What is the best hedge against inflation?

`   

Then there are newer and more interesting physical and luxury items that isn’t part of the financial markets which appeared to hold the value very well. Minted limited edition Lego sets, select Hermes and Chanel handbags as well as tier-one luxury watch brands such as Patek Philippe, Audemars Piguet and Rolex are such examples.

The challenge is finding a suitable asset class that is palatable to one’s risk tolerance, investment horizon and financial capability. This is why there are many varieties of asset classes in the financial markets that serve different purposes.
`
` IF you have savings of RM100,000 or Rm1mil, how would you utilise this amount of money to preserve your wealth?
`
` It is a legitimate question but increasingly pressing as globally, countries around the world are facing inflationary pressure due to the effects of loose monetary policies for the past two years.
`
` While not everyone is passionate about the financial markets or macroeconomics, most would be concern if they were to know the value of their money or hard-earned savings are increasingly eroded daily through no fault of theirs.
`
` The common method adopted by most would be to assess how much ringgit is worth against foreign currencies like US dollar, Singapore dollar, British pound and the likes. Another would be the actual purchasing power of your money. Combining both, it becomes the formula of purchasing power parity.
`
` I have written an article in this column last year using the Big Mac Index to illustrate inflationary effects. Today, as inflation is already here, I prefer to dwell into how individuals can protect their savings from inflation itself.
`
` Some would argue, they live in solitary and would hardly be impacted even if the ringgit weakened substantially. However, even one who does not travel abroad and lives entirely within the domestic ecosystem cannot run away from the impact of inflation.
`
` As the world economy is a huge interlinked web, connected via global trades, inflationary pressure can be imported through the transaction of goods or the fact that our country has foreign debts. There is no absolute way of shielding in entirety.
`
` Ceiling price for necessities and list of controlled items are what government of the day do to ensure some level of protection for the citizens but if market forces react otherwise, government intervention in itself is not sufficient to push back. This is proven even in the strictest communist or socialist regime around the world, such as North Korea.
`
` The only way to hedge against inflation is to engage in some form of investment. In the past, real estate has always been recognised as one of the best asset classes to preserve wealth and hedge against inflation. This ageold wisdom has survived through thousands of years and civilisations.
`
` New asset class

` As the society evolves and modern economy takes shape, there is now the creation of new asset class which in the past either simply do not exist or wouldn’t make sense to invest substantially. The more common form of investments are the likes of bonds, gold, fixed deposits and equities.

` Then came mutual funds and index-linked funds. Exchange-traded funds in recent years became wildly popular, especially when active investment returns did not provide the same kind of returns it once did.

` This gained traction for those who are mostly passive investors or do not have the time to do individual stock picking. Yet, despite all the asset classes mentioned above, these are all considered relatively acceptable to most people.

` With the millennials and Gen-z being in the workforce, technology have taken centrestage in every part of our lives even when it comes to asset classes. Cryptocurrency, non-fungible tokens (NFTS) and digital assets have made its way into mainstream financial markets where investment banks, which traditionally scoffs at such assets, have now become a part of the frenzy.
`
` Advocates of cryptocurrency, for instance, goes as far as calling it a hedge against inflation or hedge against “fiat currency” or the “new gold”.
`
` Traditional asset classes highlighted above are seen as out-of-date by the new crop of investors, whoever they are and wherever they may come from. I do not wish to debate the utility and viability of cryptocurrency, NFTS or digital assets. However, the big question to me though is, what truly constitutes a hedge against inflation?
`
` For an asset class to constitute a hedge against inflation, the more fundamental aspect is for the asset class to consistently outperform annual inflationary pressure. For example, if the inflation rate is 4% per annum over 10 years, the asset class that one invest in must outperform 4% per annum consistently across the same period.
`
` This asset class will then effectively hedge and protect the value of your money over a substantial duration of time.
`
` The challenge is finding a suitable asset class that is palatable to one’s risk tolerance, investment horizon and financial capability. This is why there are many varieties of asset classes in the financial markets that serve different purposes.
`
` Bonds and gold are good for those with low-risk appetite but do not expect spectacular returns from these asset class. In fact, many have questioned whether bonds and gold can still preserve value although this has been proven in the past during wars and turbulent times.

