KL set for greater heights as aviation hub?

Kuala Lumpur is set to play a larger role as an aviation hub in Southeast Asia in the next seven years, say analysts.

The city is expected to handle some 82 million passengers by 2020 at its three airports, namely Kuala Lumpur International
Airport (KLIA), Kuala Lumpur International Airport 2 (klia2) and Subang Skypark.

Klia2, which is due for opening on May 2 next year, is built to handle up to 45 million passengers per year.

KLIA and Subang Skypark handled some 42.3 million passengers in 2012. The numbers are set to rise in the coming years with the klia2 completion.

RHB Research Institute Sdn Bhd expects overall passenger traffic to grow by 12 per cent next year, in view of the Visit Malaysia Year 2014 (VMY 2014).

“We see upside to our passenger forecasts, as growth will be fuelled by AirAsia Bhd’s new hubs in Penang, Kota Baru and Kota Kinabalu, which are enjoying strong take-ups,” the research firm said recently.

Maybank Investment Bank Bhd (Maybank IB) said the rise in passenger traffic will boost Kuala Lumpur’s world’s busiest aviation hub city ranking to 17th from 29th currently.

It added that Kuala Lumpur could potentially be ahead of Hong Kong and Singapore as a key regional hub due to its strategic location and airport infrastructure.

In terms of airport infrastructure, KLIA will have a third runway ready by May next year.

“This will boost its total capacity (in terms of passenger traffic) to 72 million per year and ensures uninterrupted traffic growth over the long term.

“Kuala Lumpur has traditionally been an important aviation hub due to its strategic location in Southeast Asia, but more than this are the benefits of aggressive growth ambition of the local airlines, supportive government policies, low-cost operations and adequate infrastructure,” Maybank IB said.

The current global aviation hub leaders are London, New York, Tokyo and Paris.

However, Maybank IB said all these hubs are matured and experiencing low traffic growth rates.

It added that Beijing could take the top spot, followed by London and Shanghai, by 2020. In Southeast Asia, however, Bangkok and Jakarta are the current leaders, followed by Kuala Lumpur and Singapore.

In 2014, the local aviation industry will see less severe competition between Malaysia-based airlines, namely Malaysia Airlines Systems Bhd (MAS), AirAsia, AirAsia X Bhd and Malindo Airways Sdn Bhd (Malindo Air).

RHB Research said this is due to Malindo Air being less aggressive in spreading its wings due to its high cost structure. At the same time, the airline also focuses on expanding its regional routes, such as to Indonesia, India and Thailand, rather than compete for the local market share.

It added that MAS and AirAsia will benefit from Malindo's regional expansion strategy should they maximise yields and loads.

Maybank IB said Kuala Lumpur has long suffered from an identity crisis in terms of appeal and existence, pointing out that the city was once always sidelined over Bangkok and Singapore as the Southeast Asian destination.

AirAsia came along in 2001 with its low-cost carrier (LCC) revolution, said Maybank IB.

Now dubbed as Asia's largest LCC, AirAsia has stimulated new demand from first-time fliers and budget-conscious travellers.

"Over time, this has led to an explosion of new routes, flight frequency and comprehensive connectivity," it said, adding that Kuala Lumpur boasts the highest LCC route connectivity and frequency in Asia, thus earning the status as the premier LCC hub in Asia.

Indeed, KL is starting to become more appealing as a hub in the aviation world.

Many international FSCs are either returning or starting to fly from KLIA since the last couple of years, analysts said. This year alone, KLIA welcomed six new airlines, namely Thai Smiles, Malindo, Air France, Turkish Airlines, Philippine Airlines and Iraqi Airways.

The local sector is getting a big boost from the government's plans to transform Malaysia into an aviation hub in the region via a national aviation policy.

The blueprint is being formulated to strengthen the sector's ecosystem and services network.

The government has also introduced policies that are supportive towards the industry. For example, Malaysia is known to have the cheapest airport charges (landing and parking, over flight, passenger service and security charges) compared to Singapore, Bangkok, Jakarta and Manila.

Maybank IB noted that KLIA's fuel cost is the second lowest in the region, after Brunei.

"Overall, KL's operating costs are very competitive, and this helps in the development of the aviation hub and promotes it as the gateway to Southeast Asia," it added.

Kuala Lumpur is expected to handle more passengers next year due to the VMY 2014. - BTimes

2014 Property Market Expected To Be Cooling Off

Various groups with vested interests in the property sector are still dissecting the multi-faced measures announced a few months ago in Budget 2014. They are concerned about the impact it will have on the market and are trying to make the best of the situation.

The measures to cool the market underscore the Government’s resolve to curb property speculation and promote a more healthy and sustainable market. A focused policy on affordable housing is also one of the main thrusts of the Government initiatives. The new budget measures apply to all property projects nationwide except those in the Medini enclave in Iskandar, Johor, which has been declared a special economic zone.

Property consultants concur the unveiling of the budget measures have jolted both developers and buyers, especially speculators, and there is bound to be a short-term consolidation as they wait out to see the impact of those measures on the market.

