Does DIBS benefit buyers?

Published: Saturday June 15, 2013 MYT 12:00:00 AM
Updated: Saturday June 15, 2013 MYT 12:01:15 PM

By THEAN LEE CHENG

I RECENTLY went to a SOHO launch where the developer offered a 10% rebate and DIBS (developers’ interest-bearing scheme) package. With regards to the rebate, 10% of the selling price will be waived provided the sale and purchase agreement (SPA) is signed within a certain period.

I understand that the rebate is not included in the SPA and is only given upon vacant possession. This looks unfair, what happens if there is no “vacant possession” where the developer does not complete the construction?

The developer would have collected progress claims and there is no guarantee there is vacant possession since it would have to await completion and since the DIBS and rebate were the attractions to such a launch, it would be a fair deal only if the buyer gets the discount upfront, right?

The above is a letter to StarProperty portal.

That 10% rebate is just an inducement to buy. Either way, whether the buyer gets the discount upfront, or upon vacant possession, this may not be a fair deal to the buyer. Here is the long explanation.

Close to five years now, a majority of developers have been offering DIBS for different types of projects – landed, condominiums and serviced apartments – irrespective of pricing.

While these financing schemes may seem an easy route to own a property, buyers who opt for a DIBS package may really need to consider if they want to take this route in order to own a property.

The issue of DIBS is brought up once again because according to a developer who declined to be quoted, DIBS packages are not in favour of the buyer.

“DIBS packages effectively push up the selling price by between 5% and 15%,” he says.

A property consultant who declined to be named says there is a difference of as high as between 20% and 25% for a DIBS and a non-DIBS package.

“On a per sq ft basis, the current market value for a property may be RM300 per sq ft. Because the developer is offering a DIBS package, somebody has to fork out the interest. So instead of selling the house at market value of RM300, he ups it by 20% and sells it at RM360 per sq ft.

“The buyer is, therefore, paying future prices today. The prevalent attitude today is, in the event prices do not reach RM360 per sq ft, he will forgo the commitment. But he is still committed to the loan. If he does not pay, the bank will take action to auction off the property. But let’s assume he decides to keep the property, the DIBS package is still not in his favour because if the price does not reach RM360 per sq ft – that being the price he paid on a per sq foot under DIBS – the buyer will have to top up the balance,” the consultant says.

Generally, there are two common misconceptions among buyers. The first is that this is a built-then-sell (BTS) scheme. This is not a BTS scheme.

“In a BTS scheme, the buyer pays 10% to 15% initially but he has not locked himself into a loan agreement. Although he has paid a commitment fee, that commitment hinges on the completion of the house, according to what the developer has promised him. He effectively can walk away from the purchase,” the consultant says.

In a DIBS package, the buyer is locked into a loan agreement, the consultant says.

“The common public perception is ‘Don’t worry, nothing to be paid. only 5%, or 10%’. The reality is that, they cannot walk away because they have committed themselves to service the loan. The only way to walk away from it is to flip it.”

The consultant says if the project is abandoned, the buyer is still committed to the mortgage.

Besides buyers paying future prices, the consultant says DIBS packages encourage speculation, that is, to buy with the intention to flip. It was this that prompted the Singapore government to ban interest bearing schemes even as far back as in 2009, followed subsequently by other measures to curb speculation.

“They are gambling that prices will go up. If a buyer has already paid future prices of between 20% to 25% , what is there to make, unless they expect to charge the next buyer another 25% to 30%? It is this sort of attitude, when enough people do it – the massess so to speak – that push up property prices,” he says, adding that the buyer can only flip when he has a margin of more 15% to make (as profit).

He says the authorities should enforce developers to put in big fine print what DIBS packages involve.

“If we overdo the DIBS, there is a snowball effect. Over time, it distorts prices,” he says.

As per the last budget, effective Jan 1 this year, the government raised the RPGT from the previous 10% to 15% on all properties sold during the first two years from date of purchase, and 10% (previously 5%) for those sold between the third and fifth year. There is no tax on properties disposed after the fifth year.

Because the effective date begins on the signing of the sales and purchase agreement date, and it generally takes two to three years to build a landed and a condominium property respectively, the buyer will be taxed 10% of his gains on the third or fourth year (the first two years being the construction stage). There are mixed views how effective the real properties gains tax (RPGT) may be to deter speculation. A total of RM1.09 billion RPGT revenue was collected in 2011 and RM 1.248 billion in 2012.

The other alternative is to ban DIBS for housing that is below a certain value, for example RM1mil, he says.

The second option is to opt for the normal progressive payments. There is a third option, and that is to buy a completed project. But many buyers do not want to do that because the seller would have made a profit.

Moreover, not many developers are offering this built-then-sell (BTS) route, which continues to be promoted by the National House Buyers’ Association (HBA) today.

In a previous column for StarBizWeek, HBA honorary secretary-general Chang Kim Loong writes: “… the buyers truly do not make any payment except for the deposit of 10% until vacant possession because the end-financing loans do not kick in until the houses are completed with all the certifications obtained and keys with vacant possession are available.”

Elvin Fernandez, the managing director of Khong & Jaafar group of companies says while the debate for austerity versus monetary expansion policies continues, the fact remains that there is a flood of money rushing throughout the global economy in search of higher yields. This pushes up prices of bonds and shares to unrealistic levels. Much of these money have gone into alternative investments like properties.

“We are concerned about this flood of money, particularly in this region which may not have suffienct regulatory infrastructure to absorb this money, or to deal with it,” Elvin says.

He says governments in the region, for example Hong Kong and Singapore, whose economies are more open to this flood of money have instituted a range of regulatory measures, known as macro-prudential measures to try and stem the ill effects that this flood of money can cause in property markets.

How does this affect the Malaysian property market or Malaysian housing market?

