Brief info on Plaza Utama

Brief info on City Parade

These two assets are possibly the last tranche of residual recovery asset of Danaharta. www.intproperties.com conducted a research on the background of these two assets and its indicative values ..

a) PLAZA UTAMA, BUKIT MERTAJAM, PENANG

Plaza Utama development commenced in Nov 1995 and completed in 1997. The 5-storey departmental store of Plaza Utama was opened for business in early 1997 together with many other smaller retail lots (sold to individual buyers). The Hotel block of Plaza Utama commenced business on January 23, 2008 and the development value of the entire Plaza Utama is RM230 Million according to an article published by The Sun as follows:-

Owing to the onslaught of the 1997-1998 financial crisis, Plaza Utama ceased business operation after a short stint of about 1-2 years and subsequently, the bad loan of Plaza Utama was acquired by Danaharta. More related info at my earlier blog - Impacts of Global Financial Crisis vis-a-vis Asian Financial Crisis on Penang property sector.

This completed skyscraper formed by a nine-level retail podium and 14-level office cum hotel tower capped off by a helipad sits on 2.88 acres of freehold land. Within Plaza Utama are 661 car-parking bays; 286,000sq ft of retail space made up of 23 shoplots, three areas previously designated for supermarket use and three whole floors; 112,500sq ft of office space consisting of 19 suites and nine whole floors; and 188 business-class hotel rooms at the top-most floors of the tower.

It was reported that when Plaza Utama first put up for sale in year 2000, the indicative value was more than RM50 Million. In year 2004, its indicative value was revised to RM42.1 Million. There is no taker despite being put up for sale in the market (By Danaharta until 31/12/2005) and Prokhas for a period of about 10 years. And to-date, Prokhas Sdn Bhd, in its quest to dispose off the asset, has make substantial hair cut and fixed the minimum price at only RM15,913,800.00.( Analysed to RM39.90 per square foot).

b) CITY PARADE, BUKIT MERTAJAM, PENANG

City Parade is another completed commercial building which is similarly affected by the 1997-1998 financial crisis and ceased operation after opened for business for a short period and have remain vacant until the present time. It has a total of 135 retail lots with a combined floor area of 224,773 sq ft.

The reported indicative value of City Parade was RM28.3 Million in Danaharta’s 5th Property Tender document from 5th June 2001 till 4th July 2001. In 2003, the indicative value was revised to RM19.546 Million as per Danaharta’s 8th Property Tender Advertisement below.

Similarly, there is no taker despite being put up for sale in the market for more than a decade. And to-date, Prokhas has also make substantial hair cut and fixed a minimum price at RM5,488,100.00.( Analysed to RM24.40 per square foot).

With such attractive fire sale prices at deep discount from its indicative values, it is now opportunity at the right entry level for investors to explore the investment viability as well as its restoration or refurbishing costs of turnaround it into viable and usable building.  Act now and contact us at Izrin & Tan Properties Sdn Bhd ( A panel real estate agent of Prokhas Sdn Bhd) for further information and FREE investment advisory and factors that investors should look into before making investment decisions. Email me at tan@intproperties.com, or SMS/CALL  +6012 4285453.

Advantages of home ownership

i) Provide stability and certainty of stay for your family;
ii) Benefit of security and pride of home ownership;
iii) Freedom on choices of usage ie. for self-occupation or weekend second home or rent out;
iv) Built equity of your own home. Instead of paying rental monthly, you make repayments to the banks and gradually building up your home equity and ultimately owning the property after you redeem the property.
v) Hedge against inflation. Owing to the scarcity of landbank earmarked for new developments and growing population, demand for quality and affordable housing in established areas in Penang remains high which leads to higher home prices. In addition, the cost to build new housing stock continues to rise due to inflationary factor.
vi) Tax relief. Malaysians are eligible for tax relief of up to RM10,000.00 a year on loan interest payment to finance the purchase of property for three consecutive years subject to conditions that it is limited to one residential home for own occupation( not for rental) and the sale and purchase agreement is signed between March 10 2009 and December 31 2010. Besides, the government has further relaxed the EPF housing withdrawal guidelines beginning of January this year to encourage more Malaysians home seekers to own houses.

Advantages of renting

i)a cheaper and affordable way (less upfront costs) as you only need to come out with deposit payments equivalent to 3 months rental of which the security and utility deposits are refundable;
ii) Faster move in time unlike property purchase which takes 3-4 months to complete the deal and hand over the property.
iii) option of choosing length of stay according to tenant’s need ie. monthly or yearly tenancy ;
iv) No need to bear documentation costs such as legal fees for preparation of sale and purchase agreement and loan documents and stamping charges in connection with home ownership transfer and yearly taxes like assessment rates and quit rent.
v) No need to bear maintenance charges and structural repair costs either as these costs are also to be borne by the landlord.
vi) flexible of being relocated without having to worry about the empty home!

