Property Quotient 2013 - Issue 1

COVER STORY

2

According to NAPIC 2011 report Kuala Lumpur office spaces stand at 74.92 million square feet with 80.4% average occupancy rate (AOR). It is expected that at FY2012 a total of 4.9 million square feet of new office space will come into market.

Avg. 2012f-2013f

Legend:

80

60

40

Property consultants believe that Grade-A office spaces will achieve

higher AORs at 85.25% due to

limited existing supply of efficient and modern office buildings Rental Rate (RM psf / month) 7 6 5 4 3

20

1

AOR KL City Centre

AOR Suburban

ARR KL City Centre (RHS)

ARR Suburban (RHS)

Note: e = estimates Source: Knight Frank, MPI Research

2012e

2011

2010

2009

2008

2007

2006

2005

0

Legend:

Japan

Australia

S.Korea

Singapore

Taiwan

Avg. 1997-2011

Source: Economist Intelligence Unit

2

0

Hong Kong

Avg. 2014f-2016f

Note: f = forecast

Figure 2: KL City Centre and Suburban Office Space Performance Occupancy rate (%) 100

Philippines

“ 0

Malaysia

The office market relies on continuous business and economic growth. Currently, industry experts are concerned with the influx of office spaces supply outpacing demand growth and organic rental rate.

Furthermore, supply of lower-grade buildings is expected to increase in the near future, especially in subprime locations, thus posing a concern for the already-declining rental rates in such areas, an issue Kuala Lumpur might face if future incoming supply is not being managed holistically.

2

Thailand

by Afiq Syarifuddin

4

Indonesia

Kuala Lumpur office market will continue to thrive

6

Vietnam

OVERSUPPLY

8

India

FEAR OF

% 10

China

DEBUNKING

Figure 1: Annual GDP Growth: Major Asia Pacific Countries

Property consultants are of the opinion that currently annual absorption rate stands at 1.95 million square feet. They also believe that Grade-A office spaces will achieve higher AORs at 85.25% due to the limited existing supply of efficient and modern office buildings.

Notably, Menara Petronas 3, a golden triangle Grade-A tower with 840,000 square feet, is completely taken up upon completion by oil & gas related companies in the 1H2012.

Furthermore, CIMB Headquarter located at KL Sentral, a rail transit hub in the periphery of Kuala Lumpur City Centre, will be at least 70% occupied upon completion early 2013. Improved accessibility and connectivity of KL Sentral has allowed office spaces in this area to dominate the suburb lease market.

In the past few quarters, leasing demand, especially for quality buildings, has been strong, riding on corporate expansions and relocations in most Asian cities. Pacific Star, an international investment fund, observes that yields are comparatively higher in the emerging markets of Kuala Lumpur and Bangkok as compared to traditional office markets like Tokyo, Hong Kong and Singapore. (continued next page)

COVER STORY

3

Figure 3: Selected Grade A Office Asking Rentals Asking Gross Rental (RM psf / month)

Building Names Menara Maxis

10.50

Menara IMC

8.50

Vista Tower

9.00

G Tower

8.50

Menara Standard Chartered

6.50

Menara Citibank

6.50

Menara Etiqa Twins

6.50

Kenanga International

7.00

Menara HLA

7.00

The Icon

6.20

Platinum Sentral

8.50

Menara Prestij

7.50 - 8.50

Source: CBRE

(from previous page)

Triangle continued to command higher average rental rates at RM9.24 per sq. ft.

Kuala Lumpur office market will remain in 3Q2012. resilient in FY2012 with slight improvement in the average occupancy backed by Leasing enquiries are expected from the completion of quality Grade-A buildings financial services, Oil & Gas and IT sectors coupled with steady rental rates. However, supported by InvestKL initiative to attract this tenant-favoured office market will 100 MNC’s to set up offices in Greater continue to pressure rental rates and Kuala Lumpur. This will cushion the impact occupancy levels forcing older office of incoming supply expected to come on buildings owners to refurbish or redevelop stream within the next two years. their towers to remain competitive.

