Bank Negara is studying the risks arising from DIBS with a view of potentially imposing curbs on it

PETALING JAYA: Bank Negara is studying the risks arising from the developer interest-bearing scheme (DIBS) with a view of potentially imposing curbs on it, sources said.

Although it is unclear if or when such curbs would be put in place, Hong Leong Investment Bank (HLIB) said that it may be “later this week”, adding that such a move would be a negative for future sales in the primary property market.

Other industry players think that the measures might be introduced in the second half of the year.

DIBS has become a popular easy financing package offered by property developers in joint-promotion activities with banks in recent years.

Under the scheme, buyers need not fork out much initial downpayment to buy properties, as the developer supposedly absorbs the initial interest. This is until the buyer takes possession of the property.

A high number of buyers enter this scheme with the intention of flipping the property when they gain possession of it, making a profit without having to come up with much capital in the process. Such a scenario fuels speculation.

“Typically, under the scheme, buyers only foot between 5% and 10% of the house price upon signing the sale and purchase (S&P) agreement and only begin payment when the project is completed,” a property consultant told StarBiz.

“There are caveats to this scheme, as buyers commit to a financial obligation upon the signing of the S&P and the interest cost has actually been already passed on to buyers via the higher selling prices.”

DIBS is mainly offered to the high-rise residential segment. Some property consultants have opined that the presence of DIBS in the market has caused prices to be set on an artificially higher trajectory.

Notably, the Singapore government banned DIBS in 2009.

“While the exact measures are yet to be revealed, we believe the curbs would impact this easy financing scheme,” HLIB said in a note yesterday.

According to analysts, most of the sales in the recent property bull cycle were tied to the attractive DIBS scheme at the expense of the secondary property market which has remained sluggish. And given the persistent rise in household debt, the Government is mulling over measures to limit it.

“In the recent past, Bank Negara has been compiling information on the scheme and studying its impact on the sector,” a source said.

Bank Negara had yet to respond to StarBiz’s queries as at press time.

“The difference between the non-DIBS and DIBS pricing can range from as low as 5% to as high as 30% if other incentives like early-bird discounts, stamp duty waivers and cash payments are taken into account,” said Elvin Fernandez, managing director of Khong & Jaafar group of companies.

He advocates regulators to compel developers to be transparent on the various incentives, as it may be difficult to do away with DIBS packages.

“Developers should inform buyers and bankers of the actual value of the discounts they are getting so that house buyers know the true value of the house they are buying,” he said.

UOB Kay Hian Research noted that new launches in selective high-rise projects in the suburbs of the Klang Valley were transacted at over RM1,000 per sq ft (psf) vis-a-vis RM450 psf two years ago.

“Household debt has risen to 80.5% of nominal gross domestic product as at end-December 2012, up from 60.4% as at end-2008.

“We also note that outstanding banking sector loans in the household sector has risen 3.6% year-to-date as at end-April to RM638.5bil from RM616.5bil as at December 2012. As the rise in consumer credit is partly linked to housing, curbs may be introduced to dampen speculation,” UOB Kay Hian said in a report yesterday.

On the financial impact of curbing DIBS on property companies, HLIB said that it would be “negative for future sales in the primary market but the extent of damage varies with the degree of exposure to the high-rise segment for each individual developer”.

UOB Kay Hian reckons that if DIBS or similar schemes were to be tightened, it could “significantly dampen new property launches as speculators will be filtered out”.

The company also does not rule out the possibility of a further upward revision in real properties gains tax (RPGT) to dampen speculation.

In Budget 2013, the Government had raised the RPGT for the second time since 2011, stipulating a 10% to 15% tax for the disposal of properties within two years of purchase, and 5% to 10% for the disposal of properties within three to five years. However, properties sold five years after purchase are exempted from the RPGT.

Source The Star, 25 June 2013

EPF development of RRI land should be an affordable housing project. Here’s why

Corporate Notes by Gurmeet Kaur

WHILE we wait with bated breath on how the Employees Provident Fund (EPF) is going to develop the Rubber Research Institute (RRI) land in Sungai Buloh, here is a wish – that the whole project be turned into an affordable housing project. Here’s why.

At 942.92ha, the RRI land development is the city’s largest suburban property project. Using a high plot ratio and if the units are priced at, say, RM400,000 and below, this would be a huge help to the young urban crowd who are looking to buy their first property.

We all know the difficulty that just about every wage earner is facing in the Klang Valley – the ability to afford a decent home.

File photo of Rubber Research Institute grounds in Sungai Buloh, before it was sold to EPF.

