he uses an Average Malaysian's take home income as the gauge on affordability. His points I feel are really relevant. Simple, but yet effective. But of course what he did not say is that loans can stretch up to 60 years of age i.e. sometimes allowing 2 generations to pay off for one single property or even eyeing the EPF's savings for part of the repayment. This is how hard for the average man on the street moving forward, with what's left for the savings from EPF.

The points of rebuttal are to counter the article by Dr Jeffrey Cheah (Sunway). If you notice, the more recent houses or apartments built are mainly higher priced units. The argument by Jeffrey Cheah is not going to help to stabilize the housing market in terms of pricing but of course helping the developers.

Another way of looking at is the household loans-deposits ratio. As of recent, the household debts have sort of stabilized while it is still a cause of concern, although some are saying that they are in check. Again, these comparisons are against some of the regional countries. Many a times, comparison against other regional countries are flawed assumptions. Many countries - Hong Kong, Singapore, China inclusive are trying hard to cool down their properties with different types of medicines. Any one affected, it could bring contagion effect to regional countries. The "tomyam effect" did not just limit itself to Thailand in 1997, despite the country being first to get hit. Similarly, with Europe recently.

If you notice housing and consumer loans as a gauge of how well the banks have been doing as well as moving forward, this is the reason why I have stayed away from banks (despite liking bank stocks as a business). I would not call it as a signs of stress but the banks have been continuing to stress test the system far too much as of recent. Yes, Malaysian banks today are much more diversified than before (as in geographical as well as products) but the stress on obtaining deposits due to high loan - deposits ratio, continued low NPLs for while now, high consumption loan (which is bad if too much) worries me. Perceived strong asset quality can suddenly turn to bad at an instant if not kept in check.

At all cost, property and financial sectors have to remain strong and stable as if they are not, the impact to other sectors are just too great.

My problem with property stocks

What is fundamental stocks investments? To identify a company which can continue to provide value either in the manner of capital appreciation or in the form of dividend or BOTH.

With that objectives, it is much easier for us to choose and pick the type of stocks we would like to own and hopefully for the foreseeable future, be it medium to long term so that we are able to get ABOVE AVERAGE return with manageable and controllable risk management.

Assuming we invest in a company that is not traded publicly. If we are depending on dividend alone and assuming that stock consistently provides 7.14% dividend yield, we will get back our invested money in 14 years if there are no capital appreciation in the stock and we do not sell the stock.

On the other hand, another stock that is publicly traded and assuming it appreciates 7% every year (and does not pay dividend), we will be getting 100% return from that investment in 10 years.

Take that methodology into our investment, we have to either find that investment which provides consistent return of 7.14% over 14 years or hope for another company which is able to provide capital appreciation of 7% every year so that our return will double in 10 years. It is above average return, but that is a long period of time to hope for that consistency but still we must lookout for that.

So, taking that into consideration, we have to look for companies that can provide that consistency (be it the market condition is bad or good). Trust me, there are times when market can be really undervalued as well as way overvalued for a long period of time. It is always very hard to time market. There are times when we feel that the market is already very cheap and it continues to drop even further for a period.

Now, back to the topic - what are property stocks? Where do they belong in our investment mindframe. A property stock is one which owns tracts of land or landbanks which it can use and will use to build commercial, residential or industrial properties for sale or rent. Usually its assets are long term assets, which it uses to build houses, offices, factories etc. Minus the landbanks, it will no longer be attractive as a property company. Names such as Sunrise, SP Setia, Mah Sing, Sime Properties obviously have other forms of intangible assets in its expertise, quality, landscaping, concepts, brand names etc. But still the core asset is land. A great property company such as SP Setia can turn a piece of land in Klang (tens of kilometres away from prime area) to be worth as much as those much nearer to KL. After that piece of land be it to be built over a short period or longer if it is a big piece is fully built, the developer will need to find a new piece.

Big names will continue to build premium housing with premium pricing. But for how long? Land is finite. Plantation companies, consumer food or rather FMCG, fashion, manufacturing, retailers, money managers as in banks, insurance companies, utilities, rubber gloves etc. can continue to generate and regenerate the same thing / product over and over again. Property companies will face it much harder to consistently do that - which is why SP Setia, Sunrise are already being bought over and there are rumours that Mah Sing is becoming an attractive target.