The impact of mega projects such as the The achieved office rental rates in both KL Tun Razak Exchange, Warisan Merdeka City Centre and KL fringe (which includes (100-storey) and KL Metropolis will not be areas such as KL Sentral, Mid Valley City, severe as these projects has been phased Bangsar and Pantai) saw an increase in over a 10 to 20-year period.

3Q2012, to RM5.81 per sq ft (3Q2011: 5.18 per sq ft) and RM5.38 per sq ft The MyRapid Transit initiatives that will (3Q2011 RM5.14 per sq ft) respectively. connect Sungai Buloh and Kajang to the Prime Grade A offices in the KL Golden city centre is expected to improve public

connectivity to their workplace. Addressing congestion early will prove beneficial in making Kuala Lumpur the ideal office space in the country.

The office space market will not overheat as long as there is prudent incoming supply flow that is matched by growing demand from businesses for office spaces. This can be achieved through active management by the regulators on the approval for new office space in the future.

Finally, based on expected recovery of the economy, largely due to the positive signals being sent out by the government to promote business investments, office space demand is expected to witness a positive growth of 10 per cent in 2013 and 20 per cent in 2014.

Certificate of Real Estate Investment Finance

Enrolments open for 2013 Click here for enrolment kit and subjects taught APREA and RICs members enjoy approx 20% discount on enrolment fees.

Email APREA Institute at info@apreainstitute.asia for more details

SPECIAL REPORT

Singapore’s recent seventh cooling measure since 2009, was dubbed “Not Quite in Seventh Heaven” by Kim Eng Securities. Effective 12 January 2013, the already hefty Additional Buyer’s Stamp Duty (ABSD) rates imposed on foreigners will be raised further from 10% to 15% of a property’s valuation, raising total costs including 3% Buyer’s Stamp Duty (BSD) to 18%. When the ABSD of 10% was introduced on foreigners and corporates on December 2011, Singapore experienced a sharp 78% drop in demand by foreigners in 4Q 2011, falling from 1,358 homes to only 293 homes. The new measures have immediately hit Singapore property stocks. Property analysts are portending a gloomy 25% fall in property prices.

Hong Kong home prices across 100 housing estate showed a 2% drop in the week ending December 2 softened soon after the Hong Kong government imposed 15% tax on foreign property purchases.

Hong Kong also has increased stamp duty fees as much as 20% in first six months.

In China, home-purchase restrictions were enacted in about 40 cities making it difficult for a home owner to qualify for a loan. Property taxes were imposed for the first time in two cities Shanghai and Chongqing and may be extended to others.

24.2

25.6

10.5

10.0

17.4

17.2

18.5

22.9

8.3

8.5

resillience

because of the strong domestic investment, commodity boom, youthful population and a maturing ASEAN block with increased intra-trade and

Malaysia is looking exciting In the past, Malaysia was not in the global real estate radar. Foreigners who buy real estate in Malaysia, do so for reasons such as its political stability, peaceful and safe place to reside or to escape from extreme cold climate in their countries.

This scenario is rapidly changing. With the cooling measures in popular real estate destinations, new windows of opportunities have opened as interests of foreign investors shift to SE Asia.

Indonesia and Vietnam have been the beneficiaries of such interest and Malaysia, Interest shifts to South-East Asia which has been overlooked because of Economic growth in S. E. Asia is showing its smaller population, has now begun to resilience because of the strong domestic look attractive because of its fast growing investment and commodity boom, metropolitan cities in Kuala Lumpur and Johore. youthful population, a maturing ASEAN

44.0

45.9

58.9 30.7

30.4

58.0

30.0

49.6 33.0

32.0

46.3

49.5

41.5

33.3

40

20

0

35.2

“

Economic trade in SEA is showing

60

35.6

A recent survey within Asia Pacific in July 2012 showed Malaysian residential and industrial property ranked fourth among Asian Pacific countries. For residential

by Veena Loh property, Kuala Lumpur ranked fourth ahead of developed countries Singapore and Australia as well as highly populated Favourite Real Estate Investment cities like Shanghai and Ho Chi Minh.

