Buying Penang properties? Affordability means RM600 – RM700psf.

September 21st, 2014 No comments

by Charles Tan

A close friend asked me recently what’s the price that I would be willing to sell my condo in Tanjung Tokong. I said, RM700k. She laughed and said, my husband said that’s impossible. I laughed and said, it is ok. In fact at the price I wanted to sell, I was only looking to sell it at RM610 – RM630 psf.

Surely that is not something too high in Penang island. Furthermore, every condo in the neighbourhood are already above RM630 per sf despite giving just one car park. My unit comes with 2 car parks even if front and back. Nearby, E&O’s project was already selling at RM1,300 psf or higher. Just wanted to remind her that it is impossible for the whole Tanjung Tokong to rise in price but not my condo. The most recent offer came in at RM620K just two weeks ago which I told the buyer not to worry. Surely for RM620K he/she can get a decent unit, as long as he is ok with one car park and below 1,000sf. Then, today, I read the news from SP Setia in The Star.

Reported in The Star on 30 July 2014, SP Setia’s General Manager, Khoo Teck Chong said that over the next five years, SP Setia would be building more varieties of affordable housing that are able to cater to Penangite’ income level. This is because for the past few years, majority of all properties in Penang island has grown out of proportion in comparison to salary. Besides that, due to the stringent loan policies, it is getting tougher to sell high-end properties. He said that in the south-west district of the island, SP Setia would be developing properties prices from RM600 – RM700 psf range. The upcoming one would be Sky Vista at about RM600 psf. In SP Setia’s own survey, it was shown that properties priced between RM600 per sf and RM700 per sf are deemend to be affordable and thus are in demand by Penangites.

Personally, I rate South-West which is Balik Pulau as below Tanjung Tokong today. That’s why in terms of pricing, it should not be priced too high. RM600 per sf is a price which only more established developers like SP Setia would dare to price. However, if you ask me if I have just two choices today, where would I buy, it would be Balik Pulau and not Tanjung Tokong. Reason being, majority of all the working professionals would be on this side of the island instead of Tanjung Tokong. Of course, if you are a Penangite, then the choice is obvious. Penangites have their special preference for areas and always consider areas like Sungai Ara or even Relau as secondary instead of main areas. I guess it is ok. This is the reason why properties everywhere within the island has seen more than doubling of price within past few years.

>> This opinion article comes courtesy of Charles, the founder of He is popular for sharing his thought on property investment mostly based on his own 11 years experience as well as from all the readings and conversations with property gurus in the industry. (Source)

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Why developer interest-bearing schemes should be banned

September 20th, 2014 5 comments

The Developer Interest-Bearing Scheme (DIBS) is marketed in such a way whereby the house buyers pay a small down payment during the signing of the sale and purchase agreement (SPA).

The developer will bear the interest due during the project construction period until the handing over of vacant possession where the house buyer will have to come up with the remaining payment.

Developers are fond of the DIBS because it is a smart marketing tool which can be used to entice potential house buyers into believing that they have found a good financing deal, especially those who do not know the implications or read the fine print of the terms of the agreement in the event of project abandonment.

Under the Built-Then-Sell (BTS) 10:90 concept, the law has been amended and is found in Form I (for landed properties) and Form J (for strata properties)  of the Housing Development (Control and Licensing) Regulations, 1989 (amended 2007). It has been in operation since Dec 1, 2007.

Spot the differences

Some developers have even equated DIBS as being the same with BTS 10:90. However, this is not true. If DIBS are not the same as BTS10-90, what then is the difference? Simple.

i) BTS 10:90 uses either Form I or Form J found in the HD Regulations. The BTS 10:90 is the financial model announced by the previous Housing Minister 2012 for financing housing projects come 2015. Under BTS 10:90, should the developer fail to complete the project as promised, the house buyer only faces trouble with the 10% deposit, which he/she may try to recover through the existing legal mechanisms.

ii) DIBS, on the other hand, are a “willing seller-willing buyer” SPA cunningly crafted by developers and are in contradiction with the current housing legislation. Under the DIBS, the house buyer has agreed to be responsible to the banks/financial institutions for the loans signed under the SPA whether the houses are delivered or not. This is the moral hazard the Government is trying to prevent the house buyers from getting into.

