market outlook: opportunities rent vs own gee je… · market outlook: opportunities ... is it time...

MARKET OUTLOOK: OPPORTUNITIES – RENT VS OWN

THE EDGE INVESTMENT FORUM ON REAL ESTATE 2018

7TH APRIL 2018

2THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW

A fish out of water to a water out of fish.

Is it time for a faithful leap?


The property market has been on minimal decline in recent years since 2015. Overall, the transaction value pursued the movement in transaction volume.

MALAYSIA’S PROPERTY MARKET OVERVIEW OVERALL MARKET PERFORMANCE

0

50,000

100,000

150,000

200,000

0

100,000

200,000

300,000

400,000

1Q2015

2Q2015

3Q2015

4Q2015

1Q2016

2Q2016

3Q2016

4Q2016

1Q2017

2Q2017

3Q2017

4Q2017f

2015 2016 2017f

Val

ue

(RM

Mil

lio

n)

Vo

lum

e (u

nit

)

Total Transaction Volume and Value

Volume Value


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

0

50,000

100,000

150,000

200,000

250,000

300,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f

Val

ue

(RM

)

Vo

lum

e

Residential Volume Average Transacted Price

MALAYSIA’S RESIDENTIAL SECTOR OVERVIEW RESIDENTIAL MARKET TREND

1995 - 2007

RPGT

0 - 30%

2007 - 2009

RPGT

Exemption Period

2010 - 2011

RPGT

Flat rate 5%

2012

RPGT

5 - 10%

2013

RPGT

10 - 15%

2014

RPGT

15 - 30%

2015

GST

6%

DIBS No DIBS


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Malaysia House Price Index (Base Year 2010)

AFC GFC

1997/98 AFC:1997 - 98: -9.1%1998 - 99: -2.3%

WILL PROPERTY PRICE DROP?

• Robust economic performances prior to AFC led to moral hazard of unnecessary risk-taking, large investment and spending on infrastructure, property prices soared

• Subsequent devaluation of currencies led to ballooning debt repayment

• (Risk of) loan default increases -> asset disposal -> mass supply in the market -> pulls down the price

GE-13 GE-14GE-10 GE-11 GE-12GE-9GE-8


MALAYSIA’S RESIDENTIAL SECTOR OVERVIEW TRANSACTION ACTIVITY AS AT 1H 2017

85.4%

2,1

58

31

,02

9

4,7

75

21

,73

7

3,9

01

14

,59

1

3,6

42

8,3

33

62

5

3,2

01

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Primary Secondary

Tra

nsa

ctio

ns

< RM150,000 RM150k -RM300k RM300k - RM500kRM500k - RM1 mil RM1mil and Above

73.1%

43.1%

66.9%


RESIDENTIAL OVERHANG AS AT 3Q 2017

2-3 Storey Terraced28.2%

2-3 Storey Semi-D9.9%

Condo/Apartment32.6%

By Type

Single Storey Terraced 2-3 Storey Terraced Single Storey Semi-D

2-3 Storey Semi-D Detached Townhouse

Cluster Low-cost House Low-cost Flat

Flat Condo/Apartment

20,904 units

RM400,001 - RM500,000

17.8%

RM500,001 - RM1,000,00020.3%

> RM1,000,00015.8%

By Price

< RM50,000 RM50,001 - RM100,000

RN100,001 - RM150,000 RM150,001 - RM200,000

RM200,001 - RM250,000 RM250,001 - RM300,000

RM300,001 - RM400,000 RM400,001 - RM500,000

RM500,001 - RM1,000,000 > RM1,000,000

RM12.5 billion


MALAYSIA’S RESIDENTIAL SECTOR OVERVIEW STOCK SUPPLY

Annual completion

78,216 units

Annual growth in

population

390,000*

New houses needed

97,500 units/year**

NO OVERSUPPLY

WHY OVERHANG?

