How to get the best price of your property’s resale value?

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Nobody likes to buy a home with something that requires big money to modify or repair

While the adage “location, location, location” is still considered the ideal gauge for your property’s resale value, there are other factors that can still play a part in helping you get the best price when you part ways with your home.

One of the things to consider is the upgrades or renovations that you may have made to the property. While making improvements to a home can be a good thing, there are some additions that can make or break your property’s resale value.

The following are some home upgrades that will dampen your property’s resale value.

Poor renovation

It’s one thing to make renovations to your home – and another thing when those upgrades requires further improvements!

“Nobody likes to buy a home with something that requires big money to modify or repair,” says property investor Kamarul Ariff.

He gives an example of a property he had purchased that had a “badly-renovated roof.”

“The roof obviously had some bad leaks in the past but the renovations were very poorly done by the former owner. Unfortunately, when people go to inspect property, not many check to see if the roofing is in good condition. After all, most homebuyers or investors check out a property when the weather is clear anyway.”

Kamarul recalls that after buying the property, it rained heavily – indoors!

“There were leaks everywhere! When I finally got an expert to check the roof, I discovered that there were badly done patches made to some holes on the roof, which only worsen the leaks.

“In my opinion, it’s better to spend a bit more money and get a good job done than to stinge and get poor workmanship. In the long run, nobody benefits.

“It’ll affect your resale value and the buyer who’s looking for his dream home ends up buying into a financial nightmare.”

P. Lalitha, a home-buyer, shares a similar sentiment.

“The apartment I bought had poor floor renovations in the bathroom. Of course, it was my neighbour who lived below that alerted me of this.”

Upon inspection by an expert, she discovered that the cement used by a previous owner for the flooring was of poor quality.

“Renovations were not just done, they were badly done. So much so that it cost me a fortune to fix them. My advice for future home-buyers? Check every inch of your house. To home sellers, if you want to get the best resale value for your home, get your renovations done by an expert,” Lalitha says.

backyard swimming pool (Photo credit: Wikipedia)

Permanent upgrades

Some homeowners make upgrades to their property for personal gratification without taking into account the fact that they may need to sell it in the future. However, these renovations hardly do anything when it comes to resale value, nor do they make it easy to sell.

“Among them are fixtures such as swimming pools and wall modifications,” says KL Interior Design executive designer Robert Lee.

“Having a swimming pool can increase the price of a home, but it also comes with extra responsibilities that not everyone wants. If you’re a senior citizen and not the active sort, you’d probably need to hire someone to clean and maintain the pool you’d probably never use.”

He also points out that major works done to a property’s structure, such as to its walls, can be hard to undo.

“There was this large family living in two adjacent terrace houses and they made a huge arch in the wall between the two houses. When it came to selling, they had a huge problem!

“They also wanted to sell off the house as soon as possible and refused to patch-up the wall.”

Other structural changes, like turning a three-bedroom apartment or house into a two rooms can also put a damper on resale value, says Lee.

“If you’re selling a two-bedroom apartment and your neighbour is selling a three-bedded one at the same price, which property do you think a buyer will you go for?”

Home-Deco Art Sdn Bhd director Rachel Tam says having a distinct paint job won’t affect a home’s potential resale value.

“Some people paint their homes in all kinds of colours, like a kindergarten,” she chuckles.

“But it won’t affect a property’s resale value. It’s not permanent and can be easily replaced. Besides, the first thing most homebuyers do is give it a new coat of paint anyway.

Unexpected outcome

Some upgrades can be so extreme that they no longer look like what they were initially set out to be.

“We knew of someone who bought a single-storey house for RM250,000 and spent about RM200,000 to build a second level. When he sold it, he only got RM300,000,” says Lee.

“Some renovations that place a property beyond its original architecture will not increase its resale value,” he adds.

Tam notes that some people turn their homes into an office or place to conduct business, which may or may not affect the property’s resale value.

“It depends on how extensive the renovations are. If you’re just converting one room into an office, then it’s fine, as the future owner won’t need to do much or anything at all to convert it back into an ordinary room.

“However, if you’re going to start raring animals or live stock there, which may include additional structures to contain them, then this could be a put-off for potential homebuyers who are looking for a basic place to live.”

By EUGENE MAHALINGAM eugenicz@thestar.com.my

Related articles

• Beware of Value-Killing Home Renovations (reallyhome.wordpress.com)
• Renovating your bathroom: adding value to your home (mysavingsguide.co.uk)
• 6 home renovations whose cost might not be recouped at resale (seattletimes.nwsource.com)
• 7 DIY tips to help you sell your home (confused.com)
• Can I get a loan to renovate and update my house? (kcrealestatepro.wordpress.com)
• Important Tips for First Time Home Buyers (doorfly.com)
• Defining a Generation. . .Again (tammywebster.com)

Secondary property market set to soar

By DAVID TAN davidtan@thestar.com.my

THE sub-sale prices of landed property in the prime locations of Seberang Prai are expected to increase by 5% to 10% this year.Henry Butcher (Seberang Prai) senior manager Fook Tone Huat said this was because there was stronger demand for landed property in the secondary market.

“In the secondary market, a terrace property in prime locations such as Bukit Mertajam, Simpang Ampat and Jalan Raja Uda is priced around RM385,000 now, about 10% higher than a year ago but relatively reasonable,” Fook said.

The stricter conditions of bank lending, a weak global economy and a higher pricing of new landed property would see transactions in Seberang Prai rising only slightly in 2012 over 2011.

Fook said: “However, we expect more property transactions in the sub-sales market due to the attractive prices,” he said in an interview.

He added that last year, there were about 18,000 transactions of new and old property in Seberang Prai. About 50% of the transactions were for new property, while the sub-sales comprised about 30%, he said.

Fook said that in general, the Seberang Prai property market for 2012 would be challenging in view of the uncertainty in the global economy and the new set of financing ruling imposed by Bank Negara.