Needless to say, developers are feeling the heat. Many are concerned the imposition of the full real property gains tax (RPGT) regiment may stall buying interest and impact sales.

The hike in pricing threshold for properties that foreigners can buy from RM500,000 to RM1mil is also a cause of concern for developers with projects targeting foreigners.

Meanwhile, potential buyers and investors are keeping their fingers crossed for better deals in the form of more innovative product offerings at more competitive pricing as the new year unfolds.

Real Estate and Housing Developers’ Association president Datuk Seri Michael Yam sounded the alarm when he said that “Budget 2014 has an adverse impact on the property market and will cause negative sentiment to permeate in the market place.”

“The industry and the consumers would take a more conservative approach in respect of sales launches or a buying decision. Going forward, developers would need to be more careful with its market research to ensure there is high probability of take-up in their project launches. Buyers are also expected to adopt a wait-and-see attitude with the hope of a fall in prices, while sellers are holding on to their prices waiting for an opportune time to sell,” he surmised.

Yam suggests developers do more indepth research and test the market before deciding to sell, or if necessary defer launches. He notes that this will likely lead to further imbalances in the supply and demand.

Despite envisaging a slight negative impact on the market, executive director of property consultancy CB Richard Ellis Malaysia, Paul Khong expects a fair and stable outlook for the property market next year.

He says investors hoping to flip their properties for short term gains will now be compromised if they do not dispose off their properties by this year due to the latest RPGT guidelines. The new RPGT regime is effective from Jan 1, 2014.

“Buyers will now have to revisit their investment criteria carefully. As for developers, they also have to work much harder to conclude more sales in 2014.

“With the abolishment of developer interest bearing schemes, the number of pure speculators and short term investors will drop in tandem,” Khong observes.

He says project launches will continue in 2014 as developers still need to develop as property development is their core business.

“But the project launches will be targeted more towards the mass market and will be at more reasonable price levels.”

Khong says in a more competitive environment, developers may need to provide higher quality products and more trendy developments to entice buyers, and buyers can look forward to better deals and hopefully greater value for their money.

On the average market, players will take three to six months to digest the impact although they will continue to invest with different objectives in mind.

The RPGT basically follows the principle of “No gain, No tax”, so it lessens the quantum of gain in the overall picture and does not penalise actual buyers, Khong says.

“The budget measures basically eliminate short term investors who are looking for high and quick gains in the local property market and force the market to stabilise and investors to take a longer term view on their investments,” Khong concludes.

DTZ Nawawi Tie Leung executive director Brian Koh says the tapering of bond purchase by the US Federal Reserve may result in a more challenging market outlook for the local property market.

“The market is likely to be more challenging given the related effects of rising interest and a tighter credit environment. It is likely to take a breather with new supply and launches likely to be delayed in the first few months of the year as developers tread cautiously to test the impact from the cooling measures of Budget 2014,” he explains.

Koh says it will be “a sort of reset for the market, so that the various parties are brought back to review their basic assumptions and expectations on more fundamental issues such as sustainability of trend, affordability and potential risks/returns going forward.”

“Developers are likely to launch less projects, downgrade specifications, reduce sizing, squeeze on construction costs, and accept lower margins.

“As for buyers, speculators who are caught in the new changes will have the most to lose, if they do not have the holding power,” Koh points out.

So what type of projects will be popular in this new environment?

Rehda’s Yam says the perenially popular types of housing would be guarded and gated landed houses, double-storey terraced housing, semi-detached and detached houses, small size condominiums in prime locations including those on top of or in the vicinity of MRT stations.

“For retirees and lifestyle living, properties on the island of Penang, beach resort and parts of Iskandar will be sought after,” Yam concludes.

Khong says inner city integrated developments like Pavilion and Tropicana Mall or the newly launched Damansara City and Damansara Uptown Phase 2 will lead the pack on the strata residences sector, followed by the ever green landed terrace houses (guarded and gated concept) in good locations.

He believes branded residences with good amenities such as MRT stations nearby and fully fitted/furnished units will also go far with buyers.

“As for projects targeted at the foreign buyers, they will now have to be more high-end driven following the higher price threshold of RM1mil imposed on foreign buyers from January 1,” Khong adds.

Koh says the market can expect more projects that cater to the family and for owner-occupation. -The Star

Property Sector in 2014: Down, But Not Out Just Yet

Malaysia’s property sector will be hampered by property curb measures in 2014, particularly in primary markets which had seen strong growth in recent years due to incentives offered by developers.

Alliance Research Sdn Bhd (Alliance Research) head of research Bernard Ching noted that to counter excessive speculation and rein in price increases, the government has introduced several measures to curb rising property speculation.

“These measures will dampen the demand for properties, particularly in the primary markets which have seen strong growth in recent years due partly to incentives offered by developers,” he outlined in the group’s strategy report for the year ahead, adding segments which are most at risk include hybrid high-rise developments such as small office home offices (SOHOs) which have largely been driven by speculative demand.

“We expect property curb measures recently announced will lead to moderation in transaction volume as well as price increase. We rule out the possibility of any fire sale given low unemployment rate, and absence of any systemic financial crisis.”