Notes:

* Based on population growth rate of 1.3% on population of 32 million as of 2016

** Based on average household size of 4


HOUSING DEMAND

Owned68%

Rental29%

Quarters3%

Out of the 2.08 million households in Klang Valley:• 68% (or 1.4 million households)

own a property• 29% (or 0.6 million households)

rent a property

House-ownership in Malaysia by DOSM: • 72.5% in 2010 to 76.1% in 2014• Higher than Australia (68.1%),

UK (67.4%) and US (66.5%)


Residential properties in Kuala Lumpur and Selangor considered as unaffordable, with median multiplier of 5.4 and 4.0 respectively.

Note: Median Multiplier classification3.0 and below: Affordable3.1 – 4.0: Moderately unaffordable4.1 – 5.0: Seriously unaffordable5.1 and above: Severely unaffordable

Source: Khazanah Research Institute, 2015


THE NEED TO UNDERSTAND THE MARKET DEMAND

Stop building, let the market absorbs first?

What type of property is undersupply? Where is the gap in the market?

Squeeze on profit margin to match the price with affordability in exchange for better sales?

Inadequately high density put buyers off?

Where are the preferred locations? Are they supported by public transport/connectivity?

What are the optimum sizes for different types of property?

Who are the target groups? What is their price expectation?

What about renting?


RENTING IS A SENSIBLE OPTION WHEN…

AFFORDABILITY IS A CHALLENGE

• Income and house price mismatch requires long-term correction in the market and in the economy as a whole

• Renting takes up lower financial commitment and presents as an easier and immediate access to accommodation

VIBRANT POPULATION AND DYNAMIC

LABOUR MOVEMENT

• Renting may be preferred in major cities/CBDs where the population is presumably more mobile and consists of higher number of expatriates with the support of ‘open door’ policies on expatriates employment

UNDER-UTILISATION OF PROPERTY

• If there is abundance of vacant units or aged properties, then it may be worthwhile to consider transforming into rental use

RAPID INCREASE IN HOUSING DEMAND

• Housing demand grows in tandem with urbanisation and population growth, putting up more houses for rental is a quicker response

SOFT MARKET

• Rental yield becomes more attractive when capital gain is slow in a fatigue market

RE-ADAPTATION

• Conversion of vacant commercial units/shop-offices into residential use (e.g. studio office)

Countries with public rental housing

• Public rental housing schemes are common even in advanced economies like OECD countries

• In Hong Kong, 30% of the population living in public rental housing

• 80% of Singaporeans live or rent HDB flats

BUILD TO RENT IN LONDON


LONDON’S BUILD-TO-RENT FRAMEWORK

Policies Developers Objectives

National level• White paper by the Department

for Communities and Local Government

• National Planning Practice Guidance (NPPG)

• Institutional investors such as private and public pension providers and sovereign wealth

• funds• Private developers from

bespoke BTR developers and operators

• Local authorities, including general fund investment, council-owned development companies

• Public institutions in joint-venture arrangements with the private sector

• Housing associations

• A mix of housing types at different price points in the market

• Stability and certainty for tenants

• Quality homes• Sustain income stream for local

authorities• Large scale developments• Long-term investment and

stewardship in the local area• Supporting the regeneration

initiative in local areas• Social integration and flexibility

Local level:• The Mayor’s Affordable

Housing and Viability (SPG)• Borough’s planning such as

Ealing’s Southall Opportunity Area Planning Framework and Camden’s Draft Local Plan (2015)


BENEFITS OF BUILD-TO-RENT

DEVELOPERS/INVESTORS

• Longer lease term offers steady and stable revenue in the form of rental

• Attractive to large institutional investors such as pension funds who need reliable recurrent returns

• Longer lease term offers security• Quality assurance as purpose-built

homes are professionally managed and specialised for rental

• Catered for lifestyle of millennials or young family units who seek for on-site services and facilities

TENANTS


RENT-TO-OWN IN MALAYSIARental housing by PR1MA for up to 10 years

with option to purchase at the end of

tenancy

Eligibility: Successful PR1MA applicants who are unable to secure a home loan

Option to purchase: Offered in the 5th or 10th year of tenancy at a price set by PR1MA

RTO scheme by Maybank Islamic Bhd for the general public, currently

available for Klang Valley properties

Eligibility: Must not have more than 1home financing at the point of application and household gross income of RM5,000 and above

Option to purchase: Available after 1 year of renting at a pre-agreed price

Option to sell: Available after 1 year of renting. To sell the property at market value. Gain between the pre-agreed price and the sale value goes to the tenants fully

Option to abort purchase: Allowed if after 5 years of renting at no cost or continue on renting


Recommended to prospective buyers.