“The take-up rate for those high-end categories is expected to gradually slow down but for those in the medium categories, the sales rate should still maintain,” he said.

“Prices would still be on the upward trend for landed houses priced below RM500,000 and for development land in the prime areas, but the rate would be at a slower pace.

“For those high-end property, prices are expected to be flat. Nevertheless, property prices are not expected to decline in view of the relatively resilient domestic economy and the long-term impact from the new economic transformation programmes,” he said.

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The fear factor in property

Poser over Penang Bayan Mutiara deal

Bayan Mutiara is a prime land, given its proximity to the Bayan Lepas free trade zones, the international airport and also the second Penang Bridge.

Comment by KHOO KAY PENG

There are still several questions left unanswered by the Penang government over the sale of the prime property.

SEVERAL Penang-based analysts and local community leaders have questioned the Penang government for selling a 41.5ha plot of prime state land to a private developer, Ivory Properties Group Berhad, for RM1.07bil.

Their concern is understandable due to scarce availability of state-owned land on the island which may hinder the ability of the state government to drive a balanced development and ensure it does not drive out the lower middle-income group from the area.

Most private property projects on the island are focused primarily on premium and luxury property which have driven up prices beyond the reach of most Penangites. There is worry that the sale of the state-owned Bayan Mutiara land to a private developer may end up in a similar fate.

Apart from escalating property prices, there is a concern that the land may have been sold below the prevailing market value. The state government had explained that the current selling price was above market value at the time of transaction.

However, it does not explain if it is usual to allow the purchaser a period of five years to settle the full payment. Did the transacted price factor in any interest payment accrued by the five-year payment period?

The opportunity cost derived from a potential increase in land premium over the next five years should be included to ensure that it is a fair deal.

Accusations and allegations of a lack of transparency in the tender process should be comprehensively addressed by the state government. Critics had alleged that the sale was done through direct negotiations between the state government and the purchaser.

Without justifying the five-year payment period, these allegations will create doubt over the much ac­­claimed transparency and ac­­count­ability of the state government.

Moreover, the allegations are peppered by talk that a bidder who is prepared to make a full payment for the purchase was not selected during the tender process.

Some analysts have questioned how can the sale benefit the people? They wonder why the development of Bayan Mutiara cannot be taken up by the Penang Development Corporation (PDC) which has the capacity and experience to handle people-centric development projects such as the Penang Free Trade Zones, housing estates, Komtar and others.

Regrettably, the issue of public accountability and good governance has been grossly politicised by certain parties. Politicians have gone to the extent of throwing down the gauntlet of challenging each other to resign over false allegations related to the land sale. We expect such showmanship from politicians but we deserve straight and accurate answers from them.

Politicising this issue is going to deprive many concerned stakeholders a chance to ask relevant and legitimate questions about the decision to sell the land to a private developer.

Chief Minister Lim Guan Eng had described allegations of wrongdoing over the tender award for the Bayan Mutiara mixed deve­lopment project by PDC as “a pack of lies”.

While some of these allegations may be malicious, it is pertinent for Lim’s administration to identify legitimate concerns over the sale. He should acknowledge that the state government controls less than 5% of total land size on the island and this calls for a prudent and strategic management of state-owned prime land.

Hence, it is best for his administration to address these issues immediately in order to convince the people of Penang that it has taken the best interests of the people into consideration before agreeing to the sale. Major issues include:

> What was the rationale to allow a five-year payment period to the purchaser? It gives an impression that the purchaser may not have secured financing for the purchase.

> Is it true there was another bidder who was prepared to pay an upfront full payment for the asking price?

> Did the transacted price factor in any interest charges or projected land price appreciation over the next five years?

> Is there any restriction or precondition between the state government and the purchaser to discourage any sub-sales? If the purchaser were to divide and resell some parcels of the land to other developers at a higher premium, it may further drive up property prices on the island. If such sales were allowed, is the state government entitled to a share of the higher premium?

> It is understood that the government would like to use the proceeds from Bayan Mutiara land to finance its low-cost housing scheme in Batu Kawan. While the low-cost housing scheme is welcomed and encouraged, the state government needs to justify if the sale of Bayan Mutiara land is the best option to help finance the project.

> Lim said part of the RM500mil financing for the housing scheme came from the state coffers. If this is the case, what is stopping the state from raising money through external sources to fund the entire project and carefully weigh all options to optimise the use of the Bayan Mutiara prime land bank?

Bayan Mutiara is no longer about selling above the current market value but the use of scarce prime land on the island for the purpose of socio-economic transformation. Ownership of prime land is very crucial for the state government to drive the state’s economy.

We do not want a repeat of high premium-reclaimed lands being sold to private developers who in turn inflate property prices in Penang and raked in billions in profit at the expense of the people.

Bayan Mutiara could be what the state government needs to help transform the landscape of Penang and create new attractions to boost its attractiveness as a tourism and cultural destination and a services hub.

Time will judge if the current state government has made the right decision on Bayan Mutiara and if the proposed plan is not going to turn out to be just another expensive commercial project by a private property developer.

> Khoo Kay Peng is an independent policy analyst and a management consultant. He was born and raised in Penang. Khoo can be contacted at kpkhoo@gfworld.com.my.

Read more: Land deal raises more questions – Columnist – New Straits Times http://www.nst.com.my/opinion/columnist/land-deal-raises-more-questions-1.51940#ixzz1nYV1Q098

Golf courses targeted for re-development – Too valuable for golf?

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Golf courses in the centre of development areas are now being targeted for re-development as property prices rocket through the roof.

Caddy Master By WONG SAI WAN

JUST a couple of decades ago, the crowning jewel for any Malaysian developer was to own a golf course and to use that sporting facility to enhance their property sales.

In the 1980s and 1990s, it was unthinkable for a housing developer not to try to have a golf project. Even if they do not have enough land for a full 18 holes, they would try for a nine-hole or at least a driving range.

But how things have changed with the Asian financial crisis of 1998. There were less than a handful of new golf courses built in the past 12 years. In fact, more golf courses have closed down in this period.

