|
Growth Areas
Let the FIC go
Crux of housing
Last Update:
10 May, 2000
| |
My Space
‘Let the FIC go, OK?’By
Kumar Tharmalingam |
The Edge Property Roundtable 2000
was well-represented by the leading lights of the property world. Among the topics
discussed were the difference in the recovery rate of the various property sectors and
Danaharta’s role in relation to the industry.
Comments on Danaharta and Danamodal were based primarily on perception and the information
gleaned from interviews by their respective chief executives. As we all know, both
Danamodal and Danaharta did not exist three years ago, yet as at last December, Danamodal
had injected RM7.59 billion into 10 banks.
Danaharta has absorbed non-performing loans (NPLs) from 68 institutions totalling RM45.5
billion. It will take on an additional RM8 billion of NPLs in the second quarter, making
it RM53.5 billion. But Danaharta has already started restructuring the NPLs and is in the
process of settling RM17.6 billion ringgit (see chart).
Throughout the region, there is a resurgence of business activity as former economic
tigers pull back from the brink. Singapore was probably the only country spared total
economic devastation but Malaysia survived without the traumatic upheaval that roiled in
other Asean countries. In the last quarter of last year, the Asean region saw a recovery
in the property sectors that was led by the stock markets’ discovery (two years late)
of the benefits of funding Western and homegrown Internet and information technology
companies. These are multiplying at a rapid pace throughout the region, raising hopes of
renewed commercial real-estate activity.
Since January, the Malaysian stock market has re-rated stocks that have dot.com privileges
to new heights. It has, once again, shown that fundamentals and current price earning
ratios mean nothing when the market feeds on the belief that these companies, like their
US counterparts, will provide paranormal capital returns and grow like weeds.
The perceived impact on real estate can be substantial. Traditionally, stock market gains
are ploughed into real estate, especially landed property, and if the number of property
launches for the month of February and March is any guide, property developers feel the
same way, too. Real estate values thrive on three fundamentals — a strong economy
forecast of higher incomes, low interest rates and the fear of escalating property prices
forcing investors to invest now than later. The reverse happens on high interest rates and
low economic activity.
Enough has been said about the state of the residential market and the property
information data to be released by the Ministry of Finance under NAPIC (National Property
Information Centre) this month should give a clearer picture.
The property roundtable was also concerned about new housing starts this year. More
worrying is the incremental rise in the capital value of new launches in the second and
third phases of a residential project on what is essentially the same product of the same
size with contracts already awarded for construction. This means that capital values are
increasing without any real value being added to the product.
The commercial sector was discussed at length and it was unanimous that oversupply still
remains the main bugbear. One would think that banks would be reluctant to lend to
property developers who want to build new commercial properties such as offices and hotels
but developers who still see themselves as trailblazers, especially government-linked
corporations, have reclassified their loan requests from construction to manufacturing or
working capital. Full marks for their inventiveness.
The real state of the negative value in our market was highlighted in a recent report
where the Chief Minister of Melaka said that in 1998, the property sector suffered losses
totalling RM39.25 billion or 14 per cent of gross domestic product (GDP). How did this
figure arise? Working backwards from different printed reports, we have the following
scenario. The average discount to Danaharta on NPLs was 56 per cent. Danaharta has, as at
last December, acquired RM45.5 billion of debt. If that represents 44 per cent of the
total NPLs acquired, then the total NPLs in the system would have to be double that
figure. If that is so, about 50 per cent of the loan portfolio of the 68 financial
institutions affected have been written off.
But as at last December, Danaharta has recovered 80.2 per cent of the first RM17.61
billion it restructured. It recovered RM14.123 billion, thereby incurring a loss of
RM3.486 billion. It has further NPLs of RM8 billion to acquire in the second quarter, and
a put option by Bumiputra Commerce Bhd (BCB) for some more NPLs from the old Bumiputra
Bank portfolio for up to 24 months. It’s tough to do your arithmetic when you get
different numbers thrown at you at different times. The above arithmetic could be too
simplistic and may not cover the whole picture but whatever the figure, the loss to the
nation is simply enormous.
The point to make here is that in all probability, what was done needed to be done to
prevent the total collapse of our financial system and to save us from the trauma suffered
by our neighbours. But the real trauma is to deny market forces and foreign direct
investment to help our system hasten the recovery of the commercial sector, which
seriously lags behind the residential sector.
We have an overbuilt situation in shophouses and all commercial real estate. Take a drive
to the south to Putrajaya or Port Klang or to the north to KLIA (Kuala Lumpur
International Airport) and you can see acres of completed shopoffices — empty and
forlorn. The developers have sold them and gone home and the owners who bought them now
have no tenants but monthly bank loans to pay.
Of course, these purchasers deserve to pay for their rush to purchase at the peak without
considering the fundamentals but could we find a solution for Malaysians? Yes, we can. The
market for commercial property needs to be without any restrictions. For example, on Feb
24, it was reported that the Foreign Investment Committee (FIC) had rejected the Lion
Group’s sale of 50 per cent of its equity in its corporate headquarters to Citicorp
(subsequently approved). The deal valued at RM200 million could have led to other deals
and filled our empty offices: Citicorp, as one of the top banks in the world, would have
brokered other deals.
The message we send to the world from this rejection and the earlier Pernas International
building sale (subsequently allowed though there were no foreigners there) is that we do
not care for foreign direct investment. When foreigners want to buy, we fuss over the
petty details. Yet, in other countries, foreign investment does boost local sentiment.
And remember that property, unlike ownership of companies, cannot be taken away. The
Property Market Report 1999 said that the property overhang as at last December was RM29
billion, which is only US$7.6 billion. Bill Gates alone is worth nine times that. Of
course, clear guidelines to protect Malaysian interests are necessary. But they should
relate to landed residential property, agriculture and heritage buildings only.
Think about it. Imagine what a vibrant foreign investment presence in our corporate world
could do. The fallout benefits are immediate. Increased business tourism will benefit the
Kuala lumpur International Airport as business tourists spend more money in everything
from entertainment to holidays. If new foreign retail chain operators like Wal Mart or
Amazon.com can operate freely here, they will promote Malaysia all over the world. They
will fill our industrial property with goods in transit and Malaysia, which has the
cheapest cargo rates for air and sea, could be a transit warehouse for all of Southeast
Asia. Business to business e-commerce will help the ports, KLIA and industrial warehouses
at all entry points. And Malaysians will take a chunk of the RM160 billion trade and
services that flows through Singapore and Malaysia every year.
Add to that, hotel investors who want to buy our glut of hotels (again with the cheapest
rates in the world) will add to the tourist flow as their Web sites promote our country.
Malaysians can then open up all those empty shops to cater to the new tourist arrivals.
The cash benefits are mind-boggling and yet so easy to do.
Finally, real estate development provides people with space for occupation. Do you really
care who occupies them as long as the rent is paid and the money stays here in the hands
of Malaysians? If foreigners want to buy commercial real estate, let them. If the prices
escalate, open and approve more land. We do it anyway, with or without the foreign
interest. With Putrajaya and Cyberjaya seeking to develop 50,000 acres on the fast track,
without foreign direct investment, we cannot hope to create wealth in the short term and
put our nation on the world map. That’s why while the pundits say we have a feel-good
economy, a lot of others with empty commercial investments feel bad.
Can someone stand up and say, “Let the FIC go, OK?”
Kumar Tharmalingam is deputy president of Fiabci (The international Real Estate
Federation) Malaysian Chapter
2000. All rights reserved. The Edge Communications Sdn
Bhd |
|
