Ho Kay Tat: Property prices, particularly those of landed homes, have recovered quite strongly with some choice locations having returned to pre-crisis levels or even higher. What are the reasons for this strong growth?

Datuk Liew Kee Sin: Be it good or bad times, the landed residential property market has always been there. It is a question of the volume (of transactions). Maybe in a boom, the buyers are 50 per cent speculators. In a recession, only the genuine guys — the real homeowners — buy properties. What you see today is a bottoming-out of the market. Those who buy today genuinely want a home — that is the type of demand we have seen in the past two years. It is a case of “now we see the recovery”. If you don’t buy today, you will not be able to afford one a few years from today. There is indeed a lot of demand for landed properties, especially in the growth areas in the south, KL, Seremban, Putrajaya and KL-Klang.

Ho: So, people are in a way chasing properties but you say these are not for speculative purposes.

Liew: There are fewer speculators now. The buyers today are mainly those who fear that if they don’t buy now, in two to three years, there will be a boom and they won’t be able to buy. The other attraction is the interest rate — banks are offering 4.25 per cent loan.

Dr Radzuan Abdul Rahman: Every time, in a property cycle, the same set of ideas goes into the mind: “If I don’t jump into the present cycle, I might be a Johnny-come-lately.” I echo what Datuk Liew said. First and foremost, there is always a market for residential properties. The question is location, price and product type. At the moment, we have seen tremendous demand for landed properties costing about RM100,000. At the end of day, if you have the right product, location and price, you have the market. The uptrend in the residential market is certainly on.

Ho: The pick-up has been very sharp and some people have expressed concern about the trend. Is such strong growth healthy in this early stage of the recovery?

Liew: I don’t think the pick-up is sharp because the supply is slanted. The perception of people queueing up to get their properties is false. Most developers, like us, have adjusted the market. For example, Mutiara Damansara (a new housing scheme coming up next to Bandar Utama in Petaling Jaya) has more than 6,000 registrants. Of course, if you were to issue 6,000 invitations for 100 homes, there’d be a mad rush. These registrants have signed up for various types of development. It is up to the developer to make sure that there is a ballot to avoid any mad rush for the properties.

Radzuan: Bear in mind the mad rush now is confined to the growth areas — and not across the board. What we have read in the papers about launches being oversubscribed is only true in certain and very limited locations. While there is demand, one must qualify it is not true in all locations.

Gerard Pereira: Location and product are the main criteria of purchasers. They don’t mind paying that extra dollar. The design of linkhouses has changed tremendously. Those days, you had one bathroom upstairs and one downstairs, now you have a master bedroom with bathroom attached, two rooms with common bath, nice family lounge and the floor finishing has changed from parquet to strip timber.

Datuk Suleiman Manan: [Demand for] housing has picked up because the propensity for Malaysians to buy houses is very high. Young couples, the moment they are married and have double income, will definitely look for a house. This is contrary to the west where young people look for leisure. This is due to the government’s long-standing policy of building home ownership among Malaysians. So, the residential property sector is already resilient. The surge is rather sharp but it is not broad-based for the time being and is only in certain areas. Prices have stabilised, they have not come down. Don’t expect any more bargains for landed properties. It is too premature to think that we should interfere with that process [of upsurge].

Ho: So, we are seeing the initial stage of recovery in the property sector that traditionally starts with residential properties and in choice locations. How will it spread out? How long and what will it take?

Pereira: At one time, when the market was good and there were few prime locations, people started country homes, agricultural-land launches. That’s where the worry is — everybody will start opening up agricultural land for homestead purposes, but don’t forget that these places have no proper infrastructure. You have to drive through estate roads, get off the highways. People will spend money there [on such projects] and have banks foreclosing on them again.

Ho: There is an obvious overhang of such properties now. Do you see the excess as a threat to the recovery of the entire property market? What do we need to do?

Pereira: It will be a threat.