KGNS sits on prime land and has been in the news a lot of late.

Fast forward to this year and once again developers are eyeing the golf courses but in a totally different manner. Developers no longer want to build golf-related projects; instead they want to tear them down.

Word has it that, especially in the Klang Valley where the prices of property have gone up tremendously, developers are eyeing golf courses to be turned into property development projects.

An 18-hole golf course with a reasonably sized clubhouse will cover about 50ha and a land of that size in the Klang Valley or even just outside the greater Kuala Lumpur is worth hundreds of millions.

For developers such a large track of land will be worth billions in terms of property for sale especially if it is located near major highways or with railway access to Kuala Lumpur.

Many of such courses when developed between 15 and 20 years ago were located away from the city centre with some built on former estates – usually the lousiest piece of land that is hilly and with plenty of valleys and swampy soil.

Those days this kind of land was considered “rubbish” and too costly to rehabilitate to build good houses that would have fetched the top dollar.

But two decades on things have changed. The Klang Valley has grown and the Government has adopted the concept of the Greater Kuala Lumpur where they expect almost 10 million people will live in.

                     Image via Wikipedia

This expanded Kuala Lumpur will stretch all the way from Sungai Buloh in the North all the way to Kajang/Semenyih in the south; Klang/Banting in the west to Bukit Tinggi in the east.

More than 40 golf courses are located within this very large area and every single one of them have suddenly become prime land and worth a lot of money. The landowners who previously thought they were sitting on a worthless piece of property now find that they have a gold mine.

From the likes of Rahman Putra Golf & Country Club to the now defunct Emville Golf & Country Club, these are now prime properties. Even the Kampung Kuantan Golf Club and Kundang Lakes Golf & Country Club which were the starting grounds for many golfers in the Klang Valley may not be safe from the hands of developers in a few years time.

Already, Kajang Hill Golf & Country Club has been sold to Dijaya Corporation Bhd for redevelopment for RM228mil into mixed development with an estimated gross development value (GDV) of RM2bil.

Dijaya, which owns Tropicana Golf & Country Club in Petaling Jaya, plans to develop the more than 80ha site that now sits the golf course and the clubhouse facilities into a new project called Tropicana Kajang.

The deal was struck in September and club members were then informed that they had less than a year left to play on its Par 72 championship course layout measuring 7,148 yards.

Kajang Hill was owned by the Japanese company Taiyo Resort (KL) Bhd. It was not the most exciting golf course but it had unique Japanese features set in tropical settings.

There is now a rush by golfers to play there before the course is closed down for good.

Word is abound about all sorts of other courses been targeted by land hungry developers. Among them is said to be the Kelab Golf Negara Subang which sits right smack beside of the Federal Highway in Petaling Jaya.

The present committee decided to not renew a Caveat the club had placed on the land thus allowing the Federal Land Commissioner to act on the land title.

Speculation is rife that there are some people eyeing the land of one of KGNS two 18 holes. There is no concrete proof but a hurriedly called EGM by the members has appointed a panel to look into the matter.

KGNS is reported to be sitting on land worth some RM5bil – a sum that some people deemed too valuable for golf.

This is what worries the golfing community that both courses on the outskirts as well as those within the city limits are being eyed for re-development.

This is made worse by the fact, many of the commercial club owners are only just too keen to sell or redevelop the land. It would seem that only a recession or the burst of the property bubble would prevent this from happening.

Till next month, Merry Christmas and a Happy New Year.

Dijaya in RM228mil land deal for Kajang Hill Golf Club land

I was a member of the Kajang Hill Golf Club and I received notice to terminate the membership from November 2011. However, they are paying back the monies that we paid to join. So, I was expecting some news on this. This was confirmed in today’s papers. The owner, a Japanese Datuk is going to make a lot of money in this deal.

However, if you go to the vicinity of the area, the whole place is going to be developed very soon. The size of the whole area is huge with the other areas combined.

The prices of the properties here is also very high (by Kajang standards), mind you. So it’s left to be seen how the place will eventually turn out.

Until the next time, cheers.

The Star, Tuesday September 6, 2011

Dijaya in RM228mil land deal

Purchase of freehold land from Taiyo to cater for increasing demand for property in Kajang

PETALING JAYA: Dijaya Corp Bhd has entered into a conditional sale and purchase agreement with Taiyo Resort (KL) Bhd to acquire five parcels of freehold land in Mukim Semenyih, Ulu Langat, Selangor, measuring approximately 80.33ha for RM228mil cash.

In a filing with Bursa Malaysia yesterday, Dijaya said the agreement with Taiyo Resort was entered by its wholly owned subsidiary, Tropicana City Service Suites Sdn Bhd (TCSS)

The parcels of land are currently held under the operations of Kajang Hill Golf Club, it added.

Dijaya said the land would be transformed into a mixed development consisting of landed houses, condominiums, apartments and shop offices with an expected gross development value of about RM2bil.

“The development, known as Tropicana Kajang, will be another future revenue generator for the group and shall contribute positively to its financial performance,” it said in a separate statement.

Dijaya said the freehold land had an upside potential in terms of capital appreciation because of the increasing demand for residential and commercial properties in Kajang, as seen in other developments such as Nadayu 92, Tiara Residence, Ramal Villa, Twin Palm and Jade Hills, just to name a few.

“With increasing population and expanding residential properties in and around Kajang, the proposed development of commercial properties will cater to the rising demand for office and retail spaces.

“Furthermore, the proposed Kajang-Sungai Buloh MY Rapid Transit project will enhance the investment potential of Kajang, presenting a greater opportunity to property investors,” it said.

Group chief executive officer Tan Sri Danny Tan Chee Sing said the group was continuously acquiring sizeable land-banks with good development potential in strategic locations.

“The land deal provides an opportunity for the group to introduce more development in Kajang with quality and prestige synonymous with our Tropicana brand,” he said.