Destinations lose their shine The survey was done on 275 investors, Popular real estate investment destinations developers, service firm and equity in cities like Singapore, Hong Kong, investment managers.

Shanghai and Beijing have seen a decline in popularity because their Governments have been intervening furiously to cool their own property markets.

47.9

80

Regional investment climate and outlook on Malaysia

55.2

ASIA

43.6

PULSE OF

block with increased intra-trade and Figure 4: Residential (Rental) Property Buy/Hold/Sell investments. Indonesia has been growing Recommendation by City at 6%, Malaysia 5% and Thailand, by more than 5%. Even Shinzo Abe the new (%) Japanese Prime Miniter’s first visit was not US nor China but SE Asia, signifying the 100 importance attached to the vibrancy of this region’s economies.

36.5

PROPERTY

4

i re ur ila d ier ey ok yo rta ha inh ka Man 2n T ump hi M Sydn angk Tok ang gapo Ja L C B Sh Sin ina uala Ho h C K

Legend:

Buy

Hold

Sell

Source: The Emerging Trends in Real Estate Asia Pacific 2013 Report, July 2012

Outlook in 2013 While Malaysia has introduced measures, they have been relatively subdued compared to those in other neighboring countries. Subsequently, there have been continued price increases in all property sectors last year.

This year, demand for high-end properties is likely to soften. Elections are likely to be held, latest by June 2013 and postelection, less popular taxes like Malaysia Goods and Tax Services (GST) could be implemented. Unlike in Singapore and Hong Kong, local buyers make up 98% of properties transacted in Malaysia. GST could reduce the spending power and affordability of the local house buyer.

To make up for the softer demand from locals, property developers should tap on rising demand from foreign buyers and look to new ways to reach high net worth foreign individuals and corporate investors as Malaysia benefits from cooling measures in other countries.

To assist the developers in their endeavours, MPI has developed a pioneer product to put Malaysian property in the world’s pocket. Developers will be able to exhibit their products on this mobile application which will help developers reach new target markets internationally at a fraction of conventional marketing cost. Please contact michael@ malaysiapropertyinc.com for more information.

INVESTOR PREFERENCES

5 digit drops in house prices of -12% and -14% respectively.

5 POINTS TO

CONSIDER BEFORE YOU

#4 - Clear statutory protection Malaysia is also ahead in terms of property ownership and our transparent land administration system is based on Australian Torrens System. The Government of Malaysia allows 100% foreign direct ownership for all types of property (except agriculture land) with minimum foreign investment value of US$170,000 (RM500,000) and there is clear statutory protection on ownership, which tends to be vague in most of SEA countries like Vietnam, Indonesia and China.

INVEST IN GREATER KUALA LUMPUR How GKL envision it can achieve world’s Top 20 cities in terms of economic growth and livability?

by Hazrul Izwan #1 - Opportunities abound for Greenfield projects in fastest metropolitan cities Malaysia has a relatively larger land mass to its population size and has; in fact, relatively liberal rules regarding foreign property investment within Asia. Moreover, as the nation transits from a developing to a developed status, opportunities abound for foreign companies as many new greenfield projects are being identified for development in the fastest growing metropolitan cities in the region, from Klang Valley into Greater Kuala Lumpur (GKL) is being transformed into Asia’s most liveable cities. Foreigners are also welcomed with either a 10-year visa through Malaysia My Second Home (MM2H) programme or through special incentives such as lower tax rates under Talent Corporation for professionals with unique skillsets.