Radzuan: The spread will happen. Approval from the authorities comes very late — then you see projects that were previously approved taken up. The developer and government must also try to come in at the same time. The basic infrastructure to be provided by the government like schools, surau and recreation areas have been set aside in the development plan but the government comes in much later.
To avoid the downturn that we have gone through, every Tom, Dick and Harry who ventures into the property development must put his act together, along with the financier and buyer.
Everyone must be a winner. If the buyer is not a winner, there’s no point in coming out with the best-designed double-storey linkhouse because the first question buyers are going to ask is where is the school their kids will go to.
Perhaps this is where there must be some understanding between the developer and the government. For example, in Bandar Kinrara (an Island & Peninsular project), we put in the facilities before the government came in. We created an open space of 18 acres, put in a small mosque with the hope that the government would come in soon to add to these facilities.
Everybody involved must put his act together. If one party were to drag its feet, the whole thing (project) would come down, sinking sooner than you thought.

Pereira: An example is Bandar Utama where schools are being built now. Bandar Utama is a full-fledged township with one of the biggest shopping complexes in the Klang Valley. This [building of schools] is something that should have been looked into a long time ago. Children in the housing estate now go to schools in nearby Damansara Utama and Damansara Jaya.

Radzuan: They (the government) don’t even come up with a plan as to where the schools are supposed to be — no indication. So, you (the developer) create an open space. People like us who create these facilities for the government to come in later are at the receiving end. But if you have a choice location, that is not so material.

Liew: That is the developer’s risk. We are not certain what the government will and will not do to support the development. On the other hand, the government has budgetary constraints. The developer’s risk, at the end of the day, is what you pay for the land. If you pay too much for it in the boom time, you will collapse if there is no infrastructure.
In some places up north, for example, there is no water supply. To bring water there costs RM600 million. There’s no TNB line. Fixing this costs another RM50 million. This project will fail because there is no basic infrastructure there. These are basic needs. As a developer, it is key to pay the right price for the land. Location again plays an important role. I’m more concerned about pricing. In a property boom, people will buy farther and farther away because choice land becomes too expensive. That will create a bubble.
If the price of your current home doubles, you might as well sell the house and move somewhere farther away; buy a bigger house and still have cash. That would create a kind of demand for property outside the choice areas. That will come eventually. At the end of the day, properties that will do well would be those with schools, hospitals, good infrastructure.
People are willing to buy outside the Klang Valley mainly because of the price factor. Why do people buy Bukit Beruntung? Because of pricing. In Bangsar, a bungalow costs over RM1 million, but a bungalow in Bukit Beruntung may cost just RM200,000. That’s why people shift [outwards] — to upgrade themselves. If the developer does not follow up with its promises, there’s where the problem starts. Once a ghost town is created, it will take years and years for you to put it back. There’s a stigma.

Ho: There is a lot of such development outside the Klang Valley launched in the last property boom. How long will it take to clear the tremendous excess, or does it really matter?

Suleiman: Rising prices, as is happening now, attract buying. When prices drop, people withdraw, because they think prices will dip further. When prices rise, they say they don’t want to miss the boat because, next month, prices will be higher. That effect will come again and it will absorb the excess supply.
Values of properties in prime locations will become very high. So, people will move out to the suburbs and probably outside, 20 to 30 miles away. At the same time, with our economic recovery, there is a lot of liquidity. Our surplus has never been like this, three to eight months of surplus. This is translated into a lot of liquidity in the system, into the stock market.
The wealth effect of the stock market is going to come again. People — the speculators — have a very short memory. The wealth effect will spill over. The moment they make money on the stock market, they go into consumer buying and, of course, into houses. That will come. I’m very optimistic about the residential area. It will spread out. That excess stock will be absorbed.

Ho: Any views on condominiums and apartments, even in prime areas like the city centre and PJ?

Pereira: That is not a problem. Once the overhang is cleared, you should be able to market new launches. Forget the foreign investors. They have not come in for a long time. Those days, when you launched a product, 50 to 60 per cent of the buyers were Singaporeans.

Radzuan: This is where the government has to put its ears on the policy. For example, if you allow foreigners to come, be definite about it.

Pereira: The rules keep changing. This happened the last time. During the peak of the property run in 1993 to 1995, property prices were hitting the sky but foreigners were stopped from buying. Why? Foreigners should be encouraged to buy at high prices. When the prices come down, the locals can pick up the properties at low prices.
They (the government) always do the reverse. When property prices are down, they encourage foreigners to buy. When prices go up, foreigners would be selling the properties to the locals at higher prices. This is the government’s mistake. Then they set up guidelines that you can buy; but tomorrow, when you go to the land office to transfer the name, you may have problems. The state government, the land office and the federal government have different ideas.