He says in order to prevent the property market from stalling, developers in early 2009 rushed in with a lot of 5/95 schemes and other incentives in order to maintain interest in the market. These incentives include DIBS, absorption of stamp duty and legal fees, rental guarantees, cash-back payments and early bird discounts. These incentives essentially bring prices down.

“But what is important is, if the discounts through incentives are not quantified and made known to all market participants, then the headline price – the price with the incentives – will be taken as the real market price, which it is not. The real market price would be the price after quantifying and deducting the incentives. This real price can then be also compared with prices in the secondary market.”

Elvin says this is important because “banks give loans on the market value and, in many cases, loans for purchases from the primary market”.

“Banks do not need professional valuations from independent valuers when buyers buy directly from the developers. Consequently, the lending is based on the headline price. In the event of a default and foreclosure, the bank will not be able to recover the full loan as it was based on a headline price with the incentives. And at the point of foreclosure, the price anyone will bid is certainly not a price with the previous incentives. In the event of a market downturn, and bearing in mind now that the percentage of primary sales have dramatically increased in the past few years, questions of financial stability may arise,” he says.

Secondly, Elvin says the National Property Information Centre (Napic) has been building up over the years a robust property index including a house price index. It is important for this price indices to reflect the real prices.

While it is fair for developers to give discounts by way of incentives, developers should state clearly in their documents and brochures the price or value of the incentives given. The real price should be transparently known to the buying public, he says.

This measure of transparency has been introduced in Singapore, he says.

Because of the incentives, the primary housing market, where buyers buy directly from developers, which used to hover around 12% of the total market has now shot up to 21% in 2011, and 22% in 2012. Consequently, the secondary market has receded.

“In other words, people now buy from the primary market because of the incentives. And this could also signal that the market, as a whole, which is usually and still is heavily biased towards the secondary market, is showing signs of slowing down.

Elvin says according to Napic, total residential transactions in the secondary market has come down from 214,044 in 2011 to 212,428 in 2012.

Curbs on property scheme? Bank Negara said to be relooking at popular, easy developer interest-bearing scheme.

Published: Tuesday June 25, 2013 MYT 12:00:00 AM
Updated: Tuesday June 25, 2013 MYT 11:54:32 AM

By GURMEET KAUR
gurmeet@thestar.com.my

PETALING JAYA: Bank Negara is studying the risks arising from the developer interest-bearing scheme (DIBS) with a view of potentially imposing curbs on it, sources said.

Although it is unclear if or when such curbs would be put in place, Hong Leong Investment Bank (HLIB) said that it may be “later this week”, adding that such a move would be a negative for future sales in the primary property market.

Other industry players think that the measures might be introduced in the second half of the year.

DIBS has become a popular easy financing package offered by property developers in joint-promotion activities with banks in recent years.

Under the scheme, buyers need not fork out much initial downpayment to buy properties, as the developer supposedly absorbs the initial interest. This is until the buyer takes possession of the property.

A high number of buyers enter this scheme with the intention of flipping the property when they gain possession of it, making a profit without having to come up with much capital in the process. Such a scenario fuels speculation.

“Typically, under the scheme, buyers only foot between 5% and 10% of the house price upon signing the sale and purchase (S&P) agreement and only begin payment when the project is completed,” a property consultant told StarBiz.

“There are caveats to this scheme, as buyers commit to a financial obligation upon the signing of the S&P and the interest cost has actually been already passed on to buyers via the higher selling prices.”

DIBS is mainly offered to the high-rise residential segment. Some property consultants have opined that the presence of DIBS in the market has caused prices to be set on an artificially higher trajectory.

Notably, the Singapore government banned DIBS in 2009.

“While the exact measures are yet to be revealed, we believe the curbs would impact this easy financing scheme,” HLIB said in a note yesterday.

According to analysts, most of the sales in the recent property bull cycle were tied to the attractive DIBS scheme at the expense of the secondary property market which has remained sluggish. And given the persistent rise in household debt, the Government is mulling over measures to limit it.

“In the recent past, Bank Negara has been compiling information on the scheme and studying its impact on the sector,” a source said.

Bank Negara had yet to respond to StarBiz’s queries as at press time.

“The difference between the non-DIBS and DIBS pricing can range from as low as 5% to as high as 30% if other incentives like early-bird discounts, stamp duty waivers and cash payments are taken into account,” said Elvin Fernandez, managing director of Khong & Jaafar group of companies.

He advocates regulators to compel developers to be transparent on the various incentives, as it may be difficult to do away with DIBS packages.

“Developers should inform buyers and bankers of the actual value of the discounts they are getting so that house buyers know the true value of the house they are buying,” he said.

UOB Kay Hian Research noted that new launches in selective high-rise projects in the suburbs of the Klang Valley were transacted at over RM1,000 per sq ft (psf) vis-a-vis RM450 psf two years ago.

“Household debt has risen to 80.5% of nominal gross domestic product as at end-December 2012, up from 60.4% as at end-2008.

“We also note that outstanding banking sector loans in the household sector has risen 3.6% year-to-date as at end-April to RM638.5bil from RM616.5bil as at December 2012. As the rise in consumer credit is partly linked to housing, curbs may be introduced to dampen speculation,” UOB Kay Hian said in a report yesterday.

On the financial impact of curbing DIBS on property companies, HLIB said that it would be “negative for future sales in the primary market but the extent of damage varies with the degree of exposure to the high-rise segment for each individual developer”.

UOB Kay Hian reckons that if DIBS or similar schemes were to be tightened, it could “significantly dampen new property launches as speculators will be filtered out”.

The company also does not rule out the possibility of a further upward revision in real properties gains tax (RPGT) to dampen speculation.

In Budget 2013, the Government had raised the RPGT for the second time since 2011, stipulating a 10% to 15% tax for the disposal of properties within two years of purchase, and 5% to 10% for the disposal of properties within three to five years. However, properties sold five years after purchase are exempted from the RPGT.