 ` Luxury items
`
` Then there are newer and more interesting physical and luxury items that isn’t part of the financial markets which appeared to hold the value very well. Minted limited edition Lego sets, select Hermes and Chanel handbags as well as tier-one luxury watch brands such as Patek Philippe, Audemars Piguet and Rolex are such examples.
`
` An unopened Lego set delivers an average annual return of 11%. A Hermes Birkin has seen an average annual increase in price of 14% from 1980 to 2015. This is in comparison to the returns of gold at -2.1% and S&P 500 at 11.7% over the same period.
`
` For the Chanel Classic Medium Flap bag, the price has increased over the past 31 years, from US$1,150 (RM4,817) in 1990 to US$8,800 (RM36,858) in 2021. This gives an average annual return of 21.4% and a compound annual growth rate of 6.8% throughout the period.
`
` If we look at watches, the retail price of stainless steel sports watches have gone crazy in recent years. A Phillipe Patek Nautilus, which retailed at US$3,100 (RM12,985) in 1976 when it was first introduced, is retailing at today US$35,000 (RM146,485)
`
` What is more frightening is the secondary market or grey market pricing for these luxury goods due to the sheer difficulty of getting one at retail price.
`
` A standard Hermes Birkin sized 25 retails at around US$10,000 (RM41,885) but in the secondary market, it can fetch as high as US$25,000 (RM104,713). The Patek Nautilus in a grey market commands close to US$175,000 (RM733,000). The classic Rolex Submariner date steel, which retails at US$10,800 (RM45,236), commands a huge premium in the grey market at around US$20,000 (RM83,770).
`>
` Some may argue that these are the tactical strategy by the ultra-luxury brands to restrict supply and cause a demand shortage in order to drive up the price, making it a highly desirable product.

` However, the counter argument is the fact that these top range luxury brands are handcrafted and requires the hours to produce the finish product. The limited resources coupled with the need to ensure quality also limits supply.

` In the face of a rising affluent class and burgeoning upper-middle class globally, naturally these luxury brands become highly sought after. Once the second-hand market is able to preserve the value, it becomes a hedge against inflation.

` My biggest takeaway though is not which asset class would be the best hedge against inflation. Rather, even within each asset class, it requires homework, due diligence and careful selection in terms of investment to preserve wealth. Making the right decision to purchase or invest needs time and effort
`
` Not all that glitters are gold and in this case, selected steel watches may be worth more than a pure gold watch. So, choose the asset class that you can best understand and would be happy to hold over time in the face of inflation.

NG ZHU HANN Ng Zhu Hann is the author of “Once Upon A Time In Bursa”. He is a lawyer and former chief strategist of a Fortune 500 Corp. The views expressed here are the writer’s own.

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Policy normalisation can lend support to ringgit | The Star

https://www.thestar.com.my/business/business-news/2022/01/22/policy-normalisation-can-lend-support-to-ringgit

 

Consumer Price Index up in December | The Star

https://www.thestar.com.my/business/business-news/2022/01/22/consumer-price-index-up-in-december

 

 

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Generating sustainable retirement income

 

No such thing as ‘too big to fail’ in China

 

On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his keynote address where he criticised China’s regulators’ saying “outdated supervision” of financial regulation was stifling innovation and its global banking rules were like an “old people’s club.”

 

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PEOPLE who have invested heavily on China stocks in the past two years must be wondering when did it all start to go wrong? After all, China did celebrate the 100th anniversary of the Chinese Communist Party recently on July 1.

Usually on such momentous occasions, one would expect China’s government to prop up financial markets and show the world its economic strength. Ironically, most Chinese stock market indexes are down year to date giving up the strides made for the better half of the year as seen in table 1.

So, did it all start with Jack Ma? On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his keynote address where he criticised China’s regulators’ saying “outdated supervision” of financial regulation was stifling innovation and its global banking rules were like an “old people’s club.”

He called for change and said that Chinese banks had a “pawnshop mentality which affects many entrepreneurs.” Many suspected that this led to regulators scuttling Ant Group’s Us$37bil (Rm156mil) mega initial public offering (IPO) and the eventual three-month-long disappearance of Jack Ma.

Before Jack Ma, there was Dalian Wanda Group’s Wang Jianlin, once Asia’s richest man with a net worth of Us$46bil (Rm194bil).

He owned the largest cinema chain AMC (one of the popular Reddit meme stock in 2020/21) and had ambitions to overtake Disney but was hit hard when regulators embarked on capital controls to rein in capital outflow from China.

Businessmen who were taking on debts buying assets all over the world outside of China became a target.

When regulators flexed their muscles, Wang tried to avoid the same fate as HNA Group (one of China’s largest assets buyers which filed for bankruptcy) by immediately disposing foreign assets to comply. Wang then, was among one of the well-connected tycoons to Beijing’s political elites and at one point he was even bidding for the Bandar Malaysia project.