Suleiman: It is very strange. The government encourages foreigners to buy shares, but that is more dangerous because you can sell off the shares easily and the next person holding these shares will be a local. As for property, like in Hong Kong, it doesn’t matter if foreigners buy because the property is stuck with your land. If there is a recession, and foreigners sell the property to a local at a lower price, the local will benefit. Except for lower-end properties, we should have a free market. Define and be brave.

Pereira: Properties priced at RM250,000 and below should be reserved for the locals. The government must also allow banks to finance foreign buyers up to 50 or 60 per cent. That is very important. If you don’t allow the local banks here to finance the foreigner, it is very difficult for the guy to bring in cash. You must be able to fund the buy.

Radzuan: When the market collapsed in Hong Kong, a lot of money was stuck in property but it could not be taken out. We should have a liberal view on foreign buying.

Ho: This is something the industry has conveyed to the government many times over many years. Why this reluctance? What is the concern? Is it social, political or psychological?

Suleiman: I suppose they believe that if foreigners buy, prices will go up. Then locals will suffer, just as they did in Johor. But to me, that is a cycle. For upper-end homes, let those with money take care of themselves, but protect properties worth below RM250,000.

Liew: Singapore has ruled that foreigners can only buy residential units that are in blocks of six storeys and higher.

Radzuan: Perhaps the industry should prepare a detailed analysis on why the government should relax the ruling on foreign buying. Allow foreigners to buy anything above RM400,000. The level can be defined according to location if you want to. But the government must work together with developers. You don’t want developers to be stuck with a product because of certain wavering policies.

Pereira: You must have a fixed policy that will not change for the next 10 to 20 years. Many Singaporeans were hurt when they bought properties in Port Dickson because they could not register the cash purchase in their names.

Liew: But they (Singaporeans) are coming back and we have to get our act together. Singaporeans have gone to invest in China and got burnt even worse.

Pereira: We need fixed guidelines and rules and these need to be publicised to provide comfort for prospective foreign buyers.

Radzuan: This is the best opportunity for all players and parties to get their act together — the government, bankers, developers. Think about it.

Pereira: The press can also print articles and make the government realise the need to have fixed rules. That would be good.

Liew: The important channel of communication to the government is the Housing Developers’ Association. The HDA has tried its best but the only weakness is the big guys (developers) are not in the association. I’m not saying they are doing a bad job now but the big developers must be part of the HDA.

Ho: Why are the big boys not in the HDA?

Pereira: Because the big boys have no problem.

Suleiman: Constant dialogues should be held with the industry — and not wait for a crisis. That’s the only way to monitor the health of the industry.

Office-space glut — threat from Putrajaya?
Ho: One area still of concern is the office-space sub-sector. The nationwide occupancy rate of purpose-built office space was 77 per cent last year. Assuming the economy recovers with a growth of 5.0 to 6.0 per cent over the next two years, it will take years to fill the space and this has been acknowledged by the government. People, however, are still building. There’s a view that these developers have no choice but to carry on with their projects. If we accept their reasons, the question now is how to ensure the pick-up rate increases faster than the supply rate.

Suleiman: The oversupply of office space is real. There’s also competition from purpose-built office towers and shopoffices. In the last boom, shopoffices were very popular and people bought them for speculative purposes. Prices were very high. While at one time shop offices were built in a township to cater for the township, they later were catered for a market outside its own catchment. With that comes the business-park concept, which is basically better-looking shophouses sold with strata titles. That, of course, is a threat to the office-space market, affecting rentals. Some good locations are still in demand, like the Petronas Twin Towers. The relocation of government offices to Putrajaya does not affect the office market. The government has never built for the private-sector market, always only for itself. It doesn’t play the property game.

Radzuan: But will a vacant government office not influence the market?