Not surprisingly, the recent “Emerging Trends in Real Estate Asia Pacific 2013” report by Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC), named Kuala Lumpur as having huge potential in city development and investment prospects too. #2 - Language and physical connectivity to the biggest, fastest and wealthiest markets As GKL is growing rapidly to be the new emerging business hubs of Southeast Asia (SEA). There is increasing demand from multi-national corporations as well as small-medium enterprise (SMEs) to set up their base for global operations here. This will enable them to expand their reach to some of the world’s biggest and fastest growing or wealthiest markets such as China, India and the Middle East. Malaysia’s competitive costs and relative ease of doing business is seen in its rankings; 14th in “IMD’s 2012 World Competitiveness Yearbook” and 18 th ahead of Japan in 2012 respectively. In the

“

As GKL is growing rapidly to be the

new emerging business hubs

of SEA. There is increasing demand from MNCs and SMEs to set up their base for their global operations here

Economists Intelligence Unit’s 2012 report – “Hotspots: Benchmarking Global City Competitiveness”, which ranks 120 cities globally, Kuala Lumpur is in second place as the most competitive global city in SEA. #3 - Resilient and transparent In the latest IPD ”Research Note”, Malaysia has been ranked among the Top 5 for investment location in Asia based on growth, total return and liquidity in the REITs market. Along with this ranking, Malaysia is in the third position after Hong Kong and Singapore in the “Global Real Estate Transparency Index” by Jones Lang LaSalle. Furthermore, Malaysia is more resilient to recession and it’s not a volatile market compared to those countries. This has been proven during the financial crisis between 2008 and 2009, Malaysia House Price Index (MHPI) showed a decline in growth of -2% whereas Hong Kong and Singapore experienced more than double

#5 - A world-class financial district in the making A new world-class financial district is also being planned in the city of Kuala Lumpur and by 2017, plans are underway to build a High-Speed Rail (HSR) that will connect Kuala Lumpur to Singapore and cut travelling time from six hours to 90 minutes, providing access to more than 6,000 MNCs and about 16,000 SMEs in Singapore. The next step would be the ASEAN Rail Express (ARX), which will connect Kuala Lumpur with Bangkok, Vietnam, Cambodia, Laos, Myanmar and China and it will be the best bet to increase a business traveler’s traffic from SEA countries to the GKL. These efforts will generate a stream of demand in the office, retail and industrial sectors. In other words, the vision of GKL to be among the world’s top-20 cities in economic growth and livability will be achieved.

MPI matchmakes foreign investors to real estate opportunities As a conclusion, GKL is the perfect hub for MNCs, SMEs and foreign businesses to expand their businesses in SEA. To help foreigners navigate their way into Malaysian real estate, MPI connects them with the relevant parties including top Malaysian developers, Government linked companies and state players and match the appropriate opportunities to their needs.

The Government of Malaysia will support foreign investors by offering various fiscal and non-fiscal incentives such as income tax exemption for period of five to ten years, including services and assistance provided by respective parties to facilitate a potential business’s operationalization and entry to the market.

This article first appeared in the MalaysiaGerman Chamber of Commerce & Industry (MGCCI) newsletter in January, 2013.

NEWSFLASH

6

A 270-ACRE

MOTORSPORTS CITY

UNVEILED TO BOOST INVESTMENT

Source: The Edge & The Star The Motorsports City, which will be built on a 270-acre site near the Second Link will be jointly developed by FAStrack Autosports Pte.Ltd, a Singapore based company and UEM Land Holdings on a 70:30 JV basis.

This RM3.5 billion facility will solely cater for regional motoring enthusiasts comprising components such as showrooms, automotive retail, workshop, bonded warehouses, a 5km test track, go-kart track and other automotive related trades and activities. Interestingly, 30% of the GDV will have a residential components, mainly serviced apartment.

The track reported will be conceptualised by renowned designers, such as Hermann Tilke or Clive Bowen, will feature undulating stretches, challenging turns and a 1.2km to 1.5km straight that will allow vehicles to hit speeds in excess of 300km per hour. The facility is expected to be ready by 2016.