Dijaya said the purchase price was arrived at on a willing-buyer, willing-seller basis after several considerations including the reasonably low land cost of RM26.36 per sq ft which will enable TCSS to price its proposed development competitively and with reasonable margins.

On the financing for the purchase, Dijaya said it would be funded through internally funds and/or bank borrowings.

“The exact mix of internally generated funds and bank borrowings will be determined by the management of the company at a later stage, after taking into consideration Dijaya Corp and its subsidiaries’ gearing level, interest costs and internal cash requirements for its business operations,” it said.

The group’s net gearing is expected to rise to 0.22 times post-land acquisition assuming about RM114mil, representing approximately 50% of the purchase price, is financed via borrowings. As at Dec 31, 2010, Dijaya was in a net cash position.

Sources:Kajang Town Blog

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BJCC Golf and Country Club News

Housing supply and demand – are we nearing equilibrium?

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REALTY CHECK By DATUK ABDUL RAHIM RAHMAN

Is there any equilibrium point in housing market, considering the many factors influencing demand and supply?

The main determinants of the demand for housing are demographic. Population size and population growth are the core demographic variables. However, family size, the age composition of the family, the number of children, net migration, non-family household formation, the number of double family households, death rates, divorce rates, and marriages are other demographic variables that would influence demand for housing. Other factors such as household income, price of housing, cost, availability of credit, consumer preferences, investor preferences, price of substitutes and price of complements all play a role in determining demand for housing.

Income is an important determinant of demand as shown by a study conducted by De Leeuw in 1971 that showed positive income elasticity of demand in North America ranging from 0.5 to 0.9, meaning the market demand for housing grew as real income rose. The price of housing is also an important variable influencing demand for housing, where in terms of elasticity just like any normal goods it is negative increase in price will result in decrease in demand.

As for supply, the quantity of incoming supply is typically influenced by cost, price of existing stock of houses, and the technology used in the construction, where material costs tend to contribute the largest share of the construction cost, about 30% to 40%. In the short run, supply tends to be very price inelastic increase in cost will have less effect on supply. However, over a longer period, it tends to be very price elastic increase in cost will lower supply.

A study conducted by Fallis in 1985 showed price elasticity of supply was estimated at 8.2, indicating increased in cost would lower supply significantly. The degree of elasticity depends on the elasticity of substitution and supply restrictions. For example, the use of capital intensive technology has been employed to reduce the rising labour cost, thus having less impact on the supply of housing.

As at first half of 2011, Malaysia had 4,466,062 units of housing, an increase of 1.7% from the total of supply in the first half of 2010. About 24,709 units were completed in the first half of 2011, a lower number compared to 50,611 units completed in the first half of 2010. Kuala Lumpur and Selangor accounted for 6,567 units or 27% of the total new stock. Kuala Lumpur and Selangor had 414,436 and 1,285,192 homes, reflecting an increase of 2.0% and 1.7% respectively from the total as of first half of 2010.

Other states which showed significant number of units completed are Sarawak (2,612), Penang (2,507) and Perak (2,184). The incoming supply in the country was recorded at 560,636 units, where Selangor is the largest contributor (134,143 or 24% of the total) followed by Johor (76,429 or 14%) and Negri Sembilan (65,227). Kuala Lumpur has 39,656 units coming on stream.

In terms of transactions recorded as of first half of 2011 for the country, there were 133,984 transactions in the residential category, out of which the largest transacted numbers were priced in the range of RM100,000 to RM150,000, which accounted for 22,857 units, followed by units priced between RM250,000 and RM500,000, which accounted for 21,559 units.

Selangor recorded the highest number of transactions at 38,424 units, followed by Johor (15,015 units), Penang (13,832 units), and Kuala Lumpur (11,522 units). The most popular units transacted in Selangor, Kuala Lumpur, and Penang were for units priced between RM250,000 and RM500,000, while in Johor, the highest transactions recorded were for units priced between RM100,000 and RM150,000.

This brief analysis gives an indication that the total number of units coming into the market needs to be in line not only with the level of affordability of potential buyers in the area the projects are to be launched but also the demographics of Malaysian population.

As of July 2010, total population was estimated to be 28.25 million and the population is expected to grow at a rate of 2.4% per annum, where about 65% of the population is urban population. Today, less than 4% of Malaysians live in poverty and it is estimated that about 2.0% of the total urban population in Malaysia lives below the poverty line, earning monthly household income of equal or less than RM750. Low income households (earning income equal or less than RM2,000 per month) represents 75% of the median income in Malaysia.

The national average household income is estimated at RM4,000 per month. It should also be noted that about 65% of Malaysia’s population is below the age of 35, thus there would definitely be strong demand for housing.

Due to continuous movement in the factors affecting supply and demand for housing, policy intervention is necessary to ensure that the majority of the population has equal access to own homes. Singapore’s public housing policy is often cited as the most successful example of affordable housing provision in Asian cities. A study conducted in 2000 estimated that about 85% of the total population lived in public housing with nearly 95% of them owning the flats they occupied.

By centralising its public housing effort under a single authority, Housing Development Board, Singapore has circumvented the typical problems of duplication and fragmentation of duties, and bureaucratic rivalries associated with multi-agency implementation. This centralised function also serves as a mechanism to ensure supply and demand are checked.

It is hoped that the provision of affordable homes as announced in Budget 2012 would achieve its main objective of increasing home ownership among the majority of the population.

Senator Datuk Abdul Rahim Rahman is the executive chairman of Rahim & Co group of companies.

London Offices Foreign Owned!

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Over half London’s City offices foreign owned – report

by Andrew Macdonald; Editing by Dan Lalor) Keywords: PROPERTY LONDON

LONDON, Nov 22 (Reuters) – British investors own less than half the office properties in London’s City financial hub, with foreign ownership of towers such as the Gherkin likely to continue, a report said.

Property company Development Securities said 52 percent of City office blocks were foreign owned in 2011, up from 8 percent in 1980, with German and U.S. investors hiking their stakes considerably over that period.