Suleiman: Traditionally, the government never goes into the market. It is the government’s prerogative to build a centre for itself, as is done all over the world, like Washington. To me there is no real effect. What one should pay attention to are statutory bodies with corporate activities — like Tenaga, Telekom, which are entering the fray [of property development]. Their mindset is not that of a developer. Telekom is a telecommunications company and probably it has a lot of money. When you have a lot of money and go into the property market, the bottom line is a different calculation. That, I think, interferes with the situation. What they can build should be for their own use.

Pereira: Tenaga has a big landbank. They entered into a deal in Johor recently.

Radzuan: I think the solution is to open up the market. Buildings are cheap. Bring in the foreigners, provided the regulations are defined, to snap up some of the surplus.

Pereira: You have to look at property trusts, bank incentives for property trusts.

Radzuan: There are many institutions that plan to expand and build their own corporate offices later on. Because of the glut, is it not possible to persuade them, until the market improves, to fill the existing vacant space on special arrangements, with attractive terms? For example, we have private colleges expanding. Don’t build. Occupy existing office space first. This is a win-win situation.

Danaharta setting an ‘artificial’ floor for pricing — still relevant?
Liew: The problem is pricing. Danaharta has set a minimum price on foreclosed properties, but it is not attractive enough for locals. If you were to buy office space at RM300 psf and the rental is between RM1 and RM1.50 psf, there’s no way you can break even. Pricing has not come down for commercial buildings. You must let market forces be.

Ho: So it’s only when prices are at their true value that there will be a natural pick-up in demand.

Liew: The banks do not have to worry about NPLs (non-performing loans). Danaharta can sit and wait. As long as prices are artificially held, I’m sure there are a lot of trust funds, venture funds that will shake their heads and go away.

Ho: Some people feel that is precisely what the government, or even the private sector, wants Danaharta to do — set a floor. Although it is an artificial floor, it prevents prices from collapsing. Danaharta has succeeded in preventing prices from collapsing. How do you get out of this? On the one hand, you don’t want prices to collapse.

Pereira: Somebody has to take a haircut. Somebody has to realise it now and not wait three years to do it.

Ho: Perhaps when Danaharta was set up, it was still a crisis and they wanted to prop the market to where it is. Now that the economy is recovering, is it time for Danaharta to change its strategy?

Pereira: It needs to change the mindset, it will take time. By then, you’ll already have problems. They don’t change with the flow.

Suleiman: People buy yield now. In a boom, you buy on future capital gains, so yield does not follow. Rentals are now very low, so prices must come down. Then you’ll have the shake-out.

Liew: Putrajaya will affect the market but, to what extent, I don’t know. We (SP Setia) are involved in Putrajaya. Some of the government departments moving to Putrajaya occupy commercial buildings like Plaza Damansara. There would be a slight distortion but Putrajaya is fully aware of the implication. That is why the plan has been changed from 10 years to 20.

Radzuan: Perhaps the government can slow down a little bit on the shift. Give some breathing space.

Suleiman: If the government can absorb the vacant space or turn them into colleges or other institutions, then the effect will not be that serious.

Ho: What are the chances of the government doing that? Some of its properties are prime.

Suleiman: They could sell them.

Pereira: That’s a good idea. Then you get good developers going in because the buildings are in prime locations. They (the developers) will take the risk.

Ho: Won’t this increase the supply?

Pereira: Not if they are converted for residential purposes.

Liew: The government is fully aware of the problem, so they are taking steps to ensure they don’t disturb market equilibrium.

Ho: Coming back to Danaharta, it obviously plays a crucial role. It has to decide how to release the foreclosed properties to the market and at what price. There are so many properties involved. How does Danaharta get good prices without distorting the market?

Liew: Like in all businesses, there are no fixed rules on how to find that equilibrium. I think they must try something, and if that doesn’t work, they must change. If they are fearful and do nothing, then it is worse than not trying.

Pereira: Take, for instance, the nice and prominent but uncompleted Cygal building next to the Pantai area in KL. It is now under Danaharta. We tried to do a deal at RM280 psf but they want RM400 psf. At RM280 psf, it would be a good deal.