Ching noted that the property sector has significantly outperformed the benchmark FBM KLCI in 2013.

The KL Property Index has surged by 44.2 per cent to reach an all-year high of 1,519.25 on 29 May which was  given a boost post 13th general election on 5 May.

However, profit taking activities and concerns over measures to curb property transactions have led to a subsequent 14.9 per cent correction, he added.

Despite that, the KL Property Index still posted a gain of 22.7 per cent vs FBM KLCI’s 9.2 per cent gain up to December 10.

The research team at TA Securities Hondings Bhd (TA Research) affirmed that the domestic property sector was already showing signs of readiness to embrace a softer period ahead given these measures.

“Our channel checks revealed that some developers are already re-strategising their new launches next year,” it said in its Annual Strategy 2014 report.

“For instance, Glomac had decided to postpone the launch of commercial properties and high-rise serviced apartments to 2015 and focus on landed residential properties which are perceived to have resilient demand.”

Meanwhile, strong property demand has led to a sharp price increase for properties in Malaysia, highlighted Alliance Research’s Ching.

“Following the global financial crisis in 2008, interest rate has been kept at exceptionally low levels for extended period of time,” he explained. “Together with easy financing schemes provided by developers and banks, primary transactions have picked up significantly due to improved affordability.

“This has led to sharp price increase over the last three years where the year on year (y-o-y) change in quarterly all-house price index has surged beyond 10 per cent as compared to historical average of 5.1 per cent.”

TA Researdh did not t think Malaysian property prices will suffer from a severe reduction in capital value given steady demand for property driven by Malaysia young population (median age = 27.1 years).

“Baby boomers born during 1979 to 1986 (age 27 to 34), who are now in the work  force, could be on the look-out for their home for their first home,” it noted. “Besides, the expected cost push factor resulting from GST implementation and subsidies rationalisation could act as price stabiliser as well.

“In fact, before the GST come into effect in April 2015, we do not discount the possibility of a property rush  towards the tail-end of 2014.

“As such, we foresee significant cooling off in buying only in 2Q15 as urgent buyers would have lock-in purchases before that whereas  the sidelined buyers/investors will adopt waitand- see attitudes in order to access the implications of the latest policies.”

Meanwhile, should property prices remain stubbornly high in the future, TA Research said this would aggravate the threat of further cooling measures, which can be evidenced from the actions taken by the government of Singapore and Hong Kong.

“Judging from the timeline of the recent slew of  cooling measures, we deduce that Malaysia property sector will continue facing extensive policy risks, as long as the pace of Housing Price Index (HPI) growth stays above the five-year average growth of 8 per cent y-o-y.”- The Borneo Post

Synergy of Johor-Singapore

Rising from a former palm plantation, the towering Astaka complex will cast its shadow across the Malaysia-Singapore border by 2017, a symbol for an ambitious development zone linking the two former rival's economies.

Construction cranes are sprouting across southern Malaysia's Johor state as investment flows into "Iskandar", a development zone that aims to draw Singaporean capital to its larger neighbour's cheaper land and labour costs.

The zone has been dogged by skepticism since its inception in 2006, due in part to Johor's reputation in Singapore as a backward hotbed of car thieves.

But soaring costs in Singapore are causing a re-think.

Anthony Phillips moved his family across the narrow Johor Straits to Iskandar, lured by property prices that are less than half those of Singapore and cheaper schooling.

He now commutes to his Singapore communications consultancy, a trip that takes less than an hour.

"Last year's move to Iskandar has been a great success all round. Iskandar offers the best of both worlds," he said.

Authorities say Iskandar -- named after a revered former Johor sultan -- landed $40.5 billion in investment commitments by end-October, one-third of the way toward an ambitious 2025 target of $123 billion.

Singaporeans are already a key market for a $280 million Legoland theme park that opened in 2012 and brand-outlet shopping.

Other projects include a branch of UK-based movie makers Pinewood Studios and an "Edu-city" bringing together several European universities on one campus.

A Singaporean-funded $1.1 billion Motorsports City being built will include racing circuits, a driving school, and is intended as a regional hub for development of the sport.

Healthy 'co-opetition'

Bilateral relations have long been prickly.

But Ismail Ibrahim, head of Malaysia's Iskandar Regional Development Authority, notes a "reversal of tide," saying Iskandar allows each to leverage its strengths amid an uncertain world economy.

"We like to describe our relationship with Singapore through this simple term: 'co-opetition,'" said Ismail, standing beside scale models of the Iskandar area.

"We compete, but at the same time we cooperate."

With a world-class financial centre and port, high-tech Singapore's five million residents create a GDP equal to Malaysia's 28 million. But soaring prices have crimped competitiveness.

A 120-square metre condominium in the centre of Singapore fetches well over $2 million while the Johor Bahru equivalent rarely tops $400,000.

Malaysia, meanwhile, views Iskandar as a new inlet for the foreign investment that has been vital to its development.

