market outlook: opportunities rent vs own gee je… · market outlook: opportunities ... is it time...
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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?
3THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
4THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
5THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
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20
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20
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20
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20
08
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09
20
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20
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20
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20
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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
6THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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%
7THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
8THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
9THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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%)
10THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
11THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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?
13THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
16THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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)
17THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
18THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
19THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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?
21THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
22THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
23THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
24THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
25THE EDGE | INVESTMENT FORUM ON REAL ESTATE 2018 CBRE | WTW
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
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