If we were to look back at history, Jack Ma or Wang Jianlin were definitely not the early precedents where China’s government had intervened in businesses.

During the Qing Dynasty, legendary “red-topped hat” businessman Hu Xueyan, the only merchant to be given a second ranked grade official position and control the economy with businesses ranging from banks, pawnshops, silk trade to daily essentials; met with a tragic end despite his fairytale-like rags to riches journey and contribution to the struggling nation then.

This raises the question, what causes the conflict between the China’s government and the business sector?

History have shown us that China is a country where public interests takes precedent over corporate profits.

There are no person or entities that are too big to fail.

This is a complete opposite to United States’s capitalist system. In addition, based on historical literature, the traditional social class structure of China dating back to the imperial periods, consist of four main categories; namely scholars, farmers, artisans and merchants.

Interestingly, merchants have always had the lowest standing in the social class structure.

In the case of Ant Group’s failed IPO, setting aside individual politics and ego, there were justifications for regulators to step in specifically on Ant Financial past lending practices at exorbitant rates.

It was able to bypass regulators’ scrutiny where a financial entity such as banks would otherwise be subjected to. This is rather similar to Malaysia where banks are subjected to regulatory supervision by Bank Negara, whereas money lending entities are subjected to supervision by Ministry of Housing & Local Government (KPKT), allowing it to charge interests as much as 18% per annum.

With regards to Didi Global Inc’s troubled Us$4.4bil (Rm18.6bil) IPO on the New York Stock Exchange (NYSE), the back story was Didi went ahead with its IPO, ignoring Cyberspace Administration of China’s (CAC) order to conduct a thorough examination of its network security. CAC was worried Didi’s massive data will fall into foreign hands due to greater public disclosure associated with a US listing. Clearly, in the interest of its shareholders, many of whom were foreign venture capital and private equity funds, Didi prioritised the listing over national interest.

In the latest regulatory clampdown on the private tutoring education sector, the Chinese government directed that companies in this space to operate as a social enterprise instead of a for profit model.

These new rules barred for-profit tutoring in core school subjects to ease financial pressures on families. The policy change further restricts foreign investment in the sector through merger and acquisition (M&A), franchises and others.

Historically, education is of paramount importance in Chinese’s culture. By doing this, China’s government is seeking to ensure affordable education to a majority of the people in expense of the profiteers.

From table 2, you can see how the best names in each sector have been impacted by China’s new regulatory framework changes in recent times.

Of course there are argument in terms of merits and weaknesses for each governance model. The US model spurs creativity and innovation but it also leads to wide inequality and disparity for the majority of the people. The Chinese model, whilst authoritarian and lacks transparency, does protect the welfare of the masses especially those who may fall through the cracks of society.

Neither one is perfect. It all comes down to different priorities. China have done very well eradicating poverty and lifting the people from hardcore poor to a burgeoning middle class society in the past twenty years.

No matter the propaganda painted in western media to shed China in a negative light, there is no denying that they have accomplished what many countries can only dream of – taking care of the majority of the people.

I am by no means a pro-china hawk as I have undergone western education my whole life. However, with my years of experience working with one of the largest Fortune 500 Corporation in China and being in the inner circle of decision-makers, I have learnt much about their fears, concerns and how they navigate the business, political and social spheres while building a fortune.

Every stock market has its nuances

There is a Chinese character “jing wei” when read together means respect and fear. This word aptly describes how China companies operate at all times.

If you are a Chinese company, wherever you may be, you will bend the knee if China’s government wants you to. It is not easy to be successful in China due to the intense competition. It is even harder to be successful and not attract government attention.

Many retailers often lament, “It is hard to make money from Bursa, better to invest in China and Hong Kong stocks.”

I think it is imperative to first understand that every stock market has its own nuances. Unless one has thorough understanding of the local investment climate, latest news flow and even culture, investing in overseas market is not as simple as just buying big brand names or familiar companies.

It is true that good companies in foreign stock markets is part of a bigger ocean with more opportunities and growth runway due to a larger addressable market.

Similarly there are bigger operators, syndicates or scandals lurking around the corner.

Who would have thought that a company like Luckin Coffee, listed on Nasdaq with a market cap of Us$12bil (Rm50.7bil), once the largest coffee chain in China and touted to be the biggest threat to Starbucks, would turn out to be a fraud?

Having said that, as a fundamentalist, I believe this regulation wave causing the sell down provides a great investment opportunity for these companies due to my belief in the long term prospect of China’s economy.

We must remember that very few people in the world are like Robert Kuok. Some have argued the reason for his success is his early entry into China. I beg to differ. I believe strongly his success in China is because he always placed the interests of China before his own corporate and personal interests.