It offers a range of tax breaks and other inducements in Iskandar's designated 2,217 square kilometres (855 square miles) -- three times Singapore's size -- of mostly plantation land.

Concerns are rising, however, that Malaysian, Singaporean, and Chinese money is fueling a speculative property bubble while more balanced economic development lags.

Johor housing prices have jumped more than 20 percent in the past year, double the national average and causing some local grumbling, yet Iskandar has one of Malaysia's lowest retail and office occupancy rates.

Analysts said recent Malaysian measures to cool speculation would have little impact, especially with huge Chinese developers now eyeing Iskandar.

Country Garden, one of China's top property firms and among a handful of cash-flush Chinese developers in Iskandar, has broken ground on a $5.6 billion residential township.

Of the project's 9,000 luxury condominiums, one-quarter were sold to China buyers.

Malaysian officials express hope that "catalytic" projects like Legoland and the motorsports facility will stimulate other business growth.

"There was a property play in the beginning, now we have to focus on job creation... to migrate to a vibrant economic zone," said Wan Abdullah Wan Ibrahim, chief executive of Malaysian government-owned UEM Sunrise, a key Iskandar developer.

International business consultancy Frost & Sullivan has announced plans to invest $176 million to house its back-end operations in Iskandar.

But few other major corporate names have taken the plunge, causing some concern.

Johor business leaders complain the area's Malaysian labour base is short on skills and that many still prefer better-paying work in Singapore.

A speculated linking of Singapore's mass-transit system with Iskandar has been cited as a potential shot in the arm, but no firm plans have yet emerged.

Observers believe, however, that economic fundamentals will ensure the area's makeover is eventually completed.

"Iskandar will succeed because it has to," said Johor ruling-party parliament member Nur Jazlan Mohamed.

"Malaysia needs it economically and Singapore needs it politically to release the cost pressure."- AFP

Malaysia To Continue Growth Trajectory Next Year

Economists are confident that Malaysia will continue its growth trajectory next year with the Gross Domestic Product (GDP) set to expand by 4.50-5.3% from 4.5-5.0% this year.

Growth will be buttressed by continued fiscal reforms, reductions in the budget deficit and financial discipline, leading to economic expansion despite external challenges.

Malaysian Rating Corp Bhd (MARC) Chief Economist Nor Zahidi Alias said rising consumer prices would be a key concern for consumers in tandem with the government’s commitment to strengthen its fiscal position.

The government is more optimistic with the 5-5-5% growth projection next year from 4.5-5.0% this year on resilient domestic demand, improving external environment, coupled with higher investment inflow into Malaysia.

Trade figures are also encouraging for the economy, with exports continuing their growth trend at 1.6% in 2014 on improved demand for products and electronic items.

January-October trade rose this year 3.4% to RM1.3 trillion from RM1.09 trillion last year, with exports rising 0.9% to RM591.8 billion, partly due to aggressive promotional activities undertaken by the Malaysia External Trade Development Corporation (Matrade).

The top five trading partners during the period were China, Singapore, the European Union, Japan and The United States.

Economists also said overall revenue is set to increase with the rationalisation of fuel subsidies and the hike in electricity tariff effective January 1, 2014.

They said this would have a modest impact on the economy, adding that trade prospects would be brighter with the recovery in the global economic front, which should offset weaker domestic demand.

The World Bank said stronger performance in advanced economies is widely expected to be accompanied by a "tapering" exercise of the US's quantitative easing.

The US Federal Reserve had announced that it would reduce its $85 billion a month in bond purchases by $10 billion beginning January 2014.

The bond-buying, also known as quantitative easing programme, was launched 15 months ago to kick-start growth in the world's largest economy.

Under Prime Minister Datuk Seri Najib Tun Razak's stewardship, the economy has drawn a slew of projects under the Economic Transformation Programme (ETP).

The ETP has attracted RM220 billion worth of investments in three years of its implementation, which is projected to contribute RM144 billion to the Gross National Income.

The national transformation programme has also created 435,000 new jobs and generated a knock-on effect that will catalyse the larger economic activities in the country.

Pertinent is the domestic and international recognition of government measures to boldly enforce the gradual subsidy rationalisation which will ensure sustainability.

International rating agencies Moody’s and Standard & Poor’s have revised upwards Malaysia’s outlook based on fiscal consolidation, favourable debt structure, high levels of domestic savings which will ensure economic resilience accompanied by price stability.

"The balance of payments remains healthy," Moody’s said in a recent report.

Standard & Poor's expects Malaysia to remain a net creditor, given its strong balanced sheet, open and competitive middle-income economy and considerable monetary flexibility.

Also, Malaysia’s economic policies are said to be pragmatic and efforts to enhance transparency and corporate governance has improved business environment.

Against such a backdrop, Nor Zahidi said: "The challenge for the government is to balance the need to consolidate its fiscal position and trim down debt level to ensure that Malaysians will not be burdened by the rising cost of living from rising consumer prices.

Indiscriminate subsidies should be avoided, said Nor Zahidi, adding that subsidies targeted for low-income groups were necessary but on a conditional basis.