‘City (of London) offices are perceived to offer quality and transparency — a ‘safe haven’ for foreign buyers who have, in turn, deepened liquidity in the market,’ chief executive Michael Marx said in the report ‘Who Owns the City’.

IPD figures showed property values fell 50 percent during the global financial meltdown to August 2009, subsequently rebounding 25 percent, creating a buying opportunity for cash-rich investors such as sovereign wealth funds, pension funds, insurance firms and real estate investment companies.

‘Traditional owners — livery companies, institutions, established property companies — have experienced a sharp decline in City office ownership,’ Development Securities said, noting these investors now held 17 percent of the office stock, from 29 percent in 2005.

In their place, German investors hiked their market share to 16 percent, from 1 percent in 1980. U.S. investors held 10 percent, from zero, while Middle East investors weighed in at 6 percent, from 3 percent, the survey found.

The 180-metre tall Gherkin tower — so-called because of its shape, one of the most distinctive in the City — has been part-owned by German property behemoth IVG Immobilien since 2007.

Foreign ownership increased during the global financial crisis, Development Securities said, noting the changing dynamics of globalisation and international investment would continue to be reflected in City office ownership.

‘Such resilience would appear all the more remarkable in the light of the City’s associations with the failures of the international financial system. What offsets the systemic risk in relation to the City’s lack of diversification is the exceptional liquidity that characterises its office market.’

The Development Securities survey also showed the changing profile of owners, with a growing trend towards private ownership by high-net-worth individuals.

In terms of functional ownership, 41 percent of the office space was owned by companies in the finance, insurance and real estate sectors, and 57 percent by financial and business services firms.

More than half of the City of London’s financial buildings are foreign-owned

By Richard Hartley-parkinson

Many landmark buildings in the heart of London’s financial district are owned by foreign investors, it has been revealed.

Germany holds the keys to one in five properties across the City including the distinctive Lloyd’s Building and Gherkin 

UK ownership is down to it’s lowest ever level with just 48 per cent belonging to British people or businesses. In 1980 that figure was 90 per cent.

The Gherkin (right) is owned by a German investment fund Tower 42 (left) looks like it’s about to be snapped up by a South African magnate

Lloyds building, famous for having all it’s services built outside, is owned by a German bank

The trend is likely to continue in the same direction as more investors look to get real estate in the UK. Tower 42 – also known as NatWest Tower – is currently on the market and South African magnate Natie Kirsh is the frontrunner in the bidding.

Matthew Weiner, executive director of development securities PLC which compiled the report, said: ‘It’s gone from 40 percent in 2006 to now 52 percent, so every other building in the city is ultimately owned by somebody from overseas.

‘What we’ve seen as well is the rise for the first time in private net worth individuals which we’ve never been able to identify in all the studies previously and I think that’s an interesting dynamic against safe haven assets that London represents.’

More…

• Good news at last as borrowing falls by £1.2bn… but Cameron warns that cutting the debt is harder than he expected
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Other significant parts of the City that are foreign owned include 10 Gresham Street (50 per cent Canadian), City Point, Moorgate (American), and Paternoster Square (Japanese).

Mr Weiner believes that foreign ownership is actually beneficial to the British economy. He said: ‘I think it’s good for liquidity in the market and good for London’s status as an international capital.

‘I think also these investors coming in have got long term investment horizons which gives greater stability to the market which will help the occupational market as well and help London function as a centre.’

Ownership of buildings has also shifted significantly over the last 30 years.

In 1973, 40 per cent of offices in the City were owned by what the report calls traditional owners.

Now, that figure has fallen to three per cent while nearly 10 per cent are owned by individuals.

In the shadow of the very British icon of St Paul’s Cathedral, Paternoster Square is in the hands of the Japanese

This table shows how the ownership of City of London buildings has changed since 1980

Around the time of the last recession in 2008, the number of institution owned buildings nearly halved as more specialist real estate groups snapped up property while prices were low.

Despite the economic downturn in Europe London remains the world’s top financial centre – ahead of New York and Hong Kong.

The housing market shows a similar pattern as the eurozone crisis continues to hit Greece and Italy, with more and more investors putting their money in London properties.

Greeks and Italians have spent £406m this year on domestic ownership – a 120 per cent increase on 201, according to the Financial Times recently.

This has taken the total number of home-owners from the two countries in the capital to 10 per cent.

There has also been a rise in house purchases by Middle Eastern and North African investors, keen to take advantage of the weak pound.

Banks offering more attractive home loans to boost market share

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Rising competition prompts banks offering more attractive home loans

By DALJIT DHESI daljit@thestar.com.my

PETALING JAYA: With razor thin margins due to rising competition in the home loans market, banks are now aggressively value-adding their home loans to stay competitive and boost their market share.

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling said banks must value-add to their generic home loan offerings in order to not just survive but thrive, especially in this competitive climate.

“What separates those who thrive from the others today is how much they have moved from price to innovation. It is heartening to see a greater emphasis today on enhancements to loans products, rather than mere reliance on price cutting previously.

“This is where banks are getting even more creative by adding in the necessary finer details to a product that otherwise appears bland. Home loans with features and benefits that are tailored specifically to complement customers’ lifestyles often serve to compel them to look beyond price and into a more holistic perspective,” she told StarBiz.

File picture shows a housing are in Shah Alam – Starpic by BRIAN MOH

Thoo said customers were nowlooking for more than just a home loan as purchasing a house was simply the beginning.

Banks would also need to cater to their immediate follow-on needs like renovations and furnishing, for example, and this was where additional financing that came with the home loan would be helpful, she reckoned.

At OCBC Bank, she said there were bespoke home loans that were tied in with study loans, renovation loans and even overseas property financing schemes, adding that each of these took into consideration things that went beyond mere property purchase.

She said it was undeniable that investing in a product to bring in customers and then introduce them to other products remained a good strategy for growing the business, but banks would still need to strengthen their range of offerings to become a one-stop shop for their customers.