Developers, being entrepreneurs, have to be responsible and bear the risks that come with investment. They should not be allowed to enjoy profits at the expense of house buyers who have to bear the risks on their behalf.

Thus, when developers claim that the schemes are good because they “assist new purchasers”, they should be asked to use the BTS 10:90 instead if they are sincere in not wanting to shift the risks to the house buyers. Developers being profit-driven, merely want to sell their products by whatever means, even recommend the DIBS for “first time house buyers” on the guise of “assisting them”.

Are we saying that the Minister of Housing can’t spot the differences? If the Ministry of Housing promotes such DIBS schemes, then surely it must be the developers’ ideal marketing tool.

Interest element factored into DIBS “schemed” properties

DIBS properties are also priced much higher than non-DIBS properties as there is “no free lunch” as the saying goes. Whenever a developer says that expenses such as “interest during construction”, legal fees and/or stamp duty are absorbed by the developer, ultimately the cost of such “freebies” or “rebates” as they are called will be added back and factored to the purchase price of the property.

Based on past samples of comparison between DIBS properties and non-DIBS properties (see chart), the price difference is 10% to 20% and some even as high as up to 25%.

That would mean that if a property was proposed to be launched at RM500,000 and if the developer were to offer DIBS, the developer would be pricing the said property at RM600,000 to cover for so-called “interest cost during construction (say three years)” that the developer is absorbing.

This artificially inflates property price which has a push effect on:

  • Prices of subsequent new launches as future launches must be priced much higher than RM600,000, probably closer to RM700,000, thus making subsequent new properties more unaffordable.
  • Prices of existing properties can also increase overnight by up to RM100,000, thus making existing properties also more unaffordable.

Property prices also have a spillover effect and can push up prices properties in surrounding locations. Properties launched in Mont’ Kiara will immediately push up prices in surrounding locations including Kepong and Segambut which will eventually affect the cost of properties in Cheras, Kajang and Semenyih too.

High level

Once prices of properties have reached an artificially high level, it is very difficult to bring them down again without adversely affecting the owners and banking institutions. What we can do is to slow down the steep escalation of house prices due to excessive speculation and other artificially inflated pricing methodology such as the DIBS.

The DIBS also encourages syndicated speculators to enter the scene. Basically through DIBS, speculators can enter the market with very small capital outlays. In brief the following occurs:

Speculators approach developers to offer bulk purchases or developers offer syndicated speculators bulk sales with “seemingly attractive discounts.”

I stress on the words “seemingly attractive” discounts because in reality, the selling price is already being marked up. From this marked-up price, a discount/rebate is given by way of a credit note.

This credit note is then converted and deemed to be deposit/down payment paid by the speculator buyer.

Thus one can see that one can buy a property with near zero upfront payment. This scheme may not work without the collaborations of valuers and banks. Sometimes bogus sales based on inflated prices are executed to set elevated benchmarks so that valuers can justify the inflated values based on the price that was last transacted. Thus, it can be seen that houses prices are pushed up on two counts.

Firstly, developers have to factor in the interests that they have undertaken to pay on behalf of the buyers, secondly they do so to offset the rebate/ discounts that they have built into such schemes.

Banks traditionally base the quantum of loan against the valuers’ report. Being loan disbursements target-orientated, they pay scant attention to the actual values of properties that their clients have purchased.

Laughing to the bank

The chief beneficiaries of the DIBS are the developers – they can flock off their products quickly and the banks/financial institutions – they can give out higher loans to achieve their monthly target.

DIBS – dubious scheme

DIBS or any other permutation similarly “schemed” cannot be allowed to continue for the betterment of the housing industry as it risks creating a property bubble as the property prices have been artificially increased and they create a snowball effect. As property prices get more unaffordable, the younger generation cannot afford to own their own properties, social problems can also arise.

DIBS prohibition announced in Budget 2014 had been effective in curbing the unbridled escalation of house prices. DIBS must continue to be prohibited and outlawed. Do not allow first time house buyers to be deceived.