Echoing a similar sentiment was World Bank Senior Economist Frederico Gil Sander who said the move towards more targeted transfer in lieu of fuel subsidies was a positive one.

An encouraging sign is that political risks have subsided after the 13th General Election in May while a rejuvenation of fiscal reforms will likely result in positive sovereign rating action.

In supporting the growth momentum, the government formed a Fiscal Policy Committee in June as the premier body for fiscal management and play a leadership role in strengthening fiscal position to ensure fiscal sustainability and macroeconomic stability.

The investment momentum is expected to accelerate from several high impact projects under the Government Transformation Programme and ETP, including the MyRapid Transit, Light Rail Transit, as well as oil and gas projects, which will continue to spur the economy.

Nomura Singapore Ltd Executive Director and Economist for Southeast Asia, Euben Paracuelles said the fiscal reforms are clear indications that the Malaysian government is getting its act together to address weak fiscal position.

"I think there is still a lot of scepticism in terms of the ability to push the fiscal reforms but we're optimistic the government will execute them and also the electricity tariff hike effective January 1, 2014.

"Fuel price increases have also been managed very well," he said.

AmResearch Sdn Bhd said the subsidy bill would fall by 15.6% or RM7.3 billion year-on-year to RM39.4 billion next year, mainly derived from savings of the recent price adjustments for fuel and sugar.

Currently, total savings from the petrol pump price adjustments and abolishment of sugar subsidies will amount to about RM3.8 billion in 2014.

"Hence, we do foresee further price rationalisation amounting to RM3.5 billion next year, out of which RM1.7 billion could potentially come from another round of petrol pump price increase," it said.

Allocation for fuel subsidy, including cash transfers, would likely increase to RM28.9 billion in 2013 from RM27.9 billion in 2012 as oil prices remain high, averaging at $98.02 per barrel in the January-November 2013 period against $94.05 per barrel in 2012.

Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar said the country’s financial system remains strong and robust with liquidity, non-performing loans ratio and capital ratios at a strong level.

However, higher inflation is another consequence of fiscal consolidation.

Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz has said inflation is likely to reach 3% next year.

Inflation measured by the consumer price index rose 2.9% to 108.6 in November from 105.5 registered in the same period last year. - Bernama

How The Market Reacts To Cooling Measures

THE property market with all the recent cooling measures announced by Bank Negara and the Finance Minister in Budget 2014, seems to be holding its breath and assessing the likely impact. So as we move into 2014, the question is how will the nature and complexion of the market change.

Insofar as the residential market is concerned, and for the country as a whole, house prices are generally in line with important fundamentals such as household income, going neck to neck at about 5.5% increase per annum. It is only in select localities in the Klang Valley, Penang, Johor Baru and Kota Kinabalu that house prices are somewhat higher than the normal multiple of 4 to 5 times annual household income. In some instances, prices have risen to close to 15 times the average state household income.

To view this condition in a proper perspective, we need to go back in time to early 2009 when the developer interest bearing scheme (DIBS) was first introduced. It was introduced to forestall a cooling of the residential market, mainly the primary market, i.e. sales by developers, following the global financial crisis of 2008. As we moved away from 2009, a substantial number of developers adopted the DIBS and added on a range of incentives as well, reaching out to new categories of house buyers who are not necessarily the traditional first-time house buyers or upgraders.

In 2009, there was a total of 211,600 residential transactions; 25,898 or 12.24% were primary market transactions whereas 185,702 or 87.76% were secondary market transactions.

In the following year i.e. 2010, the total number of residential transactions was 226,874, out of which 29,162 or 12.85% were primary market transactions, while 197,712 or 87.15% were secondary market transactions. The important point is that primary sales made up about 12% of total transactions.

In 2011, the total number of residential transactions was 269,789, out of which 55,745 or 20.66% were primary transactions whereas 214,044 or 79.39% were secondary transactions.

Note should be taken of this percentage jump in the proportion of primary transactions versus secondary transactions. It is attributed to the DIBS and the other incentives that were given by developers, impacting the market, which in effect were luring buyers into the primary sector of the market as against the secondary sector. Their lure was also due to the fact that real estate seems to draw in investors and speculators particularly during difficult times. There are very few alternative investments that can attract a switch in savings as well as excite the outright speculators as real estate.

Looking at it from another point of view, the DIBS and the growing degree of incentives offered can also be considered as an invitation to speculate. For 2012, out of the total residential transactions of 272,669, 60,241 or 22.09% were primary market sales whereas 212,428 or 77.91% were secondary market sales. Note the drop in the proportion of secondary market sales from 214,044 in 2011 to 212,428 in 2012.

In view of rising house prices in the Klang Valley, Penang, Johor Baru and other areas, coupled with the concern that ordinary Malaysians were being crowded out of the market and the rise in household debt, the authorities introduced several cooling measures, with the culmination of a substantial dose in Budget 2014.

Transparent incentives

Like Singapore, the DIBS was also targeted as an unacceptable feature for the market, and where incentives are given by developers they are now required to be transparent. This enforces the need for the real price of houses to be clearly discernible. Lending by banks and financial institution are now constrained from being led by house prices that include incentives which mask the real house price.