Project Name & Location

GDV

Motorsports City, Iskandar Malaysia

RM3.5 billion

Joint-venture details

Completion date

UEM Land Holdings Bhd. (30%) and FAStrack Autosports Pte.Ltd. (70%)

2016

HONG KONG DEVELOPER LAUNCHES A LUXURY VILLAS

IN MALAYSIA Source: The Edge

One of the largest property developers in Hong Kong, New World Development Co (NWDC) Ltd, has joined hands with a local partner recently launch its maiden real estate project in Malaysia with total GDV of RM240 million.

The project - “New World Garden” is located in Southern of Peninsula Malaysia offers 96 units of bungalows and semi-detached luxury villas on the 4.86 ha of development land targeting a mix of buyers, locals and foreigners, Singaporeans and other nationalities.

According to Chen Guanzhan, executive director of NWDC, “with wide experience in property development in Hong Kong and China, NWDC is also looking for opportunities in other parts of Malaysia”.

Project Name & Location

GDV

New World Garden, 96 units of bungalows and semi-detached luxury villas in Plentong, Johor

RM240 million

Joint-venture details New World Development Ltd and Luen Yam Development (M) Sdn. Bhd. formed a subsidiary, Taipan Eagle Sdn.Bhd.

Completion date

April 2014

POLICY

7

120

Starting this year onwards, the real property gains tax (RPGT) for residential property disposed within first two years from the date of purchase has been increased by 5% to 15% and from 5% to 10% for disposal between the third and fifth year. These new rates were tabled in the parliament during the Budget 2013 announcements in last October 2012 by Prime Minister Datuk Seri Mohd Najib Razak.

Basically,RPGT is a tax structure for investors who wish to dispose their property and gain profit out of it. RPGT may apply upon disposal of second property or subsequent property disposed. The tax that will be paid to Inland Revenue Board (IRB) is calculated based on net profit or the price difference between purchase and selling price. Plus, investors who are eligible under the RPGT is no longer required to pay income tax.

2004 = 100

96.85

100

95.73

80 60 40

Overall: Avg. price / transaction

RM500,001 and above: Avg. price / transaction

Note: e = estimates

f

(15%) 2013f

(10%) 2012e

(10%) 2011

“

Legend:

(5%) 2010

RPGT

(5%) 2009

20 0

Year 2013 will be continuously a challenging year for most property investors in Malaysia. Since last year we have seen many improvised guidelines imposed by Bank Negara Malaysia (BNM) to rein property speculation such as loan-to-value ratio at 70% for third and subsequent property purchased and loan processing based on net income instead of gross income previously.

125.85

(0%) 2008

by Hazrul Izwan

136.35

140

(30%) 2007

impact of real property gain tax (RPGT) on Malaysian property market

152.74

160

(30%) 2006

OF MIND An analyst’s views on the

172.08

(30%) 2005

STATE

Index 180

(30%) 2004

CHANGING THE

Figure 5: Malaysian House Price Index by Segment, 2004 - 2013f

Below RM500,000: Avg. price / transaction

= forecast

Source: NAPIC, MPI Research

Malaysia is preferred as a

second home to foreigners rather than a playground for short-term speculators

One key takeaway point for investors is that RPGT was imposed by the government is a policy purely to fight against excessive speculation as well as to curb price overheating in order to encourage investors to own a house and stay in Malaysia. As Malaysian property market is suitable for medium to longterm investors as it takes at least five to seven years in order to reach maturity stage.

Not many people know the good thing about Malaysian RPGT because its sound negative in the eye of investors. In fact, RPGT will give a better tax-relief option for investors instead of being taxed under income tax where the rate is much higher.

Moving forward, it is safe to say that the new RPGT rate of 15% for the first two years will not have much impact on property prices especially for RM500,000 and below housing segment.