Imagine, these young adults are just entering the work force and these burdensome loans (with DIBS factored in) comes with a financial commitment to service a debt. The young people must diligently pay monthly instalments to the banks they are committed to.

They may be sued by the banks for breach of contract or non-performance or risk their home being foreclosed should they default in any of the periodical instalments. Do you want our young adults to be enslaved by the banks and financial institutions?

From another perpective, an undesirable household economic situation is created when a large proportion of household income is taken up to service a housing loan. Responsible individuals are compelled to ensure that they do not default on their loans. Malaysian household debts are already among the highest in the world. All these enticements will only worsen the situation.

Many households may fall victim to temptation and may overstretch themselves financially and eventually get into the “camel’s back” situation. It also creates an unbalanced economic situation in the country whereby in order to service the housing loans, families will drastically cut back on other expenses such as entertainment, holidays, clothing, education, etc.

In sum, families’ are compelled to lower the quality of life, all for the servicing of housing loans! Consequently, the other sector of the economy such as the entertainment, travel, food and beverage and garments will end up picking up the crumbs.

>> Chang Kim Loong AMN is the secretary-general of the National House Buyers Association, a non-profit, non-governmental organisation manned purely by volunteers.


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The Ultimate Business Centre & Condominium

September 19th, 2014 2 comments

Another upcoming mixed development scheme along Jalan Baru in Prai, Penang. The development has three phases, the first comes with 8 units of 3-storey semi-detached showroom/shop offices while the second is a 25-storey residential tower with 149 condominium units. It is located immediately opposite the newly completed Frontage by UDA Land, next to Petron petrol station.

  • Phase 1 - 8 units of 3-storey semi-detached showroom cum shop offices
  • Phase 2 – 25-storey residential tower with 149 condominium units
  • Phase 3 – 12-storey hotel with 183 rooms.

More details and photos to be available upon project launch.

Project Name : (Pending approval)
Location : Jalan Baru, Prai, Penang
Property Type : Mixed Development
Tenure : Freehold
Total Units : 8 (shop offices), 149 (condo)
Developer : Aroma Development
Developer Contact : 012-938 9362 / 012-448 1117

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Affordable Housing Roadshow – Bayan Baru (20 Sept)

September 17th, 2014 No comments

In collaboration with state housing department, a new “Affordable Housing” section has been added to this website to bring further awareness to the affordable housing projects in Penang. You can now find out more about the latest affordable housing projects as well as its location. There are also some basic guidelines that can help you to determine your eligibility.

As of Aug 23, the state housing department has received more than 51K applications, but only 3,257 applied for affordable units (RM200,000 – RM400,000). The number of affordable unit applicants is relatively low comparing the number of units that are going to be built in the next 5 years.

>> Apply For Affordable Housing <<

Please note that the purchase of affordable housing (both government & private developer projects) MUST be applied through state housing department. All applications for affordable housing will be vetted by the eight-member panel in the Selection Process Enhancement Committee (SPEC) in accordance to the criteria set for low-cost, low-medium cost and affordable housing units. There is no shortcut to affordable housing other than going through the balloting process, subject to oversight by an independent auditing firm to increase the transparency in the system and to ensure more efficient allocation.

If you are available this weekend (20 Sept), officers from the state housing department together with PDC will be going to Giant Hypermarket in Bayan Baru for the ‘Mission: Home-Possible’ road-show, to showcase affordable housing projects, as well as assisting potential buyer to submit their completed application forms.

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Tambun Indah buys land worth RM150mil in Penang

September 16th, 2014 11 comments

Tambun Indah Land Bhd’s wholly-owned subsidiary, Palmington Sdn Bhd, has proposed to acquire 27 parcels of freehold land in Penang worth RM150 million from TPPT Sdn Bhd.

In a filing to Bursa Malaysia, Tambun Indah said the purchase of the land totalling 84.8 hectares would be satisfied by cash.

It said the proposed acquisition is in line with Tambun Indah’s strategy to expand its land bank in locations with growth potential and strengthen its foothold in the property market in mainland Penang.

Going forward, the group expects prospects for the property market in Penang to remain positive and the proposed acquisition to enhance the overall viability as well as value of the Pearl City flagship township and its vicinity.– Bernama

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