Migration to urban centres coupled with the fast growth of the population has created a big demand for houses in and around major cities, especially in the Klang Valley. But at the same time, private property developers have shifted their focus to high-end housing, obviously attracted by the higher margins.

This has left a big gap in the middle-income housing supply. It is estimated that the middle-income sector makes up half of the country’s population. So, a solution to their housing woes would surely go a long way in tackling the affordable housing problem in the country.

To be fair, there are already initiatives by a few agencies under the Federal and state governments implementing affordable housing schemes. They include Syarikat Perumahan Negara Bhd, Projek Perumahan Rakyat 1Malaysia and Government-linked housing developers like Sime Darby Property.

But given the sheer size of the RRI land bank, the supply of units that would come from its development would be massive and could easily serve much more than the 15,000 population target that the EPF is envisaging.

So, rather than trying to figure out complex joint ventures with high-end developers, the EPF should just tender out construction works for building affordable homes after a solid development plan has been put together by the experts.

The EPF can take a leaf out of the books of countries like Japan, which have good planners for this type of high-rise affordable homes.

No doubt, quality planning is important so that the development does not end up like one of those terrible places where developers’ shoddy planning and greed have created almost “ghetto-like” enclaves in creating their version of affordable housing.

With a 7.5-km green park of 64ha being the highlight of the RRI development, the township could be the model of an affordable housing project.

What makes the RRI land more suitable is the fact that it is going to be an MRT hub. So imagine all the thousands of families living there and using the MRT to work. Wouldn’t that be great to reduce congestion in the city?

File photo of progressed earthworks in preparation for the MRT depot at Sungai Buloh.

But then again, why should the EPF do it?

If the EPF does take this approach, would it mean that it is going to be losing money on this project? After all, the EPF’s subsidiary Kwasa Land Sdn Bhd – the project’s master developer – paid a high sum of RM22.50 per sq ft or RM2.3bil for the land in RRI from the Malaysian Rubber Board.

Still, with this land cost, one can make a decent return on the investment if the development is done in a prudent and efficient way. There are many options available to EPF to ensure that it gets a decent return and yet build the massive number of homes at affordable prices. For example, the commercial development aspects of the project could cross-subsidise the affordable aspect of the project.

So, the EPF should not miss out on this opportunity to have a huge positive impact on one of the most nagging problems among us KLites.

Source The Star, June 27, 2013

KLCC Property seeks anchor tenant an undeveloped land near KL City Centre

KUALA LUMPUR: KLCC Property Holdings Bhd (KLCCP) is in talks with several parties to secure an anchor tenant for Lot D1 by the end of the year.

Group chief executive officer Datuk Hashim Wahir said the group was “working hard” to achieve its goal. He, however, declined to provide details on the potential tenant.

“At the moment, we are targeting to secure the anchor tenant, and if we can get the final investment decision by the end of the year, then it would take approximately four years to complete the development,” he said after the group’s AGM.

It had been earlier reported that KLCCP preferred multinationals as the anchor tenant of Lot D1, and that the KLCCP Stapled Group was capable of developing projects similar to Menara 3 Petronas.

Lot D1 is an undeveloped parcel of land located in the vicinity of the Kuala Lumpur City Centre, with about 1.4 million sq ft of gross floor area. It is located in between One KL condominium and Mandarin Oriental Hotel, and is currently occupied by a temporary structure.

Hashim said the group was aiming for a 6% to 8% growth in its operating profit for financial year 2013 on the back of its completed corporate exercise of becoming a stapled securities as well as from a higher income contribution from its office segment.

“We are expecting a revenue contribution of more than 50% from the office segment in financial year 2013 from 44% in the last financial year,” he disclosed.

The growth would come from the group’s recent acquisition of the remaining 49.5% shares in Midciti Resources Sdn Bhd, the owner of Petronas Twin Towers, from KLCC Holdings Bhd.

Despite the impending high supply of office space in the market, Hashim said the impact on the group would not be significant, underpinned by high occupancy rates for its commercial properties by “credible companies” and long-term tenancies.

“Our recent launch Menara 3 Petronas’ 95% occupancy rate, the 100% occupancy of Menara Dayabumi, and ExxonMobil are here to stay,” he added.

He is optimistic that both office and retail segments would experience robust growth for the long term, as currently both segments contribute some 80% to its revenue.

However, it would be a challenging time for its hotel segment, as the market is getting more challenging with more hotels sprouting up around the area.

“The supply must be in tandem with the demand. Hence, we are working with the Tourism Ministry and Kuala Lumpur City Hall to attract more tourists into the country,” Hashim said.

He also noted that the group was always open to assets that fit its profile.

Source The Star, 27 June 2013