Suleiman: There are many uncompleted buildings in Danaharta’s portfolio of foreclosed properties. That’s the problem. If they are completed, then it is easier to unload. Because the buildings are uncompleted, it means that somebody who takes it over has to put in more money to complete it. So, the price has to be right. Rather than just unload the buildings, Danaharta can go into a joint venture with the private sector.

Pereira: Danaharta doesn’t want to take a haircut.

Ho: It sits on paper and is cash-rich. So, it holds on to the asset and waits for the market to recover before selling. Should that be its role?

Liew: It’s very simple. Say, the cost of completing a building is RM100 million. The guy risks completing it must be paid back in square footage based on today’s market price. He can sell the balance at RM400 or RM450 psf — that is his trouble. That is a good deal. But Danaharta is not doing that.

Pereira: They should be able to do deals. Have representatives work out the details. Now they tell you, “We have a property department to check on property, we have a valuation department to check on valuation.” By the time they come back to you in six months, I don’t want to do the deal because the market has changed.

Ho: Is Danaharta bound by certain practices?

Pereira: Basically, they can do deals. If the borrower says he’s prepared to do the deal, it is on.

Liew: Their fear is transparency. They must be seen to be fair. Do a trial-and-error to find a solution. I wonder what Danaharta is going to do with unsold properties. If new buildings were to be built, the overhang would be pushed up. You have to clear the oversupply right now.

On the retail front
Ho: The same factors and problems that we discussed about office space, the FIC and Danaharta apply to retail properties as well. According to the government’s latest Property Market Report, a quarter of the country’s 55 million sq ft of retail space last year was in KL, which registered a negative pick-up rate during the year. Another 8.8 million sq ft is under construction in KL. Even with 5.0 to 6.0 per cent economic growth, it will take years to absorb the supply. Yet, new supply is looming.

Suleiman: The building of shopping centres in Malaysia was quite massive and a lot of them are in the Klang Valley, which has a population of about four million. People building shopping centres in KL and its suburbs like PJ do not look at their catchment, unlike the practice in the US. What happens in KL is that everybody targets the same market. Everybody says, “I am the only one.” So, there is overlapping and definitely there are a lot of shopping centres.
The shopping-centre market is slightly different from that of office space. Office space is a function of business activity. For shopping centres, there is light at the end of the tunnel because they are related to the retail business. The health of retail business is linked to consumer confidence and consumer confidence has risen, as indicated in the MIER (Malaysian Institute of Economic Research) consumer confidence index. According to the statistics from the retailers’ association, sales mainly in departmental stores have also surged.
Despite the glut, I was pretty surprised that Mid Valley (Mega Mall), which was marketed during the recession, has quite a good tenancy mix. The space is leased out, not sold. Which means that in the shopping centre business, finally you have to look at location, location, location. Sometimes people forget and they think it is okay to build shopping centres, or for that matter, office space, anywhere they like. Those in good locations do well — KLCC, Bukit Bintang and Mid Valley were right about their catchment areas. Although rentals dropped, those in certain shopping centres went up a little.
Shopping centres with good management, location and retail mix will survive the shake-up. Those who built blindly, without any care for location, are developers out to sell the retail space. These centres are those that will go down. Retail is also a function of disposable income — people have more income when the stock market rises. Buying at shopping centres is not planned. It is impulse buying. When you have money, you buy. The F&B (food and beverage) is doing very well. It is a new fad now. Shopping centres are designating their lower floors for F&B. From that point of view, there is light at the end of the tunnel.

Ho: So, you are optimistic?

Suleiman: Of the three sub-sectors in commercial properties, shopping centres have a brighter future than office space and hotels. Those that do well are those with proper planning, where the space is not sold — like KLCC, which has very good management. I don’t mind paying higher rental there.

Radzuan: Do you see a migration of shoppers from one shopping centre to another? Take the case of the Ampang shopping centre and KLCC. If a migration occurs, perhaps those who want to go for a three-star centre can go to Ampang which caters to a different clientele. Just like hotels. Existing shopping centres which are now at a disadvantage can find their own market — purpose shopping. They will have to do their own market positioning. I think that would be a natural thing to happen.

Suleiman: Those in the suburbs have a good chance because they have a neighbourhood. I know one or two shopping centres which became schools. Provided there are no new starts, the excess can be absorbed.