Why? Reproduction is a problem but they are good developers with strong brand names. They themselves are up (or feel like wanting to be up) for sale after certain very successful projects are over and these players may find it hard to regurgitate the same formula. Look at Sunrise! After Sri Hartamas and Mont Kiara, where? Look at See Hoy Chan. Yes, the See Hoy Chan owner which has kept the company private all these while is very rich but the one which probably continues to print and reprint money for them is One Utama. I do not see them having large projects anymore after Damansara. Remember, we shareholders (most) are minorities. We are not the owners generally speaking.

Seldom a property company can continue to consistently and sustainably be able to produce strong results after strong results. I have yet to come across a strong property company in the 70s or even 80s and they still have very strong sets of results today. The only one I can think of is Sime Property. Sime is still there because of its parent which has unlimited supply of agricultural land (and also help from government). That by itself, defeats the term "continue" in the first paragraph of this article. Most of these property companies like to morph to a IGB (Mid Valley) or See Hoy Chan (One Utama) where income can be more consistent.

I know that there are several readers who asked my opinions on companies such as Hua Yang, MKH (Metro Kajang), Asas Dunia, Hunza, Ivory etc. To be frank, they look attractive to me but I just could not foresee where their directions are in the middle term future - in case either the stock or property market turns to the worse. I however can pretty much foresee where Nestle, DKSH, Amway or Malaysia Airport are sort of heading. Bear in mind, property prices have had an extended run for a period.

Properties - Any more room for growth?

Malaysians who invested in residential properties (landed especially) would probably be laughing their way to the bank over the last 10 years of their investments - especially those in the Klang Valley, Johor and Penang. For example, a Bandar Utama 2-storey link house which was sold for RM250k - RM300k is currently selling for RM650k to RM700k, a decent >100% increase in value not to include the rental income. There are many more examples that others may highlight to me which may see even better increase in value.



I would put the increase in property value to be due to the following factors:



- interest rates - I remember when I started work during the 90s, interest rates were at range of between 9% to 12%. Now banks are offering rates at below 2% BLR - something which would have been unheard of few years ago. Today, house owners are enjoying rates of 4% effective. Problem is would this sustain? I do not think so. Today's banks are concentrating on lending for consumption which includes credit cards, housing and cars. While this may be positive for the public, it may not be good for the future of Malaysia as lending to commercial sectors are not preferred as compared to personal loan. (This is the reason why Public Bank is doing well over the last 10 years);

- easy access to credit for properties - banks are more keen to lend for properties than anything else which was also why last year in 2009, we see that financial institutions were competing for loans by undercutting each other in providing lower rates;

- longer loan tenure - remember 20 years ago when loan was for 15 years max, but today literally banks are allowing loans to be extended to 30 to 40 years which means they are probably asking your children to be pay your loan, days when you are already not having any active income;

- Malaysians have less area to invest - unlike the 90s, Malaysians today are keener to invest in properties as investment elsewhere does not guarantee positive (or as much) return as compared to properties. Stocks are not doing much headway. For example, the KLCI was hovering around 1200 - 1300 in 1996, it is pretty much the same today. What more the index is to a certain extent rigged by EPF's involvement in the market. FD rates are also very low.

- urbanization of the work force - this factor will be one of the factor that will continue to cause property prices in the urban areas to rise at above average rate.

- mentality of do not want to lose out - it is quite surprising to me that a piece of bungalow land at Setia Eco Park is selling at RM80 - RM100 per sq ft. It is next to Klang but hey to many if you do not buy now, you will never be able to afford anymore, that's the mentality of most property owners - herd.



With the above, will we see properties to continue to enjoy such boom? I doubt so as I do not think interest rates (one of the main factor) to remain this low over time. Additionally how much more can we extend the loan tenure 50 - 60 years (totally ridiculous).



The rise of properties is also dependent on the success of Malaysian economy. For the next 10 years, I do not think Malaysia will enjoy a continuous economic growth of 8% for more than 10 years.



With further increase, will Malaysian be able to afford anymore? I think it is tough, and I also feel that anymore substantial increase would be unhealthy for people here.