New doesn’t mean perfect

Published: Saturday June 29, 2013 MYT 12:00:00 AM
Updated: Saturday June 29, 2013 MYT 12:27:54 PM

BUYERS BEWARE By CHANG KIM LOONG

Complaint One

“I received the keys to our home and to our dismay, the property had many defects, ranging from minor problems to major misalignment of the walls and beams. The developer is rectifying the minor defects but is not willing to ‘align’ the walls or beams that have been placed improperly. How can I have the process for rectification expedited as we have paid in full and are still unable to occupy the house?”

 

Complaint Two

“The floor tiles in my apartment’s living room are not properly fixed. When one walks over them, they give a certain hollow sound. There are at least 30 floor tiles with this problem. Also, the edges of the walls where the tiles meet were not properly done. I submitted a complaint form, but the developer has not done anything to rectify them. Now, it’s been almost 12 months, and every time we call to ask about the repair work, they tell us they could not find the right colour tiles. We are told that the only alternative is for us to change all the tiles with the developer only bearing the cost of workmanship!”

 

OVER the years, the National House Buyers Association (HBA) has recorded thousands of complaints from house buyers who were not satisfied with the condition of their new homes or the way defects were rectified.

The complaints above are just two of them. Construction defects range from complex structural issues, which threaten the integrity of buildings, to simple items relating to aesthetics. After receiving the keys to their houses, the smile on the buyers’ face soon fade when they are caught in a situation of getting the multiple defects in their homes rectified satisfactorily.

The new generation of house buyers expects their homes to be defect-free. The quality of houses, which although has improved over the past decade, has not kept pace with buyers’ expectations in both design and finishes. There is also a lack of industry quality standards that are compatible with public interest and expectations which has resulted in many disputes over the rectification of defects as developers, contractors and house buyers have different expectations.

 

Defect Liability Clause

The pre-determined “Defect Liability Clause” in the sale and purchase agreement (SPA) states that the developer is required to repair and make good, at its own cost and expenses, any defects, shrinkage or other faults that become apparent within a period of 18 or 24 calendar months (whichever is applicable) after the delivery of vacant possession and which can be attributed to defective workmanship, materials or a failure to construct the property in accordance with the plan and description appended to the SPA within 30 days of having received written notice from the purchaser.

The second part of the clause states that the purchaser shall, at any time after the expiry of the 30-day notice, notify the developer of the cost of repairing and make good of the said defects by giving the developer a grace period of 14 days.

Essentially, the following is what a buyer has to do if he finds defects in his new home:

a) List all defects in writing; take pictures of them, if possible.

b) Make sure the developer receives the defects list either by registered post or by delivery by hand with acknowledgement of receipt.

If the developer is responsive, he will do rectification work 30 days from the date of receipt. The buyer should go through the list of defects with the developer to discuss the rectification work schedule. He must also be prepared to spend time or appoint someone to be around for the appointed contractors to do their work.

If the developer is unresponsive, get a detailed quotation from a reputable independent contractor for the cost of repairing and making good the defects. Give the developer a second notice and the stipulated 14-day grace period to do the rectification work. The buyer may recover the cost (any sum) of the repair from the developer’s stakeholder lawyer after giving written notification to withhold release of the stakeholder sum – the 5% of the purchase price as stated in the SPA.

 

Appoint a building inspector, where necessary

Although the law provides a 18- or 24-month warranty (whichever is applicable) for owners to refer defects to the developers, buyers do not know what to look out for as they don’t have the expertise to suss out or foresee inconspicuous defects.

Many are unaware that getting building inspectors to inspect their homes can save them a lot of heartache at the end of the day. By getting these professionals to conduct defect checks, owners will be able to identify problems early and get them rectified before they escalate. They have the trained eye to identify faults disguised by cosmetic improvements, which may be missed by the laymen. Most architects and surveyors double up as building inspectors in Malaysia.

The inspectors, whose fees range from RM500 to RM3,000, will examine a property and submit a report, which includes recommendations for follow-up action. The awareness of the availability of such a service in the country is still low.

 

Typically, a thorough inspection should pinpoint:

> Structural cracking or deformities on walls, roofs and floors;

> Dampness leading to rotting or unsound structure;

> Damage to timber caused by fungal decay, wood borers, termites or by industrial chemicals;

> Defective plumbing and drainage systems; and

> Superficial repair work.

In addition, some building inspector may even estimate the cost of remedying defects found. Most of the time, their reports are submitted to the Tribunal for Home Buyer Claims when an aggrieved buyer makes a claim for monetary compensation and technical claims. Very often, building inspectors are summoned to the tribunal as an expert witness to challenge developer’s rebuttals.

 

What next?

Besides the legal steps, buyers should band together. Contact neighbours who have similar difficulties in getting defects rectified. You may have more in common than you think. There is power in numbers, and you can share tasks to lighten the load. The main objective is to convince the developer that you are serious in getting the defects rectified properly.

The affected buyers can collectively lodge a complaint with the Enforcement Division of the National Housing Department, Urban Wellbeing, Housing and Local Government Ministry, with the view that it will intervene and subsequently convene a meeting with all the parties concerned. Details of the said Enforcement Division is as follows:

 

Pengarah

Bahagian Penguatkuasaan

Jabatan Perumahan Negara

Kementerian Perumahan dan Kerajaan Tempatan

Aras 30, No. 51, Persiaran Perdana

Presint 4, Pusat Pentadbiran Kerajaan Persekutuan

62100 Putrajaya

Tel No: 603-8891 4410

email: enforcement@kpkt.gov.my

 

Remember that the quality of construction work in your neighbourhood will affect the property’s resale value and possibly your safety.