So entrepreneurs who aspire to do well in China, may consider taking a leaf from Robert Kuok’s playbook and the easiest place to start, is to remove the “I” in the equation of things.

Hann Ng - Managing Partner - Hann Partnership | LinkedIn

NG ZHU HANN

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Why should investors get out of the stock market?

 

 

THE GLOCALISATION OF HUMANITY 

 

Why should investors get out of the stock market?

 

3 influential factors that can make or break your stock market investment

My sole intention for writing this piece is to prevent investors from losing more money in the stock market.

Allow me to tell you briefly my back ground so that you can accept my advice to ask you to cash out from the stock market.

Dato Yap Lim Sen, my collegemate and I were the original founders of Mudajaya, Gamuda, IJM, IGB, Rubberex, MBM Resources, major controlling shareholder of Perodua Cars.

I have been investing in the stock market for more than 50 years. This is the first time I have practically sold all my stocks holdings and cashed out.

When you buy a stock, you hope to gain from share price increase and also dividend yield. In Malaysia all listed companies give out very small dividend. On record, Public Bank gives out the best dividend yield of about 5% per year. So, unless the stock price goes up, investors cannot make money.

What pushes the share up?

Among all the stock selection criteria such as account balance sheet, cash flow, NTA, no debt or cash rich etc, profit growth prospect is the most powerful catalyst to push up share price. Never buy any stock that has no profit growth prospect.

Why investors must believe in price chart?

Price chart cannot lie because it is a record of the daily trading. Down trend means there are more sellers than buyers in most days. Never buy a down trending stock.

A stock price can only go up if the company has reported increased profit. But if it reports reduced profit, its share price would drop because there would be more smart sellers than stupid buyers.

In the last 6 months, almost all the listed share prices have been dropping as shown on the KLCI Chart below. Why?

 

There are 2 main reasons for the listed companies’ share prices to drop.

1 Covid 19 pandemic

Covid 19 pandemic frequent lockdown restricts people’s movement and all listed companies’ business operation. Workers cannot go to work and business activities are reduced. As a result, almost all listed companies cannot report increased profit in the next few quarters until Covid 19 pandemic is fully under control. Many medical experts predicted that the pandemic will not be under control for at least 1 or more years. That simply means our stock market will be depressed for at least 1 or more years. The above KLCI chart shows that it has been dropping for the last 6 months and it will continue to drop for another 1 or more years.

2 Political Uncertainty

Investors do not like political uncertainty. In the last general election about 2 years ago, Pakatan Harapan won the right to form the Government and Dr Mahathir became the Prime Minister. Within a couple of months, he resigned suddenly and Muhyiddin became the PM by the back door. Currently he is seriously terminally ill with cancer in KL Hospital. Apparently, he has pancreatic cancer.

Who will be the next PM?

As you know, Politicians make rules and regulations which often affect business operation and their balance sheets which is creating more difficulties in making investment decisions.

That is why many investors especially foreign institutional investors are constant net sellers and some of them have already left the stock market. 

Yesterday I posted my article namely “A safe strategy during the pandemic” in which I said the Covid 19 pandemic lockdown is affecting everybody’s movement. Workers cannot to go to work and all business operation will naturally slow down. Almost all the listed companies will not be able to report increased profit in the next few quarters until the Covid 19 pandemic is fully under control which will take at least 1 or more years.

For example:

All the steel products manufacturers have reported increased profit in their latest quarter due to the steel price increase. Currently, due to Covid 19 pandemic lockdown, workers cannot go to work to make steel products and construction workers also cannot go to work. Contractors will not require to buy steel products. As a result, all the steel products makers will report reduced profit in the next few quarters. Many smart investors already could foresee this situation. That is why Leon Fuat, the most profitable steel company price chart is showing down trend as you can see below.

 

Leon Fuat’s last traded price is 99 sen and its latest EPS for quarter ending March 2021 was 11.65 sen. Even if I assume its EPS for the next 3 quarters is the same as 11.65 sen, its annual EPS will be 46.6 sen. Leon Fuat is selling at PE 2.

Other Industries also suffer the same fate

In fact, almost all other industries also suffer the same fate as steel companies. For example, Supermax and Top Glove have to close down a few times because the government authorities found Covid 19 cases in their factories.

Supermax price chart below:

 

Investors must always remember price chart is the more important investment consideration than financial analysis. Down trend price chart means there are more smart sellers than stupid buyers.

Statistics shows that in the stock market, there are about 70 % of investors lose money, 10% of investors break even and only 20% of investors are real winners. But under the current condition all investors including myself are losing money.