Going forward, it is likely then that the runup in the primary sector of the market by about 35,000 units a year or close to 3,000 units a month could be reversed partially or fully. But then where will such “speculators” turn to in the compelling search for alternative investments? This is a question to ponder on.

Residential house prices are normally sticky on the downside and it is unlikely that prices will ease substantially. However, there could be a rediscovery of the real price of houses once the value of the DIBS and other incentives are stripped from it. The effect is a slight downward slide in prices.

The market discovery of real house prices in the hotspots could also help in more robust residential property indices, which are important for the growth and development of the industry.

In the commercial sector of the market, in the Klang Valley, there is clearly excess dedicated office space in the market as noted from the amount of unoccupied space – about 26 million sq ft. There are also a substantial amount of office space under construction (18.77 million sq ft) with an even more substantial amount of office space expected from all the mega projects as currently contemplated. Rents are under pressure and it is important to bear in mind that it is rents that drive the market.

Grade A office buildings today have rental of between RM7 and RM8 per sq ft gross and higher than this figure are only for a few special Grade A plus office buildings which also enjoy exceptional management and good location.

Rents determine capital values by way of the expected yield. Broadly, capital values less the cost of development and expected developers profit and adjusted for time value of money determine the price one should pay for land that is slated for commercial development. At current market prices of commercial lands in the KLCC area at more than RM3,000 per sq ft, it does indicate that buyers are assuminig a permissible plot ratio of 10 or more. More significantly, rents will trend upwards of RM10 per sq ft in the short to medium term. Is that a reasonable expectation, given the substantial current and future supply of office space?

For the retail sector, there are also a substantial amount of retail centres entering the market. There is pressure on some of the smaller neighbourhood shopping centres. Many of these centres in the Klang Valley are looking for a buyer. The outlook for the leading retail centres, however, ought to be helped by the fact that 2014 is a designated Visit Malaysia Year. On the other hand, one has to contend with some possible crimping of consumer spending arising from the reduction of subsidies and increase in tariffs.

Khong & Jaafar group MD Elvin Fernandez believes in the free market and timely nudging by policy makers and key market participants to iron out any, and only where needed, imperfections in the system. To do this, and over time, they need a steady stream of in-depth market knowledge and insight.- The Star

Property Investment Is Not Riskless

EARLIER this week, a developer signed an agreement valued at about RM100mil with a company that “specialises in wealth management through property marketing and risk management.”

The investor bought 100 units of commercial suites in Petaling Jaya that will be completed in a couple of years. The 100 units make up about 40% of the nearly 300 units in the freehold development. With this agreement, the project will be 100% sold.

It was launched in June this year with an average price per sq ft of about RM970 with an 8% rebate for buyers, before the Budget 2014 measures and Bank Negara ruling which discouraged the giving of rebates, and which put the country’s property sector on the path to transparency.

A representative from the developer say the investor will buy the units with the 8% rebate, similar with earlier buyers. On a per sq ft basis, the bulk purchaser will pay between RM950 and RM1,000 for the units. Because the investor is taking over all the unsold units, they are randomly located, with sizes ranging hovering around 1,000 sq ft.

There are a couple of things about this agreement that raise some questions. First, this investing company is bulk buying only to sell the units later, as with previous investments. The company was established in 2003. It has two shareholders. In 2007, it bought 100 units of a project in Kota Damansara, Petaling Jaya for RM20mil. It subsequently sold 123 units when it was engaged by other purchasers to sell their units. In 2011, the company bought 40 units of another project in Bangsar South, Kuala Lumpur for RM20mil. They subsequently sold all its holdings.

Last year, it bought 40 units in mixed development the Mont’Kiara/Segambut area for about RM20mil. Although this project is currently under construction, the company has only three units left, the managing director of the investing company said after the signing ceremony. With this current investment, his plan is to sell the 100 units to parties on his data base. Two real estate consultants who declined to be named say the transaction is legal but may have ethical undertones, particularly at a time when the government is trying to curb speculation.

Budget 2014 with regard the property sector essentially deals with three issues – a more stringent real property gains tax (RPGT) compared with previous years, the banning of Developers Interest-Bearing Scheme (DIBS) and increased transparency imposed on developers who now have to display detailed sales price including benefits and incentives such as legal fees exemption, cash rebates and free gifts. In short, the net price minus the freebies. Its aim is to ensure sustainable and transparent pricing.

“Legally, there is a willing buyer and seller. The job of the developer is to build and sell his project. What happens after that is between the investor and subsequent buyers. A true and real investor will look on the longer term. He will not flip at the first opportunity,” says a property consultant. Both agents pose the following questions: Is the sales and purchase agreement (SPA) done in one single agreement or for 100 units? Will the 100 units be officially transferred from the developer to the investing company? Will the subsequent buyers be buying from the developer or from the investor? The developer did not respond to the emailed questions.

The consultants and two lawyers contacted also brought up the RPGT which kicks in on Jan 1, 2014.

