Home Prices Hardly To Drop

There was a lot of talk late last year that property prices will fall in 2012 after the abrupt rise in the residential sector over the past few years. So far, we have not witness any of that.

What we are seeing are:

â— Bank Negara’s constricting guidelines on consumer lending have started to work. Loan applications       and loan approvals have fallen in January;

â— in some locations, house prices and rental have started to ease; and

â— Developers are offering very attractive terms ever since the beginning of this year.

Keep your finger on these three factors and let us now take a look at today’s launches. In some of these launches, buyers need only to pay about 1% down payment of the property price instead of the required 10% on signing of the sale and purchase agreement. The stamp duty and legal fees are also relinquished and there is no need to pay anything else pending the completion of the property.  Such schemes have enticed many Malaysia property buyers.

The question to ask is: If the market is as good as many claimed it to be, why are developers offering such schemes? When a property is sold, it is registered as a sale. But the absolute revenue of the unit is yet to be paid.

For simple calculation purposes, 10% of a RM500,000 property is RM50,000. If the first 10% is paid, this RM50,000 is registered as revenue by the developer, but in the sales column, a sale of RM500,000 is recorded. That is why the sales and revenue figures differ considerably.

If a developer permits a buyer to pay only 1% of the purchase price, this does not necessarily mean he “loses” that other 9%. He will get it back after a certain period of time. The same goes for the waiver of the stamp duty and legal fees. The developer has to pay the lawyers for services rendered. All these charges and fees are packaged into the deal which the buyer will have to bear in due time. As iIn this case, later rather than sooner.

Developers tenders such enticing terms with the primary intention of making a sale. Many of these schemes are offered in condominium projects because there is by and large an excess in this segment. While such schemes may catch the attention of genuine buyers who need a roof over their heads and who are grateful that they can reschedule payment, it also draw those who can afford  forking out that 1% down payment and take a gamble that they will be able to offload it when the project is completed.

If one is to go around some parts of the Klang Valley today, there are some finished high-rise with large mobile numbers displayed on windows. It may not be so simple to offload units when there are so many of them.

 What is apparently absent, and which many would like to see are more launches of landed housing. However, this is doubtful to happen. Only the secondary market is offering landed units, which may clarify to a certain degree the reason why the secondary market was quite strong last year. This is applicable not only for the Klang Valley, but for Penang as well and is a manifestation of strong domestic demand notwithstanding the many pessimistic predictions for this year.

When a developer regarded a piece of land, he consider how much he can make from it. If he were to build a condominium and throw in a variety of facilities, he can sell more houses than if he were to build landed units.  That’s the reason most of the launches at present  are high-rise projects, be it condominiums or serviced apartments.

Developers are also restricted by what they have. Increasingly, land in city centers and fashionable areas are getting smaller. Which explains why in highly dense areas, condominium projects continue to be sprout up in the most congested of areas?

The development of landed units can only take place when there is large tracts of land, which also explains why the big boys like Mah Sing and SP Setia are speculating further away from city centres.

The other noticeable factor in todays launches are the size and price of the condominium units. Most of the units are small. Studio apartments may be in the 500 sq ft range or thereabouts while those targeted at families may be three-bedroom units with built-up areas of 1,200 sq ft onwards. Most of the launches today are priced close to RM700, 000 onwards. On a per sq ft basis, the price is still increasing, whether it is a Petaling Jaya address or a Bukit Jalil one.

So, while sales volumes may languish in newly-launched projects (which explains why developers are offering units for sale with a 1% downpayment), on a per sq ft basis, prices does not seem to be stabilizing. Developers are trying to uphold affordability by having smaller units, deferring payment and leveraging on low interest rates.

Assistant news editor Thean Lee Cheng is pleased that Bank Negara is watching the household debt and lending in the property sector personally as this year promises to be an exciting one.