All investors must examine their track record to their performance. Even if they have been winners, they should sell all their holdings as soon as possible before they lose more money and get out of the stock market completely.

My mistake

I must admit my mistake in recommending Leon Fuat recently because I did not foresee earlier how Covid 19 lockdown and our political uncertainty can cause serious damage to the stock prices. That is why I sold practically all my stock holdings and cashed out of the stock market.

A best strategy during the pandemic for all investors is to cash out because all listed companies will not be able to report increased profit in the next quarters..

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More articles on Koon Yew Yin's Blog >>

• A safe strategy during pandemic - Koon Yew Yin - Jul 10, 2021
• What is the fastest way for Malaysia to stop Covid-19? Koon Yew Yin - Jul 10, 2021
• What do women really want? Koon Yew Yin - Jul 07, 2021
• Glove supply exceeds demand - Koon Yew Yin - Jul 06, 2021
• Leon Fuat is best steel stock to buy? Koon Yew Yin - Jul 05, 2021
• I had heart bypass surgery in 1983 and how pineapple prolongs my life - Koon Yew Yin - Jul

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Working from home trend spurs demand for bigger houses

12 Essential Work from Home Trends & Predictions for 2021/2022

THE Malaysian property market, despite still navigating the shocks of the Covid-19 pandemic from last year, is expected to perform better in 2021.

PPC International managing director Datuk Siders Sittampalam says while the pandemic “isn’t going to go away” soon, he is optimistic that the property market will find a way to “work around it.”
PPC International managing director Datuk Siders Sittampalam.

“The fear of the pandemic will not end anytime soon. It will take a while for everyone to go back to their normal live. “With that said, people are going to have to work around it. You can’t expect to be placed under cold storage for too long. Life needs to go on and the real estate segment is the same,” he tells StarBizWeek.

While the vaccine will be available soon, he emphasises that things will not go back to pre-pandemic conditions overnight.

“A sustainable model will need to be put in place for the local property market to work through the pandemic. Eventually, everyone will need to find what works best for them to be able to cope in this challenging environment.”Siders says the concept of working from home (WFH), which has become the norm, could change the mindset of housebuyers going forward.

“The WFH concept has fuelled the demand for properties that don’t just serve as homes, but also working spaces. Gone may be the days where a single bedroom apartment was more than sufficient.

“Now, there will likely be demand for larger properties that can double-up as your office.”

TA Securities, in a recent report, shared a similar sentiment.

“Demand for landed property remains resilient as we saw recent launches at (S P Setia Bhd’s) Alam Impian and Setia Alam achieved commendable take-up rates of more than 90%. Meanwhile, S P Setia sees a pent-up demand for larger homes as remote working options gain traction after the movement control order (MCO).

“Similarly, the trend of opting for bigger space is also observed in Singapore, as we saw a surge in buying interest at Daintree Residence, Singapore. This project was only 30% sold after two years of launch. However, the take-up rate shot up to 90% when the sales gallery reopened after circuit breaker was lifted.”

Despite the implementation of a second MCO, Siders is optimistic that any repercussions on the property sector will not be as bad as the first one that was implemented in March last year.

“I think the market will be better than last year. Activity has not come to a full standstill like the first MCO.

“The sudden shock during the first MCO is not reflected in the current one. Generally, the market will be better than last year,” he says.

Meanwhile, Knight Frank Malaysia managing director Sarkunan Subramaniam says the performance of the residential market is very much dependent on how the economy moves forward.

“The anticipated commercial rollout of the Covid-19 vaccine by the first half of this year will certainly boost the hopes for the country’s economic recovery and lift overall consumer sentiment.

“However, the current ongoing political uncertainties amid the worsening Covid-19 have led property buyers as well as developers to rethink their future plans and strategies. The residential market is expected to remain challenging in the first half of 2021,” he says in a recent statement.

Slight recovery

Sarkunan says the residential market showed a slight recovery post the first MCO last year with selected developers reporting improved bookings, supported by the low interest rate environment and pent-up demand.

“The reintroduction of the Home Ownership Campaign (HOC), coupled with several stimulus packages as well as the initiatives tabled under Budget 2021, offered a ray of hope for the sluggish residential market.

“However, the recent spike of Covid-19 cases, which led to the implementation of the second MCO, will likely derail market recovery in the short term.”

The government reintroduced the HOC in June last year under the Short-Term Economic Recovery Plan (Penjana). Under the campaign, stamp duty exemption will be provided on the transfer of property and loan agreement for the purchase of homes priced between RM300,000 and RM2.5mil.