The lawyers contacted say it will be considered as a sub-sale when the investing company sells the units to subsequent buyers.

“How the agreement between the developer and the investor is framed is important,” one lawyer says. There is no stamp duty involved because the project is yet to be built, they say.

Says one lawyer: “A property company pays tax, not RPGT. In this case, the investing company is a wealth management company which specialises in property marketing, but is not a real estate company. Does this mean it collects money from other investors? Then it will be governed under the Financial Services Act. When they resell later on, they will still have to pay RPGT. So it is a tax question.”

With the various anti-speculation measures by the government kicking in next month, the question that begs to be asked it, will there be other “wealth management companies specialising in property marketing and risk management” entering the scene to bulk purchase, and bulk flip?- The Star

Malaysian Economy To Grow By 5% In 2014

The Malaysian economy is expected to grow by 5% next year from the 4.6% forecast for 2013, buoyed by strong sustained domestic demand, says MIDF Amanah Investment Bank Bhd.

Its Chief Economist Research Development, Maslynnawati Ahmad, said domestic demand would continue to be supported by growth in wages and a stable employment outlook.

She said the expected recovery in the external demand would provide a boost to the economy.

"The export sector has been volatile this year but we expect it to pick up next year due to the recovery in the US," she told reporters after today's media briefing on Market and Economic Outlook for 2014.

Maslynnawati said all components of exports, such as electrical and electronic products, as well as commodities, were expected to be firmer next year. - Bernama

Asia Business Sentiment Falls In Q4 As Global Worries Weigh, Malaysia Remains Only Bright Spot

Business sentiment among Asia's top companies dropped sharply in the fourth quarter, extending last quarter's declines, with global economic uncertainty and rising costs weighing on the region's firms, a Thomson Reuters/Insead survey showed.

The Thomson Reuters/Insead Asia Business Sentiment Index fell to 62 in the fourth quarter from 66 in the third quarter of 2013, the lowest reading since the third quarter of 2012. A reading above 50 indicates an overall positive outlook.

Sentiment in Southeast Asia's $1.5 trillion (RM4.8 trillion) economy was undermined by political turbulence in Thailand and a typhoon in the Philippines, causing dismal readings of 40 and 58 respectively, which were the lowest for both countries since the poll was first compiled in 2009.

Although China and India's bullish scores of 75 and 82 respectively supported the index, export-driven north Asian economies such as South Korea as well as regional trading hub Singapore also showed weaker readings, underscoring still-anaemic global business conditions.

"The global economic recovery is still very fragile," Zhang Shiyuan, an economist at Shanghai-based Southwest Securities Co said. "There is a fundamental problem that there's still too much debt. It's a time bomb that may be detonated if monetary and fiscal policies don't coordinate well."

The survey showed that the auto sector was the most negative with a reading of 33, a sharp drop from 63 in the previous quarter, followed by the food and resources sectors with fourth-quarter scores of 50.

The index surveyed more than 100 of the Asia-Pacific region's top companies including Hyundai Heavy Industries, Fast Retailing and International Container Terminal Services Inc (ICTSI) in 11 economies, across sectors including property, financials and tech.

The poll, conducted by ThomsonReuters in association with Insead, a global management and business school, was compiled between December 2-13.

Of the 128 companies that responded, two-thirds reported a neutral outlook while less than 30% were positive in their prospects.

Among Asean countries that had remained comparatively upbeat earlier this year, Malaysia remained the only bright spot with a score of 75, up from 69 in the last quarter.

In contrast, companies in Thailand were the most negative in Asia with a 40-index reading, plunging from 71 in the previous quarter as signs of prolonged political uncertainty due to anti-government protests against Yingluck Shinawatra's ruling party hit business sentiment.

Corporate sentiment in the Philippines tumbled to 58 from the maximum score of 100 in the previous quarter due to the devastating effects of Typhoon Haiyan in early November that killed more than 5,200 people and destroyed an estimated $543.60 million in crops and infrastructure.

Among north Asian economies, Japan retreated to a fourth-quarter score of 55 from 63 in the previous quarter as the buzz around Abenomics deflated. The outlook in South Korea remained steady at a neutral 50.

A glimmer of hope came from China, the world's second-largest economy, which showed an uptick in fourth-quarter sentiment to 75 after holding steady at 50 earlier this year.

"The companies appear to be upbeat on the expectation that overseas demand for Chinese exports will improve. Hopes stemming from the government's reform measures announced in Q3, and rising income levels that could drive spending, are also causes for positive sentiment," said Cui Hongmei, a China market analyst at Seoul-based Daewoo Securities Co.

India's bullish outlook also supported the index, with a fourth-quarter score of 82 compared to 67 in the previous quarter as improving manufacturing conditions in the 1.3 billion-strong country shrunk the trade deficit by 23% between April-November 2013.

Broken down by sector, builders in Asia were the most bullish with a maximum reading of 100 for the second consecutive quarter, followed by pharmaceuticals and property sectors with readings of 75.

Defensive sectors such as food and retail were both down from the previous quarter to readings of 50, as companies cited rising costs as their biggest risk. - Reuters, December 18, 2013.