Outstanding home loans, valued at RM261bil, accounted for about 27% of the total banking system’s loans as at end-September 2011. Although there has been strong expansion in home loans in the last couple of years, the proportion of home loans has been hovering at 27% in the past five years.

,B>Thoo: ‘What separates those who thrive from the others today is how much they have moved from price to innovation.’’

Commenting on home loans, RAM Ratings’ head of financial institution ratings Wong Yin Ching said competition among banks in the home loan market had been rife, resulting in razor thin margins in recent years.

This stemmed from the homogeneity of the home loan products, whereby any innovation in product features and price competition (by lowering rates) were quickly replicated and matched by market players, she said.

Wong added: “While some banks have instilled more discipline in its risk-reward pricing, aggressive pricing is still seen in the market and this is unhealthy and unsustainable in the long run.

“Going forward, we think that personalised services and quicker turnaround times by banks would be key to stay relevant in the home loan market.”

Alliance Bank Malaysia Bhd executive vice president and head of consumer banking Ronnie Lim said competitive pricing aside, Malaysian banks were now re-inventing the mortgage landscape by extending superior customer experience at every customer touch point.

For the bank, he said having mortgage specialists, who also acted as advisory consultants, among others, had enabled Alliance Bank to become one of the key mortgage players in the market.

He said the bank has been growing its mortgage specialists force extensively to not only engage customers effectively but also deepen its relationship with developers, lawyers and real estate agents.

Lim added the bank was also able to provide fast “approval in principle” service to assist customers looking for home financing solutions to make informed decisions before committing to their choice property.

For mortgage players, he said one of the key challenges was about overcoming margin compression and the bank was able to achieve this by introducing new systems and processes to help staff increase their productivity.

This had since yielded results: “For the year under review, sales productivity has increased threefold compared to a year ago,” he said.

Investing during turbulent times

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Tips on how to invest during turbulent times

STOCK markets around the world lately gave investors that sinking feeling again, weighed down by deepening woes of Europe’s sovereign debts, an anemic US economy and new fears of a sharp economic slowdown in China.

Many investors sold shares to hold more cash, despite cash earning very little interest. In Singapore for example, six months USD fixed deposits of less than US$1mil earns zero interest in some banks.

In the United States, 10-year Treasury bonds are yielding 2.1% per annum; despite misery returns, many investors prefer the safety of US Treasuries during crisis times, while waiting for policymakers to act boldly and markets to stabilise.

At the same time, we see many economists and other pundits offer a whole host of predictions about today’s global financial predicaments. The many predictions range from the slightly hopeful to the pessimistic, right down to the disastrous and absurd.

Does it sound familiar? Did we not hear many such predictions during the 2008/2009 global financial crisis? Who should we listen to? What should one do?

No doubt in hindsight, a few forecasts will be correct; and as the dust settles, many extreme predictions will also likely be forgotten. Yet for investors today, separating much of the “noise” from facts is one of the more tricky parts of steering through these very challenging times.

Fundamentals and valuation takes a back seat during a crisis

Volatile stock markets today are driven by latest positive or negative news flow affecting sentiment. Uncertainties during a crisis causes investment risks to spike, stock investors tend to sell first and ask questions later; fundamentals and stock valuation typically takes a back seat in the short term.

No doubt many investors worry about negative impact to a company’s fundamentals in difficult times. For example, a manufacturing company’s stock with a present price earning (PE) multiple of six times can change drastically to 60 times PE if earnings were to collapse 90% because of a global financial crisis.

Similarly, a property company’s price to book value discount of 60% can easily drop to 30% if asset value is marked down by half in troubled times. Monitoring, reassessments and analysis of a company’s financial progress is obviously important during tumultuous times.

Share prices of companies (even those with good fundamentals) may continue to fall indiscriminately, due to many reasons such as panic selling, fund redemption and repatriation. Investors should tread cautiously, even if stock prices may appear to be at very attractive levels.

I relate a challenging experience from the last global stock market plunge. In 2008, I invested in the largest luxury watch distributor and retailer in China (at that time 210 stores and sales amounting to 5.5 billion yuan a year or about 30% market share).

This Hong Kong listed Chinese company sells luxury watches (such as Omega, Longines, Bvlgari) from global brand owners Swatch group of Switzerland and LVMH of France (both by the way are also 9.1% and 6.3% shareholders of this Chinese company respectively).

As the US sub-prime mortgage crisis deepens by end-July 2008, many stocks around the world plunged. This company’s shares similarly dropped from HK$2 to HK$1.50 in a matter of weeks.

We vigorously reassessed the company’s fundamentals, including visits to retail outlets in China and Hong Kong. The result was an affirmation of our conviction to invest in the company for the long-term, despite short-term price weakness.

By late September 2008, we decided to purchase more shares when valuation proved so attractive at HK$1.15 per share (at a PE multiple of eight times).

Unfortunately, as the global financial crisis worsened, the company’s shares continued to plunge and bottomed to a low of HK$0.51 by Nov 26, 2008.

This stock eventually recovered back to HK$2 per share (by June 1, 2009) and went on to exceed HK$5 per share by late 2010. The company’s share prices recovered partly because Asian equities rebounded quickly in 2009, but also reached new highs because the company’s fundamentals continue to improve with strong sales (+49%), profitability (+26%) and expansions (+140 stores to 350 stores) from 2008 to 2010.

A lesson if you will that during a crisis, one should be prepared for short-term (weeks and months) stock market volatility.

It is essential for bargain hunters to have long-term holding power, good understanding of company fundamentals and strong conviction on a company’s prospect. In the long-term, we know fundamentals and valuation does matter.

How does one invest during a time of crisis?

My approaches to investing in turbulent times are:

• Search for and invest (when valuations are attractive) in well managed companies that will not only survive but emerge stronger from crisis times;

• Be prepared to stomach stock market volatility in the months ahead;

• Have a longer term investment horizon (perhaps two to three years); once this crisis dissipates, reap the rewards as stock markets recover.