Recommended blogs on the advantages and disadvantages of Buying versus Renting, go to Renting vs Buying a home or Buying vs. Renting.

Whether renting is better than buying depends on many factors, including how fast prices rise and how long you will stay in your home. And now there is a new method rent-buy interactive calculator to compare the costs of buying and renting equivalent homes.

The methodology of the calculator keeps a running tally of the most common expenses of owning and renting. It also takes into account something known as lost opportunity costs — for example, the return you could have earned by investing your money instead of spending it on a down payment. The calculator assumes that the profit you would have made in your investments would be taxed as long-term capital gains and adjusts the bottom line accordingly. The calculator tabulates lost opportunity costs for all parts of the buying and renting scenarios.

This rent-buy interactive calculator allows home seekers to do their own comparisons on renting versus buying whereby you can i)  adjust the annual home price change and annual rental rates according to local market conditions  and ii) change inputs or variables such as your rate of return on investments, condo/common fees and your tax bracket to find out whether the buying is better than renting or otherwise!

Whilst no one can accurately predict the future pricing/rental trend of the houses in a particular area, however, analysis to find out average house price index or its trends based on the past historical housing data of say past 10 years or 15 years or 20 years of a similar class of property in a specific housing area can be quantified.

In Malaysia, information on property pricing trends and rental movements, current and future supply and take up rates of various sub-sector of Malaysia property market can be obtained from the annual publication of Malaysia Property Market Report published by Department of Valuation and Property Services (JPPH) and NAPIC quarterly reports. Find out more at 6 websites that property investors need to know in Malaysia. It would be good that a similar calculator can be generated in Malaysia using our very own housing data.

Views of new completed housing schemes in mainland Penang

Villa Cendana 2 ( Cendana Permai) at Juru

Dedaun - another housing scheme by PDC at Batu Kawan

When making investment decisions, property investors need to know what is the expected rental yields from a property investment and how its yield would fare in comparison with similar class of properties as well as other alternative investments available in the market such as REIT, stocks, unit trusts etc.

A rental yield provides indication about the performance of a investment and its relative attractiveness against other types of investment. For example, if a residential property can produce a rental yield of 5% pa, it is considered a better investment than the fixed deposits offered by the local banks at prevailing rates of 2.0- 2.5% pa. On the contrary, the 5% yield is considered less attractive if compared to other higher yields but riskier investment options like stocks, equity-based unit trusts etc.

Besides, the yield can be used as a yardstick to measure and evaluate similar class of competing investments for decision making. For example, condominium investors would be keen to know which class of condominium in Penang can offer higher rental yields ?

a) beach / holiday resort condominium within the tourist belt of Batu Ferringgi or
b) city condominium in the inner city of Georgetown or
c) Suburb condominium at new growth areas along the reclaimed coastal area of Jelutong- Gelugor- Bayan Baru

Ways to determine property investment yields

The rental yield for a property investment can be determined by using the following calculation, commonly known as investment method:-

Estimated Rental per annum
______________________ X 100 = Gross Yield (%)
Property Acquisition Cost

Property Acquisition costs = Purchase Price + incidental costs ie legal fees, stamp duties, agent fees etc

Example :

Monthly rental RM1,000.00. Estimated annual rental income = RM12,000.00
Property acquisition cost= RM185,000.00

RM12,000.00
——————- X 100 = 6.5% gross yield
RM185,000.00

For computation of net yield, which is more reflective of the actual return, the following expenses ought to be deducted :- maintenance charges, sinking fund, management fees, insurance, quit rent, assessment, and other expenses.

Indicative gross yields of several property class in Penang

Landed houses- terraced, semi-detached and bungalow: 2 – 3%
Townhouse/Apartment/Condominium : 4-7%
Commercial shops/light industrial : 6- 9%

Generally, landed homes in land-scarce Penang offer lower rental yields as compared to high rise stratified and commercial units. Lower yield signifies that it is a safer or lower risk investment and hence  investor is willing to accept longer payback period for his investment. Property investors would expect higher yields for commercial/industrial property investments due to higher holding costs and risks.

Property investor need to set out his/ her investment objectives whether to invest for rental returns or long term capital growth or combination of both as each investor has his own investment requirements and rental yield expectations and hence difference strategies and choices of properties as their investments.

• Landed houses vs condominiums/apartments
• High price single property vs low price multiple properties
• Off-the-plan housing unit vs secondary market unit

A retiree might seek higher rental as passive income from his property investment whilst a young working professional would be more interested in wealth creation and achieve long term capital growth.For more related information on investment strategies, go to 6 strategies to succeed in Penang Property Investment.

In addition to the above investment method, other sophisticated approaches that can be used to aid property investors in decision making are:-

The Discounted Cash flow (DCF) model can be applied to determine the Internal Rate of Return (IRR) or Net Present Value(NPV) of an investment property. The DCF method is one of the valuation methods being used by property valuers particularly in evaluating income-producing properties and potential   development lands.