Emerging Asian Banks Face A More Challenging 2014

The credit cycle has turned for Asian banking systems with nearly half the countries monitored by Fitch Ratings having Negative Sector Outlooks for 2014 - mostly in emerging Asia. The negative bias in Fitch's new report reflects challenges expected from higher interest rates, moderation in economic growth, and seasoning of loan portfolios after an extended period of rapid growth. The agency views slower credit growth positively as it would help to prevent overheating in some markets.

That said, all countries except Mongolia have Stable Rating Outlooks, reflecting a combination of factors. Many banks are entering this phase with healthy fundamental strengths, but not those in China and India's state bank sector where conditions have already exerted downward pressures on their Viability Ratings (VRs). Where there are pressures on bank fundamentals as reflected by the VRs, the rating outlooks reflect sovereign support - as is the case with China and India.

Fed tapering and China are the two key risk themes for 2014 that will have the greatest bearing on bank performance.

The move towards interest-rate normalisation has begun to expose economic imbalances leading to currency pressures and higher market rates. This adjustment will test loan quality where credit expansion has been rapid, particularly in some parts of emerging Asia such as Indonesia, Thailand and Malaysia where a rapid build-up of household debt has occurred. This may become a source of asset quality problems if unemployment and inflation rises. In most cases earnings and capitalisation buffers remain solid to offset higher credit costs, while funding and liquidity profiles are comfortable to absorb any currency pressures.

For China the pace of credit growth is unsustainable, but is expected to continue in the medium term. Financial system asset quality remains a concern, and the rise in overdue loans is likely to accelerate. Financial liberalisation and rebalancing will add to system pressures. The larger the financial system becomes, the greater the potential for surprises. Growing linkages between China and the region, in particular Hong Kong, also means the region's fortunes will depend on how successful China rebalances from its unsustainable investment-driven growth model.

The Indian banking system will have another challenging year with stressed assets expected to peak towards the end of the 2014 calendar year at the earliest, with the state banks being most exposed. Any improvement is likely to be gradual, with a pick-up in the economy likely to be slow given the uncertainties during an election year.

Capital-raising is expected to be most prevalent in China and India to offset mounting asset-quality and earning pressures as well as the requirement to meet higher minimum Basel III regulatory capital requirements. In particular, Fitch expects to see active issuance of Basel III capital instruments in both markets during 2014.

For developed Asia, most markets have Stable Sector Outlooks. However, markets such as Australia, New Zealand, Singapore and Hong Kong have high mortgage indebtedness, and would be sensitive to sharp property price adjustments and rising unemployment, although this is not Fitch's base case. China's economic fortunes are ultimately the key variable in the performance of these markets.

For South Korea, the Sector Outlook is Negative because an unsupportive regulatory, social and political environment and an ageing population are adding to the challenges faced by the banks.

With respect to Abenomics, the key uncertainty is whether there will be a meaningful and lasting impact for Japan and the region in 2014. A more durable boost to Japanese economic activity would be positive for Japanese banks, and a counter-balance for regional activity against a more material slowdown in China. - Reuters

Bank Negara Strategies Help Make Financial System Sesilient To Potential Stresses

The central bank's strategies in avoiding excessive volatility has helped make Malaysia's financial system resilient to withstand potential stresses.

Mission Chief for Malaysia of the International Monetary Fund based in Washington, Alex Mourmouras, said Malaysia's non-performing loans were relatively low and asset quality has been improving over the years.

"Nevertheless, ongoing global volatility, high household debts and other risks warrant continued vigilance.

"In that context, the mission welcomes steps taken by authorities to strengthen financial supervision. Since November 2010, BNM (Bank Negara Malaysia) has implemented a series of macroprudential policy measures to slow down property price inflation and credit growth," he told in a media briefing on the IMF findings today.

Also present was Treasury Secretary-General, Tan Sri Dr Mohd Irwan Serigar Abdullah.

The IMF findings were based on the fund's exchange of views with Malaysian government officials, BNM and representatives from the private sector, think thanks and academia in Kuala Lumpur and Penang recently.

A report will be prepared and presented to the executive board of the IMF for discussions in February, he said.

Mourmouras said the macroprudential policy measures had been complemented by measures in the 2014 Budget to increase property taxes while providing support for low-income buyers.

"The Fincancial Services Act, which came into effect in July 2013, provides BNM with additional powers to supervise financial conglomerates.

"We commend the authorities for implementing an extensive agenda of structural reforms to strengthen growth as seen in a number of multi-year transformation programmes," he said.

Of critical importance was the programme to improve educational attainment to meet the talent needs of the economy, he said.

Overall, Mourmouras said, Malaysia's economy was on the right track via the various government economic transformation programmes.

Meanwhile, Mohd Irwan said the positive IMF findings showed Malaysia was on the right track via the government Economic Transformation Programme in providing a long-term sustainability.

However, Malaysia could not rely and be dependent on commodities in order to increase its revenue and strengthening its fiscal position, Mohd Irwan said. – Bernama