 

Filing a claim at the Tribunal for Home Buyer Claims

House buyers who are caught in a dispute with their housing developers over non-remedial of defects, shrinkage, defective workmanship or materials or other technical faults are at liberty to file their claims at the Tribunal for Home Buyer Claims (The Housing Tribunal).

The Housing Tribunal was set up as an alternative forum for house buyers to save them the cost and hassle of fighting with housing developers in the civil court. The filing fee is only RM10, no lawyer is required and hearings are normally fixed within a month.

The Housing Tribunal is empowered to hear disputes between house buyers and licensed housing developers but the claims must be filed within the time frames provided under section 16N of the Housing Development (Control & Licensing) Act 1966 (the HDA). Check out the link to the Urban Wellbeing, Housing and Local Government Ministry vis-vis Tribunal at:

http://www.kpkt.gov.my/kpkt_bi_2013/index.php/pages/view/370

 

l Chang Kim Loong is the honorary secretary-general of the HBA (www.hba.org.my), a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO councillor at the Subang Jaya Municipal Council.

A Quill rises from Vision City

Published: Monday July 1, 2013 MYT 12:00:00 AM
Updated: Monday July 1, 2013 MYT 12:44:20 PM

By JOHN LOH
johnloh@thestar.com.my

PETALING JAYA: Vision City, one of Kuala Lumpur’s most prominent failed landmarks, is abandoned no more.

Widely-panned as an eyesore on the level of Plaza Rakyat, Vision City is being revived as the RM2.5bil Quill City, a 7-acre mixed development on Jalan Sultan Ismail.

Anchoring the development is the 6-storey Quill City Mall, whose highly visible, half-built shell had lay disused for the better part of a decade. Quill City will also feature a residential and an office tower.

Although slated to open in time for Hari Raya next year, the mall has already pre-leased more than 50% of its space, Quill group executive director Datuk Michael Ong told StarBiz.

“People still think the place is abandoned, but it’s all happening inside. We’ve been banging away for the past six months,” he said in an interview.

The privately-held Quill has a lot riding on this project, not least because it has agreed to sell the mall in its entirety to the Employees Provident Fund (EPF) for up to RM1.2bil, or RM1,561 per sq ft.

This is believed to be EPF’s first purchase of a retail mall in Malaysia. The pension fund had accepted the offer to buy the mall in December 2011, followed by the signing of the sale and purchase agreement in March this year.

The sale is subject to certain “performance targets” such as physical completion within three years and a minimum occupancy of 70% within 12 months of commercial operations, according to a RAM Ratings report in March.

EPF and Quill Retail Malls Sdn Bhd, the unit set up by Quill to undertake the development of Quill City Mall, will also enter into a type of sale and leaseback arrangement that would allow Quill to manage the mall under EPF’s ownership.

The plan entails Quill leasing the mall for three terms of three years each at incremental annual lease yields.

Quill Retail Malls had earlier this year gotten Danajamin Nasional Bhd, DBS Bank Ltd and United Overseas Bank (Malaysia) Bhd to co-guarantee a RM700mil bond issuance for project financing.

RAM Ratings said in a ratings announcement last October that the repayment of the debt would mainly be derived from the sale proceeds of the mall to EPF.

Quill City Mall marks the first large-scale retail venture for Quill, which made its name building custom offices for multinationals and selling luxury marques including Rolls-Royce and BMW.

As the focal point for Quill City, the mall will take up the bulk of the project at 60%, or 4 acres.

Quill City Mall has an approved gross floor area of 1.35 million sq ft and net lettable area of 770,000 sq ft. It has so far secured three anchor tenants comprising a department store, cineplex and supermarket.

Ong said the department store was set to be the mall’s biggest tenant, occupying four levels and 230,000 sq ft.

Whilst this could not be confirmed, it is believed that Quill had beat out the likes of Eastern & Oriental Bhd and Singapore’s UOL Group Ltd in the bid for Vision City in 2007.

Quill paid RM430mil for the remaining unsold and partially completed properties from a unit of the then Rashid Hussein Bhd (RHB).

RHB had sold a parcel of land for a fourth office tower, a half-built retail centre with four levels of basement parking and a partially completed apartment block with or retail podium with four levels of basement parking. The project came with a pre-approved development order from City Hall.

In 1995, RHB Daewoo acquired 11.5 acres of land for Vision City. It managed to sell three office towers at the site before the company ran into financial difficulties during the Asian financial crisis.

Despite its tumultuous past, the new owners are unfazed.

Quill City Mall, which would boast the longest street frontage for a retail centre in the country at 300m and a link bridge to the Medan Tuanku monorail station, has received “strong enquiries” from potential retailers, Ong said.

Previous studies showed that some 300 retailers were not represented in the immediate area.

Its leasing managers aimed to benchmark rentals to 1Utama, Mid Valley and Sunway Pyramid, according to Ong.

Quill has opened lease applications to prospective tenants for retail lots ranging from 800 to 1,000 sq ft, although it has received enquiries for larger sizes, he added.

The mall, targeting the mass market, has a ready catchment of 5,000 people from the existing 30-storey offices connected to it that were built and sold by RHB Daewoo.

Quill plans to launch the residential component sometime next year and a 40-level office tower later.

Quill Residences, at 36-storeys, comprises 552 units starting at 660 sq ft and RM1,300 per sq ft, giving the smallest units a price tag of close to RM1mil.

A dream to be…

DC1

DC2

Nestled within Seri Kembangan, away from the hustle and bustle of Sg.Besi Highway and SILK Highway, just a walking distance south of Mines Resort Club is the hidden gem of Blu Water Estate. A former mining lake is now the home to a couple of zero-lot bungalows, a doubtful luxury serviced apartment called The Heritage and a beautiful 51-acre deep-water lake which will also be the home to Dream City —  spread across approximately 7.5 acres of land are 7 blocks of differing height luxury serviced apartments. Inspired by the natural formation of limestone hills of South East Asian countries, its majestic view middle-rise structure, in my opinion is a sight of modern simplistic architecture and a beautiful one at that.