In Asia, macroeconomic fundamentals likely will remain resilient as many Asian economies have strong foreign currency reserves, coupled with more fiscal and monetary policy options to support growth.

China is also likely to withstand any fallout from Europe better than most would think. China’s economy is still growing at a strong 9.1% gross domestic product growth for the third quarter of 2011; speculations about China’s economy crashing may be somewhat premature at this stage.

Similarly, I think many established Asian companies have sufficient resources be it cash, borrowing powers or human capital, to emerge out of these turbulent times faster and stronger than before.

I believe with increasingly attractive valuation, the investing risk-reward equation (potential downside risk versus long term return prospects) favors Asian equities in the long run. I have confidence investing in Asia’s fundamentals and Asian companies for many more years ahead.

Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd

What’s PNB up to a takeover bid on Setia ? Leave it to the real businessmen!

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A QUESTION OF BUSINESS By P. GUNASEGARAM  p.guna@thestar.com.my

Permodalan Nasional Bhd‘s surprise bid for SP Setia raises more questions than answers

IT must be great to have so much firepower at your fingertips. But it is also a huge responsibility. How do you get your target and keep it intact at the same time? It’s the old question of having your cake and eating it too.

That’s a dilemma that not just Permodalan Nasional Bhd (PNB) but many government-linked companies (GLCs) face. They have the money to buy over property companies but if they don’t do it right, they stand the risk of losing the people behind these companies.

If the worst happens the staff leave, the company is unable to undertake its projects, quality of houses and other developments drop, launches get less imaginative, public perception deteriorates, and, ultimately, value gets destroyed.

By seeking to own the golden goose body and soul, it is sometimes killed. Occasionally, there is in the corporate world a very thin line between protecting and enhancing your investments and making a wrong move which may send their value plummeting down, if not immediately, in time.

The latest episode (see our cover story this issue) has raised eyebrows not least because of the manner in which PNB has made its bid for one of most respected and admired property companies in Malaysia, SP Setia.

PNB already has about a 33% stake in SP Setia but is seeking to raise this stake to over 50% by offering RM3.90 a share, about an 11% premium over the closing price before the announcement of its notice of takeover. It offered 91 sen per warrant, a premium of nearly 100%.

It has had its stake of just under 33%, the point at which a general takeover offer is triggered under the takeover code, since 2008 but pushed this to just over trigger point on Tuesday and announced its intention for a takeover the following morning.

The offer is conditional upon PNB getting control of SP Setia. PNB also announced its intention of keeping SP Setia listed by ensuring a shareholding spread even if it got more than 90% of the offer shares.

Initial calculations based on 75% control and acquisition of all warrants indicate that the takeover could cost PNB over RM3 billion, a lot of money for most private investors in Malaysia but a mere drop in the ocean for PNB which has over RM150 billion under management.

It’s the second largest fund manager in the country after EPF which is twice as big with over RM300 billion in funds. But PNB is probably the largest equity investor in the country because of a much higher proportion of funds invested in equity. There is hardly a major listed company in Malaysia in which PNB does not have a stake.

The big puzzle is why has PNB launched this takeover offer which could potentially affect adversely the value of its quarry? What was PNB fearing? Was it just a matter of increasing its stake in a depressed market which undervalued SP Setia’s assets or was there something else? And why did it not consult with senior management and shareholders even after its notice of takeover?

At this stage one can only conjecture on the answers and make educated guesses.

But first, what’s wrong if PNB took a majority stake? Previously SP Setia had PNB as a major but not a majority shareholder. PNB did not intervene in management and had two board representatives. If the SP Setia board put up a proposal for shareholder approval, PNB cannot by itself stop it if other shareholders supported it. They include the Employees Provident Fund (EPF) with 13.4%, SP Setia president and CEO Tan Sri Liew Kee Sin with 11.26% and Kumpulan Wang Amanah Persaraan or KWAP with five per cent.

One must still note that the government-linked funds or GLFs already control over 51% of SP Setia. But with PNB alone poised to take over a 50% stake, feathers are being ruffled and questions are being asked as to what that means.

What would have been the ideal situation for SP Setia? Four factors would have contributed. An independent management, a good board which represented all parties, strong minority shareholders, and a diversified institutional base so that no shareholder dominated. The first three are pretty much in place but the fourth was not achieved because PNB had since 2008 been holding a stake of just under 33% and with two other GLFs, the stake came to over 50%. But was there a way of dispersing shareholding?

One deal being negotiated, it was reported, was for Sime Daby, a PNB company, to take a 20% stake through the issue of new shares in exchange for land banks. If it had come through, it would have helped to dilute PNB’s shareholding. Still, Sime is related.

The underlying problem is this. GLFs and GLCs have lots of money and not many places to put them in. Good companies attract their attention but if they take control, and especially if they take management control as well, the move can destroy value.

Some of PNB’s property purchase and privatisation acts in the past have not been particularly successful, if at all. The major reason is key staff leave after GLCs take control. That’s a phenomenon that’s happened quite a few times.

So far, PNB’s stake in SP Setia had not been a problem. PNB had its two board representatives and it was quite satisfied with its stake. A balance seemed to have been reached with senior management, especially Liew who is also a major shareholder.

But that has been thrown askew with PNB’s latest move. Part of the solution will be to convince the market that there will not be management interference unless things go wrong. But the only assurance of that is if stakes are far below 50%, perhaps not more than 30%.

PNB is primarily a passive investor. Thus its motivation should not be to stop dilution of its shareholding or moves to widen shareholding among companies it owns. Control should not be its primary aim.

Instead, it must focus on getting best value for its current stake, which may well be achieved by continuing to be clearly a passive investor. That’s better than having a bigger stake in a less valuable company. Perhaps it could have put its RM3bil in other investments. But it looks like it’s a bit too late for that.

l Managing editor P Gunasegaram is plainly perplexed by PNB’s bid to take over SP Setia. Any explanations?

Leave it to the real businessmen !