Sign up if you are confident to buy.

Understand the contract:

• Rental schedule

• Purchase price setting

• Contribution to option money

• Forfeiture/penalty if purchase is aborted

• Conditions for lease termination

PROS AND CONS OF RENT-TO-OWN

• Longer lease term guarantees accommodation for tenants

• Certainty in rent increment, usually stated in a contract

• Lock in property price for future purchase

• Allow time for tenants to build up financial capacity, save for down payment and accumulate credit score history

• Easier entry and pathway to house ownership with low initial financial commitment

• Opportunity to assess the property and its surrounding prior to purchase

• Appeal to genuine buyers

• May be more costly depending on the rental rate and contribution to option money

• May incur a big financial loss to the tenant if property purchase is aborted, forfeiture may be exercised

• Challenges in property and tenant management for landlords

Rental market in Malaysia: Writing on the wall?


RENTAL MARKET IN MALAYSIA COULD DO WELL…

The rental market is regulated but not excessively controlled

Urbanisation is a natural crowd-pulling factor

A check-and-balance mechanismneeds to be formulated to protect tenants and landlords

Affordability is a prevailing challenge even to those eligible to buy affordable houses


OTHER MATTERS TO LOOK INTO…

• Reduce red tape and speed up the planning process• Extra density allowance

• Tax incentives (e.g. 50% tax exemption on rental income up to RM2,000 in Budget 2018)

• Adjusted tax system, avoid overly generous capital gains tax and prevent negative gearing

• Comprehensive regulatory framework to protect tenants and landlords to address challenges of property maintenance, tenants’ obligations. risks of rent default and any other related concerns

• Check-and-balance system/third party intermediary (e.g. Rental Bonds Office in Australia)

• Public-private partnership on land release. Shared ownership between developers and government. Construction cost is a constant, but land prices and taxes can be made cheaper

• Transparent and supportive planning (e.g. development of rental housing is among the strategic considerations in local panning in London)

• No erratic policy changes that would dampens investors’ confidence and trust• Avoid excessive control such as rent control that would discourage investment activities


Platinum Victory, Skyarena, ZetaPark: RM1,400 – RM2,200 permonth per unit

Southview: RM2,000 – RM3,200per month per unit

KL Eco City: RM2,800 – RM4,000per month per unit

Arena Green, Parkhill Residence,Kiara Residence: RM1,200 –RM1,900 per month per unit

Setapak

MidValley

Bukit JalilKey criteria:

Public transportation network

Rent justified by quality

Proximity to commercial area

LRT Star

LRT Putra, KYM

LRT Putra

RENTAL HOTSPOTS IN KUALA LUMPUR


FUTURE KEY AREASFUTURE GROWTH LINKED TO RAIL

• Rental market shall be catalysed by rail connectivity, more so than road connectivity

• Sungai Buloh, Kajang and Putrajaya being the end terminals for MRT

• Both LRT and MRT are running along and serve the areas of Kelana Jaya and Kota Damnsara

• Kwasa Damansara is an upcoming township integrated with transit points such as MRT stations

• Kuala Lumpur as the centre of activities and transportation hub will remain popular

Legends:

MRT Line 1

MRT Line 2 (Under Cons.)

LRT

Putrajaya

Kwasa Damansara/Sungai Buloh

Kajang

Kelana Jaya/Kota Damansara

Kuala Lumpur


PERHAPS IT’S TIME FOR A PARADIGM SHIFT…

“Home-ownership is not the be-all and end-all…

Moving away from the typical Asian mindset, absence of home-ownership does not imply welfare deprivation. The ultimate priority is to have a shelter over one’s head, be it rented or owned.”

THANK YOU

market outlook: opportunities rent vs own gee je… · market outlook: opportunities ... is it time...

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