IMG-20130406-00740

Turning off into a small pavement from SILK Highway just before the intersection with Sg.Besi Highway opposite Mines Resort City, right behind a national school you’ll find this development hidden like a well-guarded little secret. Fronting a lake with swans swimming just at you doorstep is a life one can only dream of and could become a reality if the swans can survive the construction for 42 months. The swans were brought in by the developer to hype up this project with one reportedly died, was quickly replaced by another one. Talk about perfectionist.

IMG-20130406-00757

Visiting the site, the lake oozes its charm one can hardly resist. It was a hot April afternoon but within the gallery where its balcony stretches across the living and dining of the 1100sqf, I quickly fell in love with it.  Even the 550sqf layout (1 bedroom) is well designed for maximum natural light and space. The layout allows maximum daylight into the rooms; bright, airy and relaxing with 10ft high ceiling. The toilets and bedrooms are spacious and well thought out too. My one qualm is the kitchen, which smacked right in the living space I wonder how heavy cooking owners will survive it. And come to think of it, there isn’t any washing area or yard to put your washing machine. What more when you need to hang your clothes to dry. But hey these are a real world problem one can solve once moved in I guess. For now let’s get back into this dream world…

With full amenities and security guardhouse shared with the zero-lot bungalows, Dream City owners can totally cut themselves out of the real world enjoying the sights and sound of the dreamlike lake and its vicinity. Built on a slightly elevated ground from the lake, owners will get a unobstructed full view across all the way to imaginable.

Close to Australia International School, one can only hope there is market for rental or subsale to international community. Closer still are the Mines Shopping Mall, The Mines & Resort Golf Club and The Palace of the Golden Horse — one can never fell left out from modern trappings and convenience. The neighbourly, The Heritage, a supposedly luxurious serviced apartment is housing Iranians and Africans as well as reportedly sold in bulk to Koreans. I drove around abit and my takeaway isn’t as good as it made out to be. Further more, just next to it are rows of older and slightly run down shop houses commercial lots.

DC4

Dream City is projected to be completed by 1Q 2017, on a leasehold commercial title — the small units type 550sqf are 90% sold out while the more appealing  (to me at least) 1100sqf for self stay/invest with lake view is going out fast. Still selling under the radar, the Phase 1 Tower C1 with 169 units, C2 of 82 units and C3 with 116 units comes with 10% discount, DIBS, SPA legal and the usual freebies like basin, toilet bowl, shower and shower screen. A nice surprise thrown into the lot is the plaster-ceiling.

DC3

Final verdict, love everything about Dream City. I can even live with it being leasehold and built next to The Heritage with Africans and all. And despite the convenience of accessibility to KL_Seremban Highway, Sg.Besi Highway (Besraya), SILK, Puchong-Sg.Besi Link, KESAS, North South Highway and Cheras-Kajang Highway — living and working in Petaling Jaya for a few years now, a journey to the office and surrounding PJ would take a conservatively good 30 minutes on a clear traffic day. Driving through KL to reach office may not even be my cup of tea. And driving via North South highway may seem too much. Seri Kembangan is located in KL South and is supposedly one of the next up and coming locality surrounded by Sg. Besi, Cheras, Balakong, and Serdang. While generating cashflow income from rental of the smaller unit seems like a plan everyone here is probably already doing judging by the brisk sale of these units and The Heritage rental records; buying for capital gain in this area is still largely unproven. I’ll have to summon enough courage and conviction supported by a larger dose of investment findings to buy into this locality. Maybe Dream City will just continue to be it… my dream city.

Build-then-sell. An insider’s view

The StarProperty, April 10, 2013

Elvin Fernandez from Khong & Jaafar argues against paying the bulk of properties’ prices upon completion.

The Ministry of Housing and Local Government has committed to implementing the build-then-sell system for property development beginning from 2015. Property developers have gone up in arms about it as it means that they would have to pay for most of the cost of building the properties before completion. This is compared to the situation now where buyers pay for each stage of the construction until completion.

Elvin Fernandez.

Less risk for buyers

Build-then-sell therefore means that should buyers not be happy with the property, they can forfeit the 10% they had paid at the beginning and walk away from the commitment, without losing any more. And if the developer abandoned the project midway through, the buyer even has a right to a refund of that 10%.

Under the current system, if the developer walked away from a project with 70% of it completed, the buyer would not only not get his or her 10% back, he or she would still have to continue servicing the loan on the balance 60%. Even though the project would be 70% completed, that would be as good as nothing at all, because the building would not be habitable, complain most victims of abandoned projects.

In fact, sometimes, if the developer still owes the bank money, the land may be repossessed. If the buyers have submitted disclaimer letters, their property may not be repossessed but this would halt revival plans and the white knight (another developer appointed to salvage the project) may not be able to complete the project, says Robert Tan, property lawyer and author of the book Buying Property from Developers : What You Need to Know and Do.

More risk for developers

On the flip side, this means that developers have to pay for most of the costs of construction during the period of construction. This means that most of the time, they would have to take loans to pay for construction. This is risky because should something happen and they not be able to sell the properties, they may not be able to pay back the loans, said noted valuer Elvin Fernandez at the recent Township Development conference organised by Trueventus Sdn Bhd in Kuala Lumpur.

Also, because there is this risk, banks wouldn’t want to lend developers this money unless they are big companies and assured to pay back even if the projects failed, added Fernandez. “As a result, you will end up with fewer developers.

Demand is high

At the same time, demand for property has been, is and will continue to be high in Malaysia, argued Fernandez who is attached to valuation firm, Khong and Jaafar Sdn Bhd.

Malaysia has a young population, which means household formation is high, he said. “There are 150,000 marriages every year. Marriages are an indication of household formation. So how come there are only 29,000 to 30,000 houses being built when you have 150,000 marriages? Or with 500,000 people coming out of school every year?”