The Monte Carlo Analysis is another decision-making tool using multivariate modelling technique that allows investors to forecast various investment outcomes. The risk/return profile of any investment can be calculated and compared to investor’s risk tolerances.

View of the coastal area along Tanjung Bungah- Batu Feringghi

Unlike the previous 1997/98 Asian Financial crisis, the Penang property sector at that time was badly hit due to the credit crunch of the Malaysia banking system and the sudden surge in lending rates to as high as 13%.  As a result, many housing projects were stalled and abandoned, with many developers were either facing cash flow and debt servicing problems and eventually collapsed and wiped off from the marketplace such as Adorna, Penas and Cayman etc. The aftermath of the crisis has crippled the Malaysia housing and construction sector with major property sectors suffered sharp price declines as much as 30-40% from their peak levels whilst the banking system saddled with huge bad loans and high NPLs.

Some notable projects in Penang/Kedah region which have been badly affected since the times of 1997/98 Asian Financial Crisis are mostly retail/commercial and several mega projects, some of which are still in abandoned stage and awaiting revival or resuscitation:-

Penang Island

Bayan Central – An uncompleted commercial complex located at Bayan Bayu which commenced construction in 1997 and subsequently stalled.

Bayan Bay Marina and Leisure Resort by Eternal Resources (joint venture between Anson Perdana and PDC) which was originally scheduled for completed by year 2000 but stalled for several years. This multi-million Bayan Mall (now Queensbay Mall) was successfully revived by CP Group and commenced business in 2005.

Mainland Penang (Seberang Perai)

Plaza utama- A commercial complex comprising 6 storey shopping mall, 213 room-hotel and one office block at Bukit Mertajam town. Plaza Utama development commenced in Nov 1995 and completed in 1997. The commercial complex was opened for business after completion but ceased business after a short stint.

View of Plaza Utama in Bukit Mertajam

City Parade at Jalan Megat Harun, Bukit Mertajam – Another completed commercial building which is similarly affected like Plaza Utama and ceased operation after opened for business for a short period.

Both buildings have long been put up for sale by former Danaharta now Prokhas and still looking for potential “white knight” to revive it.

Fasda Heights (Taman Bidara)- a mixed housing project in Macang Bubok, Bukit Mertajam with about 1,000 units which was not fully completed and handover to the purchasers.

Taman Perindustrian Macang Indah- an abandoned SMI industrial park at Sungai Lembu, Bukit Mertajam.

Leisure Tower- A 11-storey integrated commercial complex at Jalan Kampung Gajah, Butterworth by HCC Group originally schedule for completion end of 1999 but only partially completed and abandoned.

Kristal Golf Resort (Suasa Kristal) - a golf resort located at Sungai Bakap, Southern Seberang Perai, ceased operation several years ago and taken over by Danaharta. The site was reportly sold to a private housing developer.

Others approved commercial complexes which have been launched but failed to take off and subsequently shelved are “Plaza Everise” – a planned 2.3 acre commercial complex at Sungai Rambai Commercial Centre and  “Aseania Mall” at Bandar Perda. Both are located within bukit mertajam area. “Plaza Cayman”, another planned commercial project located adjacent to old MPSP building at the heart of Butterworth town.

Kedah

Padang Meha Parklands by MBF Country Homes and Resort (Alamanda) near Kulim– a proposed RM3 billion housing/resort development near Kulim covering 5,200 hectares launched prior to 1997/98 Asian Financial Crisis which has since abandoned. Latest report disclosed that the developer has been liquidated in year 2005. More related info here: Developer liquidated, 300 land buyers in the lurch. Others include the 160 hectare  residential resort scheme (Diamond Santuary) in Mukim Padang Meha near Kulim Hi Tech Park and the proposed RM1 billion Diamond Creeks Retreats with 800 hectares of land in Ulu Behrang, Perak near the proposed Proton City.

In a nutshell, the magnitude and severity brought about by the impact of the 2008/09 Global Financial Crisis on the Penang property sector is comparatively shorter and much lesser compared to 1997/98 Asian Financial Crisis. A healthier and resilient Malaysian banking system, on-going implementation of Malaysia economic stimulus package, Malaysia’s central bank prudent interest rate policy, relaxation of EPF housing withdrawals and other economic liberalization measures, have helped to cushion the impact of the recent economic downturn on the property sector. Malaysia economy is on track for a full recovery next year.

Wawasan Open University along Jalan Sultan Ahmah Shah
(Northam Road), Penang

Here is Mr Andrew Sheng’s An Asian View Of The Global Financial Crisis. Though economists are of the views that the worst is over and confident level on the global economy outlook is improving, the lingering concerns remain whether the world economy recovery is V-shaped or W-shaped recovery? Nobel prize-winning economist Paul Krugman’s view ; World may witness W-shaped recovery whilst a local Fund Manager has a bullish view; V-shaped recovery has begun.

Malaysian Economy - at which stage of economic clock; 7 or 8 or 9 O’clock ?