Within the analysis, the 30% rate caused a severe impact only for the RM500,001 and above housing segment by more than 20% decline in average price per transaction in 2007. Hence, this segment is more receptive to RPGT while below RM500,000 housing segment is forecasted will have a moderate impact on property purchase due to the bulk of the purchasers As a conclusion, RPGT is still a “liability” Since the announcement, we have heard are transacted by locals. for investors. House buyers who wish mixed reaction from the industry players to dispose their property should take mainly developers and estate agents as However, factors such as increasing note of the new RPGT that takes effect well as investors. What I agree the most demand for own occupancy, less supply on January 1, 2013. By having such is the increment will not have significant of affordable homes ranging between regulatory measures, Malaysia wanted impact to the property market especially RM250,000 to RM400,000 in certain to be recognised as a second home to to property prices. The impact is viewed areas near central business districts foreigners rather than a playground for as a “mild” cooling measure and most (CBDs) further support this segment to short-term speculators. likely to have similar form of impact with be irresponsive to RPGT and continuously the previous increment. keep contributing to price hike too.

GRAPHICALLY SPEAKING

8

THE SUPPLY OF INDUSTRIAL UNITS ARE REMAIN STABLE

ACROSS ALL TYPE OF PROPERTY FOR THE PAST 5 YEARS BETWEEN 2008 AND 2012e Source: NAPIC & MPI Research

Average Sales Price of Industrial Units in Selected States, 3Q2012 Terrace

Detach

Vacant Plot (per SM)

Selangor

RM600,587

RM11,384,375

RM456

Kuala Lumpur

RM989,400

n/a

n/a

Penang

RM403,249

RM4,061,667

RM427

Johor

RM477,250

RM2,878,651

RM168

Note: e = estimates Legend:

Terrace Detached & Semi-detached Flatted factory & industrial complex

KUALA LUMPUR Volume (Units)

SELANGOR Volume (Units)

3,500

30,000 25,000

3,000

20,000

2,500

15,000

2,000

10,000

1,500

5,000 450

1,000

300

500

150

JOHOR

e

2012

2011

2010

2008

2009

e

2012

2011

2010

2009

0 2008

0

PENANG Volume (Units)

Volume (Units) 8,000

6,000

7,000

5,000

6,000

4,000

5,000 4,000

3,000

3,000

2,000

2,000

1,000

1,000

e

2012

2011

2010

2009

e

2012

2011

2010

2009

2008

2008

0

0

CROSS-BORDER QUERIES

9

LOOKING FOR

INVESTMENT

Source: MPI Research

Request

Malaysia Property Incorporated (MPI) receives foreign investor queries on an ongoing basis. For any parties interested to pursue these investment requirements, please contact the MPI team at research@malaysiapropertyinc.com

Client

Requirement

Location

Hiroshima, Japan

Development land less than RM 15 million for high-end condominium project

Greater KL

Landbank

Guangzhou, China

10 - 20 acres of land for furniture mall

Greater KL

Landbank, Development rights

Dhaka, Bangladesh

5 - 7 acres of land for development

Greater KL (Southern part)

Dubai, UAE

10,000 square feet area

Klang Valley

Landbank, Development rights

Singapore

10 acres and above of freehold land to built a logistic park

Klang Valley (Shah Alam, Bukit Raja)

Landbank, Development JV

Singapore

Mixed development with medical component, medical resort e.g medical themed service apartments, retirement village

Klang Valley, Johor, Penang

2Q 2012 Landbank

1Q 2012

4Q 2011 Factory cum distributor office

3Q 2011

ABOUT US Malaysia Property Incorporated is a Government initiative set up under the Economic Planning Unit to drive investments in real estate into Malaysia.

As the first port-of-call for real estate investment queries, Malaysia Property Inc. connects interested parties through an extensive network of government agencies, private sector companies, real estate firms, business councils and real estate-related associations.

MPI has two core objectives; to create international awareness and to establish connections between foreign interests and Malaysian real estate industry players, ultimately contributing to real estate investments into the country.

For further information and up-to-date tracking of Malaysian real estate data, visit: www.malaysiapropertyinc.com For further enquiry, write to: info@malaysiapropertyinc.com

Disclamer: This report contains information that is publicly-available and has been relied on by Malaysia Property Incorporated on the basis that it is accurate and complete. MPI is not liable if the case proves to be otherwise. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed.