Malaysian Property Market Outlook and REITs supported by CIMB Investment Bank Berhad | Kuching, Sarawak
On 8th May 2010 (Saturday), there will be a FREE seminar on the Malaysian Property Market Outlook and REITs supported by CIMB Investment Bank Berhad exclusively for all i*Trade@CIMB customers.
Seminar Details:
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Date |
8th May 2010 (Saturday) |
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Programme |
8.30 am – Registration
9.00 am – Opening Remarks by Mr Peter Tan Teck Sen Senior Manager, CIMB Investment Bank Berhad
9.10 am – Malaysian Property Market Outlook 2010 by Mr Allan Soo Managing Director, CB Richard Ellis (Malaysia) Berhad
9.50 am – What is a REIT? by Mr Stewart LaBrooy CEO, Axis REIT Managers Bhd
10.20 am – Refreshment
10.45 am – AmFirst REIT Corporate Presentation (Office and Retail Properties) by Mr YP Lim CEO, Am ARA REIT Managers Sdn Bhd
11.05 am – AmanahRaya REIT Corporate Presentation (Hotels, Higher Education, Office and Industrial Properties) by En Abas A Jalil COO/Principal Officer, AmanahRaya-REIT Managers Sdn Bhd
11.25 am – Axis REIT Corporate Presentation (Industrial, Warehouse and Office Properties) by Mr Chan Wai Leo Senior Manager, Business Development & Investor Relations, Axis REIT Managers Bhd
11.45 am – Q&A with Panel of Speakers Closing Remarks
1.00 pm – End of seminar
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Venue |
Pullman Hotels And Resorts 1A, Jalan Mathies, 93100 Kuching, Sarawak
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If you are around Kuching, Sarawak then do not miss this FREE Seminar on Malaysian Property Market Outlook and REITs.
REIT is a best alternative to Fixed deposit!
For more about REIT read Reviewing Malaysian REITs
*** I would say REIT is Really a Hidden Gem!
*** Very good alternative to Direct Property Investment.
For registration, please call 082-358688 not later than 6th May 2010 (Thursday).
Registration is on a first-come-first-serve basis.
BSN to consider raising BLR
KUALA LUMPUR: Bank Simpanan Nasional (BSN) will conduct a study whether to raise the interest rate for personal loans following Bank Negara’s move to increase the overnight policy rate (OPR) to 2.5% on Thursday.
Senior vice-president and head of Consumer Banking Department Akhsan Zaini said the bank would look into the possibility of increasing the base lending rate.
“However, the market and customers know when the Government raises the OPR, the cost of borrowing will also increase. I think all of us have anticipated such a scenario,” he said after a media briefing.
fr:biz.thestar.com.my/news/story.asp?file=/2010/5/15/business/6266927&sec=business
Several banks revising BLR, BFR
KUALA LUMPUR: Malayan Banking Bhd (Maybank), Maybank Islamic Bank, CIMB Bank, CIMB Islamic Bank and Bank Islam have announced that they would be revising their base lending rates (BLR) and base financing rates (BFR).
Maybank’s BLR will be revised from 5.80% per annum to 6.05% effective Tuesday while the BFR of Maybank Islamic Bank will rise from 5.55% to 5.8% per annum.
CIMB Bank and CIMB Islamic Bank announced that they would increase their BLR and BFR from 5.80% to 6.05% with effect from Tuesday as well.
Bank Islam, meanwhile, has revised its BFR from 5.80% per annum to 6.05% effective from Monday.
fr:biz.thestar.com.my/news/story.asp?file=/2010/5/15/business/6268376&sec=business
Malaysian Government Securities heading towards better returns
PETALING JAYA: The gradual normalisation of interest rates should exert an upward pressure on yields of Malaysian Government Securities (MGS) this year, industry experts said.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng said MGS yields were already edging upwards.
“Investors can expect improving yields as the central bank continues to nudge up interest rates as part of its interest rate normalisation cycle,” he told StarBiz.
Yeah added that over the past week, the longer-tenured MGS were already responding to the upward pressure and the five-year bonds had inched up seven basis points from its low on April 23 where they were traded at 3.45%.
At present, MARC vice-president of fixed income research Wan Murezani Wan Mohamad is looking at the range of 3.00% to 3.30% for the three-year yield for the remaining months in 2010 with an assumption of another 25-basis-point increase in the overnight policy rate (OPR).
Yeah said rising yields would cause existing bond holders to take a small knock in their portfolio value due to a corresponding decline in bond prices.
For example, the corresponding fall in bond prices would result in a capital loss in the fixed-income portfolio of banks’ treasury assets but the decline in capital values was not expected to be large especially for those with risk mitigation strategies in place, he added.
“However, new investors who purchase MGS would be the main beneficiaries of a rise in bond yields,” he added.
Investors of MGS are large institutional investors such as pension funds, insurance companies, financial institutions and fund management companies.
Nevertheless, MGS yields have been on the lower end so far.
Yeah said the lower yields despite the rising interest rate environment was indicative of the strong demand for Malaysian Government bonds which bidded up prices, thereby lowering yields correspondingly.
“The strong demand emanates from foreign buying. It is also reflective of surplus domestic liquidity that continues to seek out risk-free MGS investment rather than shifting to the corporate bond market. Institutional investors should consider expanding the risk-return spectrum in corporate bond market which has become overly concentrated in the double AA and above segments to the extent that these bonds account for more than 70% of the outstanding.”
Yeah added that the rise in foreign buying could be attributed to the positive interest rate differential and strengthening ringgit besides the positive news flow that had enhanced investor confidence in the country’s economic prospects.
Foreign holdings account for some 22.2% or RM55.4bil of the total MGS issued as at March 2010.
“Increased investor confidence translates into lower-risk premium hence the lower government bonds yields. By contrast, countries facing falling investor confidence, such as Greece, see their government bond yields skyrocketing,” Yeah said.
Wan Murezani noticed that investors had aggressively priced in the normalisation of interest rates in the earlier part of 2010 with the three-year MGS yield rising to as high as 3.35% in February 2010, but the upturn in yields level was not sustained due to profit taking.
“The bullish run in the local currency triggered an increase in foreign buying of domestic asset classes, including MGS.
“Foreigners are basically seeking currency gains as a result of an expected appreciation of the local currency against the US dollar, which is one of the components of investment returns,” he said.
He added that the larger purchases of MGS relative to corporate bonds were quite understandable considering the extremely low credit risk of the asset class.
Moreover, MGS are also less volatile compared to equities, which should also improve the portfolio returns on a risk-adjusted basis.
Prudential Fund Management Sdn Bhd chief officer (product & marketing) Christopher Chan said despite the lower yields, fund managers might invest in government securities for diversification, liquidity and regulatory purposes.
“Diversification is important to shift a fund’s risk from being overly exposed to or concentrated in the corporate sector,” he said.
As for regulatory reasons, certain investment portfolios such as those managed by insurance companies and pension funds were required to invest a minimum percentage of their funds’ assets into low-risk assets like Government bonds in order to meet specified risk and solvency guidelines, Chan added.
fr:biz.thestar.com.my/news/story.asp?file=/2010/5/17/business/6267959&sec=business
Outrage over abuse in low-cost flat purchase
PETALING JAYA (May 23, 2010): Real Estate and Housing Developers’ Association Malaysia (Rehda) condemned the purchase of low-cost housing by government officials, claiming it undermines the spirit of the low-cost housing scheme.
Rehda president Datuk Ng Seing Liong said the purchase of low-cost houses by governing officials makes a mockery of developers’ efforts to fulfill their social obligations imposed by the government.
“The low-cost housing distribution system makes the state government the determining body in allocating low-cost houses that developers construct for qualifying recipients via a Central Registry maintained by the state government,” said Ng in a statement.
Ng was commenting on a report in theSun last Thursday that 500 Petaling Jaya City Council (MBPJ) staff were allocated low-cost homes, although some of them were clearly not eligible to own them.
MBPJ, however, defended the allocations which were made from 2000-2005, saying they were “excess” units from developers building on private land.
Ng said such abuse is “disappointing” as industry players have worked hard over the years to cross-subsidise cheap homes to help achieve the nation’s social agenda.
“We have shouldered such a task as required by the government despite rising costs throughout the years, only to have profiteering government servants make use of this system for their own ends,” said Ng.
He urged the government to have a comprehensive probe not only in Selangor but for the whole nation “to expose such malpractices.”
Ng said the staggering figures suggest an “entrepreneurial venture” for certain parties in the state government, rather than a tool to provide affordable shelter to the low-income group.
Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim had, in a statement issued last Friday, said the state has instructed low-cost home owners who are not eligible to own the units to return them to the state.
He said since the Pakatan Rakyat took over the state in March 2008, it has ceased the practice of giving away these units to those who are not eligible.
He said a policy was introduced whereby only those registered with the Selangor Property and Housing Board (SPHB) will be eligible to own these homes.
Abdul Khalid said the state has also discovered that this problem has been prevalent in the Petaling Jaya City Council area even before 1998.
However, there was absolutely no clear policy on the distribution of low-cost houses.
The state hopes that there will not be any more confusion on this issue as the new regulations introduced by the state will ensure that only those in the Housing Application Registration System will have access to these homes.
The SPHB has stipulated more stringent conditions.
Among others the board will only entertain applicants with a monthly household income of less than RM2,500 or not more than RM5,000 (for sub-sale buyers). Those who own other properties in the state will not be eligible.
fr:thesundaily.com/article.cfm?id=47083
Sunway REIT to be Bursa’s largest
It may attract certain classes of investors with a defensive strategy
PETALING JAYA: Sunway Real Estate Investment Trust (REIT), which is slated for listing on July 8 on the main board of Bursa Malaysia, is set to become the largest REIT on the local stock exchange with a fund size of 2.78 billion units.
However, according to a report by OSK Research, Sunway REIT’s initial public offering (IPO) would be at a premium to other Malaysia REITs.
“Based on the Sunway REIT’s net asset value per unit (NAV/unit) of 97 sen upon listing, its price over NAV (P/NAV) was estimated to be at about 1x (based on the assumed IPO price of RM1/unit for the institutional offering).
“This is about what the other REITs are currently trading at on average,” said the report.
The REITs’ dividend yield was only expected at about 6.7% (based on forecast dividend per unit (DPU) of 6.7 sen), which was below the average 8.5% for other REITs, it added.
It said this could imply that Sunway City (SunCity) would be selling the properties to the REIT at a high valuation benchmark.
“Having said that, the low yield offered by Sunway REIT and the premium to be paid for those properties could be justifiable given that the trust will be the largest in Malaysia, with the largest free float of about RM1.6bil vis-à-vis any given REITs, and the unique prospects of those properties, which offer a relatively more defensive investment and yet potentially attractive long-term growth,” the report noted.
It added that Sunway REIT might potentially attract certain classes of investors with a defensive investment strategy, such as pension and insurance funds. “This has been proven by the fact that Sunway REIT very recently secured four large cornerstone investors (at 98 sen/unit) which collectively hold about 14% stake in the trust,” it said.
The investors are a Singapore sovereign wealth fund, the Employees Provident Fund, Permodalan Nasional Bhd and Great Eastern.
The report said a trading buy opportunity in SunCity with an adjusted price target of RM4.52 would be the biggest beneficiary of the deal if the properties were to be disposed off at such valuations.
“Based on conservative estimates, this will add a further 69.8 sen/share (or a maximum 99 sen, depending on the response to the book-building process for the institutional offering) to SunCity’s net asset, bringing it to about RM5.32/share,” it said.
It further added that pegging this against 0.85x to 0.90x (P/NTA), which is the average that its peers were currently trading at, the reseach house estimated that SunCity might likely trade in the range of RM4.52 to RM4.79 as the listing of Sunway REIT got closer to realisation.
HwangDBS Vickers Research said in a report that Sunway REIT’s yield looked “rich” at 6.9% versus the sector’s 8.5%, while rising interest rate environment could force yields higher.
However, the report said, the REIT should help SunCity unlock its investment properties’ value and lead to more efficient allocation of resources to boost return on average asset.
The report maintained a “buy” call on SunCity and target price of RM4.70, assuming no discount for property investment and 30% discount for property development.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/4/business/6400464&sec=business
Axis-REIT to inject more assets
KUALA LUMPUR: Axis Real Estate Investment Trust (Axis-REIT) will acquire a parcel of leasehold land, and industrial buildings, in Kuala Langat, Selangor, from Corporate Landmarks Sdn Bhd for RM85mil.
It will also purchase leasehold land with buildings in Petaling Jaya from Dazzling Township Sdn Bhd for RM49mil.
Axis-REIT also plans to undertake a proposed placement of up to 68.820 million new units, representing about 22.4% of the existing units in circulation, at a price to be determined later.
It also proposes to increase its approved fund size to a maximum of 375.901 million units from 307.081 million, currently
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/4/business/6400478&sec=business
EPF, PNB among Sunway REIT cornerstone investors
KUALA LUMPUR: Malaysian property developer Sunway City Bhd has secured four cornerstone investors who will buy 14% of the roughly US$500mil (RM1.65bil) initial public offering of its real estate investment trust (REIT).
The cornerstone investors are the Employees Provident Fund, state investment company Permodalan Nasional Bhd, the Government of Singapore Investment Corp Pte Ltd and insurer Great Eastern Life Assurance (M) Bhd, the company said in its draft prospectus.
The cornerstone investors will take up 376 million units at a price which is the lower of the institutional price and 98 sen each. The Sunway REIT, with a fund size of 2.78 billion units, is set to become Malaysia’s largest REIT when it is listed in the third quarter of this year.
It will feature some 1.65 billion units for public subscription, of which 1.5 billion are for institutional and selected investors, the company said in May.
The issue price of the Sunway REIT will be determined after a book-building process which is expected to close on June 24, according to the prospectus.
RHB Investment Bank and Credit Suisse are the joint global coordinators. The banks, along with Maybank Investment Bank, HSBC, JP Morgan and CIMB, are joint bookrunners.
Sunway City said last month it would receive RM2.7bil in cash and about 1 billion units in the REIT for the eight properties it will inject into Sunway REIT.
The properties, which comprise of shopping malls, office towers and hotels, have a combined market value of about RM3.7bil. The listing is targetted for July 8.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/3/business/6389752&sec=business
Make tenants sign agreement, landlords told
By MUGUNTAN VANAR
KOTA KINABALU: Landlords can ask their tenants to sign a power supply agreement with Sabah Electricity Sdn Bhd (SESB) to avoid being saddled with unpaid utility bills.
Its corporate communications manager Chendramata Sinteh said tenants could sign a direct agreement with SESB even though the electricity meter is registered under the name of the landlord.
“With tenants signing a power supply agreement with SESB, we can pursue and take action against the tenants directly if they fail to pay the bills.
“Under the agreement, the tenants must settle the power bills before they leave the rented house or premises,” she said when commenting on the problems faced by landlords in Peninsular Malaysia where tenants leave them with unpaid bills.
The issue was highlighted by MCA Public Services and Complaints Bureau head Datuk Michael Chong last week when he disclosed that they had received 29 complaints from landlords about tenants leaving them with bills amounting to RM216,348.
Chendramata, however, said such cases were not rampant in Sabah and explained that the numbers were negligible.
However, she said it was important for landlords to take precautionary measures by making the tenants sign a supply agreement with SESB.
Alternatively, they could make regular checks with SESB to ensure that their tenants were paying their bills, she added.
Though SESB claims that there are not many such cases in Sabah, many landlords have experienced the problem and ended up paying unpaid bills left by their tenants.
“I had to pay nearly RM2,000 in bills that were unpaid for eight months. SESB told me it was my responsibility,” said one landlord who declined to be named.
He said what was more annoying was that no steps were taken by SESB to cut the power supply despite the tenant defaulting on the payments.
fr:thestar.com.my/news/story.asp?file=/2010/6/21/nation/6512512&sec=nation
CIMB to have more remisiers, dealers
Group getting more demand for such services
PETALING JAYA: CIMB Group hopes to double the number of its remisiers, dealers and equity relationship officers in Malaysia to 500 in 18 months from 250 now.
Group chief executive Datuk Seri Nazir Razak said the perception that the days for remisiers were numbered was wrong as the group was experiencing rising demand from clients for such services.
“I think one of the reasons for our growth is having the right remisiers, dealers and equity relationship officers to work with us.
“Apart from increasing the number of these people locally, we also plan to increase their numbers regionally from the current 700 to 1,000 within that period,” he said after launching CIMB Securities and its flagship branch yesterday.
He, however, said the contribution of the securities business to the group was still small despite the growth in demand. Currently, investment banking contributes about 25% to the group’s profit.
Nazir said the outlook of the local equity market was still strong.
“We saw some rebound in the equity market in general. Last week, we have been actively involved in three to four initial public offerings in the region,” he said.
He added that there were no changes in earnings prospects for the group’s banking operations.
On CIMB Securities, Nazir said the group had decided to revive the brand to consolidate with its other securities business globally.
“As a company, CIMB Securities is still under CIMB Investment Bank but as a brand, it is on its own,” he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/29/business/6565694&sec=business
Do property bubbles always lead to crises?
They will increase economic downturn risks, but Asians should not be too worried
MANY of the world’s biggest economic crises in recent years originated from property bubbles. The list includes the US “subprime” crisis (2008), Japan’s economic stagnation (1992 onwards); and the financial crisis in Sweden (1991), Finland (1991), Norway (1987) and Spain (1977).
They were all largely triggered by property bubbles popping.
Today, it is therefore understandable that investors are concerned about property bubbles in Asia, especially in China; how would the property bubble affect China’s economy, and by extension Asia’s and the world’s economy.
The important question today I believe is not whether major economic crises are usually triggered by property bubbles, but do property bubbles always lead to banking and economic crises.
Property bubbles certainly increase economic downturn risks, especially when they pop. However, we do not think it will always lead to a banking and economic crisis.
First, property bubble-induced economic crises occur largely because there is cheap money (i.e. low borrowing cost) and excessive bank lending, giving rise to investment frenzy, including speculation. When the bubble pops, banks’ non-performing loans (NPLs) rise, causing banks’ capital to be insufficient.
Confidence about banks’ financial health then comes into question, which may lead to a bank run. Banks are then forced to cut back on credit, which in turn affects the economy, turning the property price collapse into an economic crisis.
The key to see if a property bubble burst leads to an economic crisis or not is whether there is excessive lending (high margin, lax lending) and substantial lending (high total banking exposure to property).
One case in point is the China property bubble burst of 2008 where some house prices in Shenzhen dropped as much as 40% (yes, there was one, overshadowed by the much bigger US property bubble popping) but there was no banking crisis.
Surprisingly, NPLs of Chinese banks did not rise in 2008 (as one would expect when property bubbles burst); instead they continued to fall (China’s total bank NPLs have fallen from above 12% of total loans in 2004 to 1.4% in 2010).
Until today, China’s banks are relatively secure because many buyers are required to pay high down payments (from a minimum of 20% to 30% for first mortgage, to 40% to 50% for subsequent mortgages). This high commitment of home buyers partly explains the lower risk for banks and the low default rate of mortgages (NPLs for China banks in mortgage loans are traditionally low, now at about less than 1%).
Another example is high-end properties in Hong Kong and Singapore. While there is no doubt it is a property price bubble, the systemic risk to the banking system and economy is less because it is more prevalent to luxury properties, coupled with less excessive bank lending.
Second, the size (volume and price) of a property bubble determines the negative impact to the economy when it pops. To illustrate, if the price of a single property unit increases significantly and then crashes sharply, there is really little impact to the economy. However, if there were millions of such transactions built up over the years, chances are that when the bubble pops, it will have very severe damage to the economy.
In Asia, recent property bubbles had relatively short time to build. Take, for example, the high-end property bubbles in China, Hong Kong and Singapore, which started approximately from about 2006 before they tumbled in 2008.
Compared with the build-up for the last supersize property bubble of the US (estimate from 2001 to a collapse in 2008) or Japan (estimate from 1986 to 1991), the run-up in Asia’s property bubbles today (essentially from 2009) has perhaps less time to accumulate high numbers of property transactions to reach a supersize bubble.
For example, on Sept 30, 2006, US Federal Deposit Insurance Corp data showed real estate loans might be in excess of 40% of US banks’ total lending. As comparison, according to a PIMCO report in 2010, the share of loans in China’s real estate sector is less than 20% of total lending.
So, should we be worried about the impact of property bubbles bursting in Asia, bringing Asian economies towards an often quoted “double-dip recession”?
I don’t think so, largely because of the following reasons:
·Asia’s banking system is resilient after the 1997/98 Asian fiinancial crisis revamp and remained strong, during and after the 2008 global financial crisis.
·Asian governments are acting very fast in curbing property bubbles, not allowing them to get too big; in particular Asian governments believe in market intervention as compared with Western preference to let free market forces decide.
·Asian bank housing mortgages are “recourse financing” (meaning one is liable for all losses even if the property is auctioned) as compared with “non-recourse financing” in the US (meaning after the property is foreclosed by the bank, one is no longer liable for further losses), therefore Asia’s borrowers are more committed.
·It is a cultural norm and quite common in Asia for an extended family to chip in during times of difficulties to help mortgage repayment.
·Asia’s property developers are also more careful in managing risks after experiencing the 1997/98 Asian financial crisis; many, such as in Malaysia and Singapore, use joint ventures with land owners to mitigate some of the risks.
# The writer is the founder and chief investment officer of Singular Asset Management Sdn Bhd.
fr:biz.thestar.com.my/news/story.asp?file=/2010/7/13/business/6652296&sec=business
Property groups chalk up huge sales in first two days
GEORGE TOWN: The Star Property Fair 2010 continued to attract a huge crowd of serious property seekers on its second day at the new wing of Gurney Plaza and the adjoining G Hot-el.
A steady stream of shoppers, mostly families, also dropped by to make enquiries and check out projects offered by more than 20 major developers.
MTT Properties and Development marketing manager Michelle Goh said they received overwhelming response to their projects – Botanica 3 residences and the Prince of Wales Island International School in Balik Pulau – and recorded RM8mil in sales so far.
By 5pm yesterday, Ivory Properties Group had achieved over RM7mil in sales for the first two days, mostly through The Peak Residences and 10 Island Resort projects and a couple of condovilla units at Moonlight Bay.
The company’s project director M. Murly said the large crowd kept the sales team on their toes.
“On the first day, we sold four units at over RM1.8mil but the crowd on the second day was much better, even bigger than last year,” he said.
He attributed this to the buying power of the people who had more confidence in the property market, adding that some could be taking advantage of the chance to buy before the recent subsidy cuts push up market prices. Among the projects that also received favourable response was IJM Land Bhd’s Pearl Regency mixed development consisting of luxury condominiums and commercial lots.
Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat said the project attracted many Malaysians on holiday in Penang and expats.
The three-day fair, organised by Star Publications (M) Bhd in collaboration with Henry Butcher, is from 10am to 10pm until today.
Dr Teoh said the Property Talk at G Hotel attracted a large crowd as the interesting topics touched on relevant and contemporary issues.
There are four talks scheduled for today – “Don’t Sign That Sale and Purchase Agreement Yet (Some Pitfalls To Avoid In Property Transactions)” by lawyer Chia Loong Thye at noon; “Buying Smartly & Wisely From Property Developers” by technical manager Albert Lai at 1.30pm; “Property Investment in Financial Planning” by accountant Yap Soon Hin at 3pm; and “Protecting Your Property From Bad Energy” in Hokkien and Mandarin by spiritual healer Master Ong Q Leng at 4.30pm.
fr:thestar.com.my/news/story.asp?file=/2010/7/25/nation/6732472&sec=nation
Investment valuation using price/earnings ratio
COMMENT
By RAYMOND ROY TIRUCHELVAM
WE have used the P/E ratios more often than we know in our lives concerning purchases and investments. Few realise how important this financial ratio is. At present, this ratio is primarily used for shares or company valuation.
In simple terms, a P/E ratio is the ratio of the price of an investment divided by its earnings. A more technical definition for a company or share valuation would put it as valuation ratio of a company’s current share price compared to its earnings per share (EPS). Let’s say Venecio Bhd shares are trading at RM20 and the recently concluded financial year, resulted in net earnings of RM125mil with 50mil shares issued. Therefore, the EPS is RM2.50 per share (RM125mil/50mil), and that gives a P/E ratio of eight (RM20/RM2.5).
This means that for every ringgit the company makes, investors are willing to pay RM8 for it. There are long debates on the applications of P/E ratio for shares, but we shall not delve into this, rather I’d like to touch on P/E ratios for personal investment evaluations.
Calculation of P/E ratio for a property investment evaluation is pretty straight forward. For a house that yields a rental income of RM1,000 per month, that works out to be RM12,000 per year. With the house valued at RM240,000 that derives to a P/E ratio of 20 times. Based on my experience, this rate seems to be the valuation point of landed properties in the Klang Valley. To be more accurate, some would deduct direct expenses to derive at the net rental income less expense. Rates lower than these could either entail a bargain or a low valuation placed by investors, while rates above would translate as either a premium, or over valuation by investors.
We can also calculate the annual Return on Investment (ROI), simply by dividing the annual rental against the investment value, and this derives to 5%. This is actually the inverse of the P/E ratio, whereby 1 divided by 20 gives 0.05 or 5%.
What this means is that at 5% annual ROI, it will take 20 years (at current rate excluding inflation and other factors) to recoup the investment.
The P/E ratio can also be used if you are evaluating to sell your property (besides having a market price evaluation). For instance, if you had purchased a RM240,000 property, and three years down the road the rental has increased to RM18,000 per annum. Assuming the property P/E ratio remains, then the property should have a valuation of RM360,000 (RM18,000 X 20). This represents a three year cumulative average growth rate (CAGR) of 22.5% which can form a benchmark.
Based on the tables on a few tabulations for properties around the Klang Valley for comparison purposes, a few deductions can be made from the information gathered, as follows :-
● Landed properties generally has higher P/E ratios, as compared to condominiums.
● Condominiums on the other hand, generates better ROIs as compared to landed properties.
● Well established areas calls for higher P/E than new townships, and generate lower ROIs. This can be interpreted as higher investment return potential for new township properties.
● Lower P/E condominiums seem to generate higher ROIs.
A high P/E ratio can mean an over-valued property or a property in which the market places a premium therefore “approved” by market forces. Likewise, a lower P/E can translate as under-valued with a potential to increase. The tabulation has also not considered the maintenance fee that usually entails condominiums, and if this is lessened from the rental, the ROI may reduce to approximate the landed properties.
Depending on your budget and purpose of purchase, you can fit your requirements within this ambit of selection process. There are other considerations as well which should not be excluded. These would include, freehold land or leasehold, built-up, land area, maintenance fee, close approximate to shops, schools, facilities, etc.
The P/E ratio and ROI can be a valuable tool in your property decision making process as shown above. While some of the findings may defer with a bigger sample or new locations, it’s a start to a whole new definition to your house hunting process. You can also track P/E ratios over time, to build a trend in which a growing trend would denote appreciating value.
P/E ratios can also be used to evaluate other investment options, so long as the parameters required for the decision making process can be ascertained.
● The writer, a business planner with Sabic Group of Companies, is “doing more homework today, to make up for those he missed in school.
fr:biz.thestar.com.my/news/story.asp?file=/2010/8/7/business/6812269&sec=business
Guard against property bubble build-up
IN the horror film Drag Me To Hell, an old gypsy woman was so angered by a loans officer’s refusal to extend her mortgage payment that she attacked her in the bank parking lot and later placed a curse on her.
The young officer, Christine Brown, could have chosen to help Sylvia Ganush but she wanted to impress her boss and get a promotion over her co-worker.
Ganush had knelt before her, begging her not to take away her home. But Brown decided to call security, which was when Ganush lost her head.
Such incidents may only appear in films and one’s imagination but it dramatises the point that foreclosure is a cruel and extreme measure.
In the United States, reports of foreclosures and lately, mistakes, speak of untold suffering and confusion among homeowners.
According to Bloomberg, attorneys general in 50 states last week announced an investigation into whether employees of lenders such as Ally Financial Inc, JPMorgan Chase & Co and Bank of America Corp falsified documents used in foreclosure proceedings.
Lenders were also said to have suspended foreclosures in many states after court documents revealed that people working for some large mortgage firms signed papers without checking their accuracy.
Although the problem is serious in the United States, which is at the heart of the action following the burst of the huge subprime housing bubble, it cannot be assumed that problems of a smaller scale will not appear elsewhere.
In Malaysia, the fact that property loan curbs and taxes did not surface in Budget 2011 should not be taken to mean we should let our guard down on any potential property bubble.
Although talk has subsided on discussions between the authorities and industry, it is believed that the intention to impose some kind of curbs is still very much on the cards.
It was earlier reported that a loan-to-value ratio of 70% to 75% for the purchase of third and fourth homes was being considered as a major step to deal with any potential speculative activities.
We should not wait until the authorities clamp down on the market. Instead, proactive monitoring and self-restraint play an important role in the collective consciousness to stem any occurrence of runaway prices.
Bidding up the prices is another practice that should be looked into against fundamental reasons and proper data collection.
In the current build-up of funds into emerging markets, care has to be taken to avoid excessive speculation in the property market as we do not want our people to lose out in any way should the bubble burst.
# Senior business editor Yap Leng Kuen believes that prices for a sound investment should not crash overnight.
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