Meanwhile, the exemption on the instrument of transfer is limited to the first RM1mil of the home price, while full stamp duty exemption is given on loan agreement effective for sales and purchase agreements signed between June 1 to May 31, 2021.

In addition, the government has announced real property gains tax exemption for Malaysians for the disposal of up to three properties between June 1, 2020 and Dec 31, 2021.

The HOC was kicked off in January 2019 to address the overhang problem in the country.

The campaign, which was initially intended for six months, was extended for a full-year.

Better outlook

The HOC proved successful, having generated total sales of RM23.2bil in 2019, surpassing the government’s initial target of RM17bil.

Maybank Investment Bank Research (Maybank IB) in a recent report says the local property sector is poised for recovery in 2021, driven by a better economic outlook and historically low interest rate environment, as well as pent-up demand.

“In our view, first half 2021 sales should perform better than the second half,as we expect a spike in sales before the end of the HOC and better political stability during the State of Emergency until Aug 1.”

Maybank IB adds that the imposition of the MCO this year should have a lower damage impact on sales as compared with the first MCO last year.

This is because most developers have acclimated to the “new norm” and accelerated their efforts to market their products via the digital platforms.

“A few developers told us that 50% to 70% of their 2020 sales were derived from the online platforms. Construction works are allowed during the MCO as long as approvals are obtained after registering with the Covid-19 Intelligent Management System and adhering to the standard operating procedure, hence, limiting the impact on first quarter 2021 earnings.”

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All steady on the home front in Penang residential properties

Sales done: According to Knight Frank Malaysia, there are pockets of success by some developers reporting bookings and sales for their affordable homes during the movement control order period despite the fact that physical viewings were disallowed.

DEMAND for residential properties in Penang is expected to remain steady during the second half of 2020, especially if the homes are from renowned developers with good quality products.

Knight Frank Malaysia executive director Mark Saw says there are pockets of success by some developers reporting bookings and sales for their affordable homes during the movement control order (MCO) period (from March 18 to May 3), despite the fact that physical viewings were disallowed.

“In this challenging environment, developers with a strong brand name and good delivery of quality products should still achieve decent returns and the gap between higher and lower quality properties will become more evident with better sales for those able to deliver.

“These factors will play a critical role in determining the success of developments. It has become a buyer’s market and many deals are being offered by developers to attract first-time buyers as opposed to investors who have been temporarily sidelined, ” he tells StarBizWeek.

Due to the Covid-19 pandemic, Saw says buyers’ preferences and timings may change, with decisions being put on hold due to job security, ample choices and rentals being more competitive.

CBRE|WTW director Peh Seng Yee says the pandemic’s impact has been softened in the second half of the year with the recovery MCO (which was implemented from June 10).

CBRE|WTW director Peh Seng Yee says the pandemic’s impact has been softened in the second half of the year with the recovery MCO (which was implemented from June 10).

“As housing is a necessity and with the bank loan moratorium, the residential property sector has been cushioned from the worst impact.

“Hence, the residential market is expected to remain resilient for the second half of 2020. Significant growth is not expected yet as the issue of property overhang, lack of spending confidence by consumers and stringent lending policies by banks are expected to still linger for the remainder of the year.”

Additionally, both Saw and Peh agree that the reintroduction of the Home Ownership Campaign (HOC) was a much-needed boost to the local property market. The government reintroduced the HOC in June under the Short-Term Economic Recovery Plan (Penjana).

 

Mark Saw: In this challenging environment, developers with a strong brand name and good delivery of quality products should still achieve decent returns and the gap between higher and lower quality properties will become more evident with better sales for those able to deliver.

Peh says the HOC is expected to continue to spur the buying momentum for residential properties in Penang over the short term.

“Developers are experiencing a pick-up in bookings by buyers compared with the first half of 2020, which was mainly affected by the MCO.

“However, the encouraging bookings have yet to be fully translated into good actual sales, due largely to stringent lending policies by the bank and the challenges and uncertainty in the economy and job market.”

Saw also believes the HOC will be a short-term reprieve for the local property market.

“The HOC initiatives will only be a temporary measure. For the long term, developers should carry out proper feasibility studies to determine the marketability of their products before commencing developments and ending up with unsold units.”

According to Saw, the volume of residential transactions in Penang decreased 19.7% to 2,748 units in the first quarter of 2020 compared with 3,422 units in the fourth quarter of 2019.

“The value of transactions in the residential sub-sector during the first quarter (RM1.06bil) indicated a drop of 17.2% compared with RM1.28bil in the fourth quarter of last year, ” he says.

Under the HOC, stamp duty exemption will be provided on the transfer of property and loan agreement for the purchase of houses priced between RM300,000 and RM2.5mil.

Meanwhile, the exemption on the instrument of transfer under the HOC is limited to the first RM1mil of the home price, while full stamp-duty exemption is given on loan agreement effective for sales and purchase agreements signed between June 1 and May 31,2021.

The government has also announced real property gains tax (RGPT) exemption for Malaysians for the disposal of up to three properties between June 1,2020 and Dec 31,2021.

The HOC was kicked off in last January to address the overhang problem in the country. The campaign, which was initially intended for six months, was extended for a year.

It proved successful, generating total sales of RM23.2bil in 2019, surpassing the government’s initial target of RM17bil.

Meanwhile, Knight Frank in its Real Estate Highlights Research for the first half of 2020 says that amid the current global recession, Invest Penang has revised downwards its foreign direct investment (FDI) target for 2020 to RM5mil.

“This will be supported by the shift towards Industry 4.0 and the various tax incentives and reinvestment allowances as announced under Penjana that seeks to promote Malaysia as a choice destination for FDIs.”

To clear RM2.6bil worth of 3,043 overhang units in the state, Knight Frank says the Penang local government, housing, town and country planning committee has announced that the state will reduce the minimum price threshold for foreign property ownership by up to 40% starting from June 11,2020.

“Ceiling prices for stratified properties on the island will be reduced by up to 20% from RM1mil to RM800,000 and on the mainland, from RM500,000 to RM400,000.”

In the high-end condominium segment, Knight Frank says IJM Perennial has put on hold the development of The Light City.

“Prior to the Covid-19 pandemic, the group had indicated that it would resume development in August 2020. To be developed over a period of more than four years, Phase 1 will feature a mall with 680,000 sq ft net lettable area, the Penang Waterfront Convention Centre, a four-star hotel with 500 rooms, offices and the ‘Mezzo’ residential condominiums.

“Meanwhile, for Phase 2, there are plans for a 300,000-sq-ft mall, a five-star hotel with 250 rooms, offices, the ‘Essence’ residential condominiums and possibly an experiential theme park. It is worth noting that the commencement of Phase 2 will be determined by the sales of the Mezzo condominiums and the occupancy of the mall.”

As for the office sub-sector in Penang, Knight Frank says the average occupancy rate for four prime buildings monitored in George Town remained stable at 89%.

“According to the latest National Property Information Centre report, the average occupancy rate in the state continued to hold steady at 81.4% in the first quarter of 2020 (compared with 81.3% in the fourth quarter of 2019).”

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Young buyers flock to property market

Why millennials are flocking to real estate

Interest rate cuts, govt incentives spur buying interests

“We believe the strong growth in our young buyers is both a natural evolution and as a result of a conscious strategic effort we have made to appeal to this important customer group,"-
Datuk Chang Khim Wah

 

Eco World Development Group Bhd president and chief executive officer Datuk Chang Khim Wah told StarBiz the increase in younger buyers was due to a conscious strategic effort made by the group to appeal to this target market.

Property developers are seeing a pick up in sales, especially from younger buyers, as the numerous interest rate cuts and government incentives have spurred buying interest.

Eco World Development Group Bhd president and chief executive officer Datuk Chang Khim Wah said the increase in younger buyers was due to a conscious strategic effort made by the group to appeal to this target market.

“During our initial years of operations (circa 2015) the percentage of young buyers (below 40 years old) was around 43% and today it is more than 70%.

“We believe the strong growth in our young buyers is both a natural evolution and as a result of a conscious strategic effort we have made to appeal to this important customer group, both through the products we are offering as well as the way in which we engage them via social media and digital channels, ” he told StarBiz.

Of the 70%, Chang said around 50% are in their 30s and the remaining 20% are in their 20s. “We are particularly happy that a good number of these buyers include children of our own customers and residents in the vicinity of our development. This validates our efforts over the last few years to make a strong pivot to serve the needs of this market segment and the wider M40 group.

“Our upcoming launch of the new Duduk series of vertical townships offering semi-furnished apartments priced below RM400,000 at Eco Ardence and Eco Sanctuary, as well landed homes starting from RM500,000 at Eco Botanic 2, will enable us to further capture the hearts and minds of this very important market segment.”

Chang said the prolonged movement control order (MCO) period has really made many young people realise that the quality of home and living environment matters greatly.

Mah Sing Group Bhd chief executive officer Datuk Ho Hon Sang (pic below) said as the bulk of its projects comprised units within the affordable range segment, the majority of its buyers comprised those below 35 years of age.