House prices are about 4-4.5 times average annual household income, he added. This is higher than in some advanced economies where the figure is three times the annual household income. But it’s lower than in other economies.

For example, before the bubble burst, American house prices increased to six to eight times the household income and then came crashing and heading towards the figure of three times which, in fact, is some kind of gravitational pull for house prices, said Fernandez. “In Tokyo in the late 80s, it went up to 20 times, until their great property bubble burst and now it’s only six times.”

Increase in speculation

Admittedly, in some areas, there has been a slight run-up in certain areas with prices going from four to eight times average annual household income. It may be because of houses being bought not for owner residence, but for investment, and increasingly, speculation, he said.

“Interest rates are low all over the world and in Malaysia, and this is an invitation to people with money to hedge, to speculate, meaning if you buy a house now, you hang on to it, you will be able to fetch a higher price in the future. All over the world, money from the lower interest regimes is coming in from all over Asia.

“Malaysian savings are also quite high. Where do you put your money? Before the Asian Financial Crisis, we used to have 7-8% interest rate on our FD. After the crisis, it’s only 3% as the interest rates have been brought down to stimulate growth.

“As it is, governments are pumping in money all over the world, the latest being Japan. So with inflation, you’d lose money by keeping money, so mindsets have changed. People don’t just buy houses for occupation or even investment anymore. They are buying for speculation, to hedge against possible inflation. So they don’t mind buying a couple of houses in the same township. This is happening in Malaysia.”

An abandoned project in Pekan Baru Subang.

Supply would drop

Fernandez contended that with this high demand, and with supply dropping, this would cause prices to rise, as the economic axiom goes.

At the same time, when the number of developers drops, this may create an oligopoly, suggested Fernandez.

“With fewer developers, like in HK for example, this is not so good. With only five to six developers in HK, it’s clearly an oligopolistic market. Because they not only do housing development, they control the market. They can meet for lunch everyday and decide not to bring the prices down. Or they can control the housing market. They can then control the retail market and other markets and then control the whole economy.”

Real revenue would drop and developers may increase prices

At the same time, the payments that developers receive after completion would amount to less than the payments they receive earlier. The real value of RM100,000 would be less in 5 years’ time, than it would be now, due to inflation.

Fernandez calculated the internal rate of return discounting real values for a project based on sell-off-the-plan to be 35%, although this would drop to 10% if there were to build-then-sell.

To maintain the same real internal rate of return, developers would need to increase prices, he asserted. (Read more about the way project prices, values and gross development values are determined.)

The ordinary man grudges developers and likes to bash developers, said Fernandez. “But to me, the developer is just an agent of the product. His job is to identify the land, of course paying the right price for it. Secondly, he’s got to put a team together to develop the product, and he has to pay the conversion fees and so on and carry the burden, get the financing and he takes a risk.”

The public are you not backing sell-off-the-plan because apparently, there are a few abandoned schemes. There are many ways to tackle this problem. He suggested stricter licensing and monitoring of developers by the Ministry of Housing and Local Government, as well as state authorities.

You don’t have to change the system to tackle the issue. It’s like shooting a fly with an elephant gun, he said.

“If you allow both systems to run, then the two systems will compete,” added Fernandez. “And I don’t think it’s done anywhere else in the world.”

“We’ve got 2,000 developers and I believe that they have done quite a good job in selling off the plan and collecting progress payments,” wrapped up Fernandez. “We have what is the golden goose here which lays the golden egg known as sell-off-the-plan which has worked fantastically for 10 years… I myself feel, at the back of my mind, that the more developers we have the better.”

Pantai Dalam may have 3 MRT stations

By Nuradzimmah Daim | streets@nstp.com.my

FOR THE PEOPLE: If the proposal is approved, over 300,000 residents will benefit from the second MRT line
KUALA LUMPUR: THE soon to be announced Mass Rapid Transit (MRT) circle line 2 is expected to have three stations in Pantai Dalam. Federal Territories and Urban Wellbeing Minister Datuk Raja Nong Chik Raja Zainal Abidin said if approved, the stations would benefit some 300,000 residents in the area.
“Due to the high number of population and dense development here, I have discussed the matter with Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) on the alignment.
“MRT Corp had principally agreed to this proposal after taking the technical report into consideration. This is based on the projected future population.
The three proposed stations are Pantai Halt, Taman Bukit Angkasa and Pantai Plaza/Abdullah Hukum.
“However, it has yet to be approved by the cabinet and at the economic council level,” he said at a press conference after the groundbreaking ceremony of Masjid Al-Khadijah in Pantai Dalam.
Also present were Federal Territory Religious Department director Datuk Che Mat Che Ali and Amona Sdn Bhd group chairman Datuk Othman Ahmad.
Raja Nong Chik said the mosque to be built by Amona as part of its corporate social responsibility (CSR) would be able to accommodate up to 3,000 people at one time.
The mosque that would be built on the 3,184 sq m land at a cost of RM15 million would also have facilities, including dressing room and staff quarters.
Amona has also handed over a 0.62ha land there to Jawi as a Muslim cemetery reserve. It was reported that MRT Corp was conducting feasibility studies on the second and third MRT line which was expected to be completed by year-end.
According to the Land Public Transport Commission’s Urban Rail Development plan, MRT 2 circle line would link Mid Valley, Mont Kiara, Sentul Timur and Ampang as well as upcoming areas near the Matrade building in Jalan Duta.
The MRT 3 circle line (North-south line) will link areas such as Sungai Buloh, Kepong, Selayang and the east half of the city centre, including Kampung Baru.
It will cover a distance of 36km and have 24 stations built 1.5km apart.
The 51-km Sungai Buloh-Kajang MRT line, which is under construction, will have 31 stations (seven stations built underground) and is expected to be fully operational by July 2017.

Read more: Pantai Dalam may have 3 MRT stations – Central – New Straits Times http://www.nst.com.my/streets/central/pantai-dalam-may-have-3-mrt-stations-1.225168?cache=03%2F7.212150%2F7.212062%3Fpage%3D0#ixzz2PYOlPcke

Mah Sing buys Sungai Buloh land for RM800mil integrated development called D’sara Sentral

Posted on | April 4, 2013

By THE STAR


Leong: ‘With the scarcity of development land along the MRT line, we are confident that buyers will recognise the area’s potential and how this will translate into value and returns in the near future.’

PETALING JAYA: In its first land-banking exercise this year, Mah Sing Group Bhd has bought 6.55 acres in Sungai Buloh for RM85mil.

The land, adjacent to the Rubber Research Institute of Malaysia, will be used for an RM800mil integrated development called D’sara Sentral.

According to a statement, the project, with three components, will be developed over three to five years and linked to an upcoming MRT station via a pedestrian bridge.

This would be the first station after the Sungai Buloh terminal, and D’sara Sentral would be one of the first developments in the Klang Valley with a direct link to a MRT station, the company said.

D’sara Sentral is located in Seksyen U19 at the junction of Jalan Welfare along the main thoroughfare of Jalan Sungai Buloh-Shah Alam.

Its components include SoVo (small office versatile office), which forms 20% of the development and retail space which takes up 15%. The largest portion will be the serviced residence.

Mah Sing said phase 1, comprising the SoVo and retail, would start from 750 sq ft and RM650 per sq ft, while the registrations of interest for the residences will be opened in the third quarter of this year and preview in the fourth quarter.

The firm acquired the land through its wholly-owned unit Intramewah Development Sdn Bhd yesterday. At RM85mil, the land cost translates to 10.6% of D’sara Sentral’s gross development value (GDV) and about RM298 per sq ft.

D'sara Sentral clipping

Some 15%, or RM12.75mil, of the transaction will be paid upon the signing of the sale and purchase agreement, and the balance in three tranches over a period of between six and 16 months based on the timing of specified milestones in the project’s planning approvals, Mah Sing said.

With this acquisition, the company has 41 projects with remaining GDV and unbilled sales of approximately RM19.7bil spread across the Klang Valley, Penang, Iskandar Malaysia and Kota Kinabalu, Sabah.

“We see pent-up demand from the large pool of local upgraders, as well as investors from the nearly half a million ridership of the upcoming MRT line.

“With the scarcity of development land along the MRT line, we are confident that buyers will recognise the area’s potential and how this will translate into value and returns in the near future,” group chief executive Tan Sri Leong Hoy Kum said.

Flyover project in Jalan Segambut will only be ready in November

Wednesday March 20, 2013

By S. PUSPADEVI
puspa@thestar.com.my
Photos by LIM CHENG KIAT
Slow-moving: Jalan Segambut residents are unhappy with the traffic congestion which they attributed to the Phase A project.
Slow-moving: Jalan Segambut residents are unhappy with the traffic congestion which they attributed to the Phase A project.

TRAFFIC congestion along Jalan Segambut in Kuala Lumpur is a nightmare for more than 50,000 residents as well as those from neighbouring areas.

Jalan Segambut is used to get into the city and Petaling Jaya. Many get up as early as 6am to beat rush hour traffic just to get to work on time.

Kampung Segambut Dalam resident Ahmad Ehsan, 45, said Jalan Segambut was congested due to the development that was carried out in the area over the years.

“We are not against development but the Government should take into account demographic and geographical factors of the area before approving any project,” said Ahmad, who has been living in the area for the past 20 years.

Segambut Bahagia Umno division head Hassan Kassim said residents were also facing flash floods.

“We have been putting up with flooding woes for so long.

“Residents are living in fear every time it rains and the authorities have not done anything despite our pleas for a solution,” said Hassan.

In progress: Eurosaga Sdn Bhd workers at the site of the flyover.
In progress: Eurosaga Sdn Bhd workers at the site of the flyover.

He added that the construction of the Phase A Flyover project had worsened the situation.

A businessman, who wished to be known as Ng, said the Phase A Flyover project, which was supposed to be completed in January, was still not ready.

“We do not see the contractors working on the project as they should. Work is being carried out slowly, as if they are not concerned about the deadline set for completion,” said the 41-year-old Ng who owns an apartment in Jalan Segambut and operates a business in Petaling Jaya.

He said making his way through the congestion along Jalan Segambut was very stressful.

Jln Segambut

“It takes an hour just to cover a mere 100m,” said Ng.

StarMetro had reported in August last year that residents of Kampung Segambut Bahagia had taken Kuala Lumpur mayor Datuk Seri Ahmad Phesal Talib to task over one of the worst floods they had experienced in the last 30 years.

They refused compensation from Kuala Lumpur City Hall (DBKL) and demanded that the flooding problems be resolved. Residents had also voiced out their concerns over the delay of the flyover project.

Contractor Euro Saga Sdn Bhd said the underground utility cables, which obstructed waterflow, was causing floods in the area and delayed works.

Kuala Lumpur City Hall (DBKL) Civil Engineering and Drainage Department director Tan Keng Chok said the construction of the Phase A Flyover Project was to ease traffic congestion in Jalan Segambut.

The single-lane carriageway is being made into a four-lane carriageway and will link Jalan Kuching to Segambut.

“The project involves a 1.4km stretch, starting from SRJK (C) Khai Chee, and passes through the KTM station in Segambut and the existing bridge which connects to the new flyover.

“Meanwhile, the flyover covers a 180m stretch, starting from the small Hindu temple in Jalan Segambut and crosses to Taman SPPK Segambut,” said Tan.

He added that the RM43mil project, which was awarded to Euro Saga in February 2011, was scheduled to be completed on Nov 18 this year.

On progress of work, he said the project was ahead of schedule.

“Initially, the project was scheduled to be completed by January but due to the obstruction caused by underground telecommunication and utility cables, it is extended to November.

“The cables include those of Maxis, Celcom, Tenaga Nasional Berhad (TNB), Gas Malaysia and Syabas.

“With consent from those involved, we relocated the cables for work to continue.

“Because of this, DBKL incurred an additional cost of RM10.8mil, which also includes the construction of a TNB pylon, raising total costs to RM43mil,” he said, adding that the relocation of cables was completed in mid-December.

Tan said the connection of Syabas pipes to 100,000 households was pending but expected to be completed by the end of April.

He said other works included the construction of a pedestrian bridge and sidewalk at SMK Segambut, a retaining wall, upgrading drainage system and streetlighting, installing traffic lights and landscaping the area along Jalan Segambut.

Tan also said it was not true that the project was a contributing factor to the flooding.

“It was raining heavily while construction works were in progress in August, that’s all.

“Sungai Keroh and Sungai Toba, the two main rivers running through this area, could not cope with the volume of water and overflowed, causing floods.

“This will be resolved with the upgrading of the Kampung Benteng retention pond by the Drainage and Irrigation Department, and the construction of a dry pond as well as upgrading of the main drain up-stream of Taman SPPK Segambut/Jalan Dutamas Raya,” Tan said, adding that these works were currently in the design stages.

However, Tan explained that the construction of the flyover and upgrading of road would not entirely ease traffic flow, until Phase B was carried out.

“Phase B involves a 2.6km stretch, and leads to Plaza Mont Kiara.

“This can only be done when the land is acquired.

“Due to lack of funds, we are unable to proceed with this phase at the moment,” he said.

Tan concluded that traffic flow would be assessed further once Phase A was completed.

Nova Saujana

Picture 2

The mention of the brand Malton among local property enthusiasts would certainly bring fairly high interests and assurance of a good investment. Or at least that’s what I got from a friend investor who knows the company’s bosses by their first names. Being the company behind the highly successful Pavilion Shopping Mall at the heart of KL, it is almost too easy to decide when they finally launched Block B of Nova Saujana at Ara Damansara following hot on the heels of the already sold out Block A Q4 2012.

Resting on the quieter side of Ara Damansara separated by the Subang Airport Highway — Nova Saujana sits right in between The Japanese School of KL and the Peremba Square. The latter being a 5 blocks of office buildings currently occupied by amongst a few international companies. I have to admit the drive into this stretch of road on a Saturday is very relaxing and somewhat therapeutic with palm trees dividing it while the weekdays aren’t any worst either as I occasionally drove here to Peremba Square for meetings. Having neighbours The Saujana Hotel KL and The Amaya Saujana (an exclusive condo) near the project site helps to bring the feeling of exclusiveness.

Unknowingly the buzz was all in the showroom gallery contrasting to the quietness of the outdoor. Once inside, the first thing I noticed was the scale-model of the development… The exterior facade of the blocks were not as appealing as the brochure made out to be judging by the display. Rather dull I would say with white as its base and some grey lines all over. It seems that there is less glass panels and windows than I expected. Nonetheless at 12pm, the sales chart shows more than 30% sold with the smallest and lowest level, highway facing sold out faster than the supposedly ‘hot’ pool and garden views. Apparently, I learnt that these are bought by investors whom wouldn’t mind the noise and the dust as opposed to lower price and higher DIBS interest due to the higher per square feet pricing. Another lesson in my pocket thank you!

There were 2 showrooms at the gallery — 1315sft and 855sft interesting omitting the lesser units of the 890. According to my investor friend, the ID put into the showroom costs an average of 300K, impressive indeed! The designs and layout were decent with the smaller types selling out fast while the larger one piqued my interest with a duo key entrance concept. What eventually excited me was the 890sft type designed as a standalone mini semi-d with no sharing of walls with your neighbours and a pool view or an unobstructed school view. Built with the least number of units it is priced at XXX

One of the project’s main selling point is the 20 units or so commercial lots to be managed by Malton’s award winning brand, The Pavillion Shopping Mall. Already the developer has blocked-out a few for its own F&B businesses with mainly Japanese and Asian brands found in Pavillion itself. The Marketing guy, Kee, told me they are in talk with Oldtown and 7-11. A foreseeable problem is with the chargeable carpark for visitors and patrons alike to these stores which may deter them to eventually illegal park outside the main highway causing unwanted jams or inconvenience to the condo owners.

Picture 4

There are 2 schools-of-thought going around in regards to which side of Ara Damansara would eventually become hot property. First is where Nova Saujana is, the south-side divide of Subang Airport road and the other being the northern part where Citta Mall, LRT, Sime Darby’s Linear City, Pacific Place and a hosts of other new developments. The former has the benefit of being away but yet not too far from all the happenings around Ara Damansara in a lower dense development. The latter blessed with being nearer to LRT and many higher dense developments springing up in about 2-3 years. The judges are still out and the result will not be as black and white as we may hope. Ultimately whichever is hotter may not matter as much as the criteria of our main objectives. Ara Damansara has been long sidelined by investors many blamed it to Feng Shui. Connected and close to a hosts of major highways and roads namely NKVE, Subang Airport Road, Federal Highway, LDP and Sprint — it is not hard to see a gem in the roughs. Maybe it is time it gets a few polishing and voila! I am having an eye set on this area.

Picture 3

I am giving Nova Saujana a 2.5 thumbs up for invest-ability and 3.5 for own stay. Freehold helps. If you are an earlier block A buyer, I like to congratulate you as your investment will rise and upside will be good. But this being a Block B review and having entry price point at 650pqf is rather high. On my drive back it seems that the Amaya has many vacant units. I can only summarize a similar fate with Nova Saujana in the short period.