ON THE BEAT WITH WONG CHUN WAI

Questions are being raised as to why Permodalan Nasional Bhd is making a takeover bid on SP Setia, a reputable housing developer.

IT may not have caught the attention of ordinary Malaysians but it is a big story that is now the hottest topic among the business community.

Housing developer SP Setia is a reputable name that many Malaysians are familiar with because of the quality homes it builds.

It has also ventured outside Malaysia and made its presence felt in Vietnam, Australia, Singapore and even Britain.

The man at the helm of SP Setia is 52-year-old Tan Sri Liew Kee Sin, a down-to-earth bank officer-turned-developer.

Some would even say SP Setia is Liew Kee Sin and Liew Kee Sin is SP Setia.

Fiercely proud of his humble beginnings in Johor – his father was a lorry driver – the Universiti Malaya graduate wanted to study law but was offered economics instead.

SP Setia started off as a construction company – a syarikat pembinaan as conveyed in its initials SP.

Liew turned it into a big-time property developer when he injected two projects – Pusat Bandar Puchong and Bukit Indah Ampang – into the company in 1996.

Liew has faced many challenges but he is now looking at the biggest fight of his career – one that is heavily staked against him.

Permodalan Nasional Bhd (PNB), the country’s largest asset manager and owner of 33% of SP Setia, is making a bid to take over the company.

On Friday, PNB bought an additional 23.5 million shares in the open market for RM3.868 a share, just 3.2 sen shy of its proposed takeover price of RM3.90.

PNB, with a RM150bil cash chest, is seeking to raise its stake to over 50% with its RM3.90 offer, which is about an 11% premium over the closing price before the announcement of its notice of takeover.

Such a takeover bid is not unusual in the corporate world, and more so when Liew only has an 11.3% stake in the company.

Other major shareholders of SP Setia include the Employees Provident Fund (EPF) with 13.4%, Kumpulan Wang Amanah Persaraan with 5% and over 40% are in the hands of minority shareholders.

But the manner in which it was done has led to much unhappiness.

Despite having two PNB directors on the board, there was no courtesy of a verbal notification prior to the takeover move.

The general offer notice only reached the company on Wednesday at 8.30am, just before the market opened.

Some may argue that the element of surprise was for strategic reasons but there was still no call even after news broke out of the takeover bid.

In a nutshell, relations have been strained.

PNB has issued a statement saying it wishes to maintain the management team, which is known to be fiercely loyal to Liew, but no one is sure how events will unfold in the coming days.

However, questions have been raised as to why PNB is wanting to take over a company that is being run competently instead of remaining as a passive investor that is satisfied with good investment returns.

If the Government is actively pushing for the private sector to be the engine of growth, we have the right to ask why the GLCs are competing with the private sector.

Widening its shareholding base is one thing but controlling private companies will lead to speculation over its agenda, cause unnecessary concerns as well as send the wrong signals.

The whole exercise will cost PNB RM3bil, which is chicken feed to them, but there are political and economic ramifications that the country’s leaders should take note of.

It may not be such a grand scheme in the end for PNB if Liew decides to leave SP Setia and set up his own venture, and gets his senior management team to join him.

PNB may then find itself in a spot even after gaining control of the company.

No one would believe that there would not be interference from PNB, so let’s not kid Malaysian investors.

Civil servants who manage public funds should leave the business of running businesses and making money to the real businessmen.

Related articles

• Malaysian Developer SP Setia Gets Takeover Offer From PNB (businessweek.com)
• SP Setia Rises to Two-Month High on Bidding War Prospects (businessweek.com)
• Setia Eco Cascadia New Township Is All Set For Launch In Johor, Malaysia (prweb.com)
• Investing in properties beyond our shores (right-waystan.blogspot.com)
• Current Australia property market (vulcaninternational.wordpress.com)

Financial Crisis: Calculating the Probability of Extreme Events

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ScienceDaily (Sep. 26, 2011) — It had to happen: the property bubble burst and the global financial market experienced its biggest crisis in the last hundred years. In retrospect, many suspected it was coming, but nobody could have known for sure. The traditional investment strategy failed, as all forms of investment suddenly collapsed at the same time. In order to calculate the probability of several such extreme events occurring at the same time, three scientists at the RUB have developed a new method. Prof. Dr. Holger Dette, Dr. Axel Bücher und Dr. Stanislav Volgushev from the Institute of Statistics (Faculty of Mathematics at the Ruhr-Universität) published their findings in the scientific journal The Annals of Statistics.

Big things start small

Up to now, when statisticians estimated the probabilities of extreme events, they usually calculated with dependencies between the outliers of statistical series. The outliers, however, make up the smallest part of a data set, e.g. the largest 100 out of 3,600 data. That means they ignore the dependencies of the bulk of the relevant data set, namely 3,500 data, and thus take the risk that important information is lost. Axel Bücher shows how this problem can be solved: “Our work provides a decision aid as to whether it is better to use the full range of data and not only the outliers. If all the data are relevant, then they should all be included. However, this is not always the case. Sometimes these data would falsify the result.”

Multidimensional function

The researchers use the copula function for the evaluation. “This is a complicated, multi-dimensional function, which characterises stochastic dependencies between the data” explains Stanislav Volgushev. With this aid, a few years ago we might have noticed that many little termites were nibbling their way into the wooden foundation of the global financial market, whilst we were on the look out for large predators.

Financial crises as motivation for research

“Our research is strongly motivated by the recent financial crises. At that time, almost all the economic models and forecasting tools for loan losses failed because they did not pay sufficient attention to extreme dependencies. In the long run, we aim to develop models and methods that predict such events better” says Prof. Dette, explaining the reason for their research. For several years, the three researchers have been looking into new methods of asymptotic statistics which work with sample sizes approaching infinity. They are financed by the German Research Foundation (DFG) in the Collaborative Research Centre SFB 823 “Statistical modelling of nonlinear dynamic processes.” The English-language publication bears the title “New estimators of the Pickands dependence function and a test for extreme-value dependence.”

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