“For Mah Sing, 84% of our target sales for 2020 are for residential properties priced below RM700,000 with key focus in the affordable segment. We typically see about 65% of buyers who are 35 years and below, for most of the affordable projects were launched in recent years. Hence, the majority of our buyers are first time homeowners.”

Despite the challenging market environment in view of the Covid-19 pandemic, Ho said demand continues to be resilient as property remained one of the safest forms of asset class for long-term capital protection and appreciation.

“Malaysia’s population is still very young with 66% below 40 years old and as such, household formation continues to be strong. Affordably-priced properties of good quality and at strategic locations remain highly sought after.

“This is especially for first-time home buyers, which augers well for Mah Sing’s product composition.”

Sunway Property said it is seeing increasing interest from younger buyers from 25 years to 35 years in its properties that are transit-oriented and have good facilities nearby.

“For example, our developments such as the transit-oriented Sunway Avila in Wangsa Maju, the integrated and transit-oriented Sunway Velocity TWO and the youth-focused development of Sunway Grid in Sunway Iskandar has seen enthusiastic response from younger purchasers, ” it said.

Property data, analytics and solutions provider MyProperty Data chief executive officer Thor Joe Hock said the median age for residential property transactions has gradually dropped over the years.

“When we look at the over 2.5 million residential property transactions, including serviced apartments, it appears that the median age of buyers from 2000 to 2019 has remained largely unchanged at between 34 to 35 years of age.

“However, when you break it down into landed and non-landed transactions, we start to get a clearer picture. The median age for non-landed properties has fallen from 40 years in 2000 to 28 years in 2019; while the median age for landed property purchasers marginally decreased from 40 years to 37 years over the same period.”

MyProperty Data manages a property data portal called PropertyAdvisor.

Meanwhile, Lagenda Properties Bhd managing director Datuk Jimmy Doh said more than half of its buyers are below 39 years of age.

“We believe as young people start new phases in their lives, for example getting a job or starting their own families, they prefer to stay independently and have their own space, granted that the properties are within their price range.

“Over the past few years, we have been seeing an increase in buyers. Our properties are priced below RM200,000, ” he said.

MIDF Research in a recent report said the aggressive overnight policy rate (OPR) cuts have improved home buyers’ purchasing power.

“Bank Negara cut its overnight policy rate for the fourth time this year by 25 basis points (bps) to a record low of 1.75% in July due to the severe impact of the Covid-19 pandemic on the global economy. The aggressive OPR cuts this year are positive to the sector as it improved home buyer’s purchasing power by reducing loan installments.

“We estimate monthly installments to reduce by 14%, after 125 bps cut for RM500,000 loan with a loan repayment period of 30 years, which is quite significant in our view. Hence, we think the record-low interest rate will partly help to alleviate home buyers’ issue of securing home financing, as the record low yield has boosted the affordability of home buyers.”

MIDF Research also said it expected loan demand to recover in the second half of 2020.

Citing Bank Negara’s statistics, it said total applied loan for the purchase of property improved sequentially by 52.9% month-on-month to RM13.1bil in May, after plunging by 64.8% month-on-month in April.

“Note that total applied loan recorded steep decline in April due to the disruption to business activity following the commencement of the MCO.

“Nevertheless, total applied loan in May was lower by 61.8% year-on-year while cumulative total applied loan in the first five months of 2020 was lower by 33.6% year-on-year, indicating buying interest was subdued.”

Looking ahead, the research house expected buying interest to recover in the second half of this year, spurred by incentives introduced by the government.

Under the Short-Term Economic Recovery Plan (Penjana), which was announced in June, the government reintroduced the Home Ownership Campaign (HOC). Under the HOC, stamp duty exemption will be provided on the transfer of property and loan agreement for the purchase of home priced between RM300,000 and RM2.5mil.

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Related posts

‘It’s the right time to invest’ 

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https://youtu.be/wT4fZ9IcR6c https://youtu.be/nzqy79-m8Z0 Extension for those in need | The Star Rapt attention: Laun...

RM525mil investment for Penang to create 1,600 jobs & human capital programme

( From left) Chow looking at the Penang NCER human capital graphic info. With him are John, state executive councillor Datuk Abdul Halim .

Do we still need an office?

Millennials now make up over a third of the workplace and overwhelmingly value flexibility in where, when and how to work. And top talent has been increasingly clustering in dense urban areas and has been unwilling to commute to suburban office parks

We found that data availability and transparency in the real estate sector is less than what we were used to when we were