TO KEEP AFFORDABLE HOUSING AFFORDABLE - Part 2

In every country in South East Asia and certainly  in the West, infrastructure costs are the responsibility of the utility companies.  For example, the Electricity Board would lay the wires right up to the project, the Water Board would lay pipes to the project, the telephony companies would provide these facilities as well and so will sewage.  


And so all the developer has to do is to come up with a master plan as approved by the Local Council and as soon as the facilities are in, start building them. 

But what has happened is that due to the sustained demand for property in Malaysia over the last 30 years developers are saying they cannot wait for the utilities to be built by the utility companies  and so they have paid for the infrastructure and handed it over to the Local Councils without cost.  


This has been an acceptable practice when the companies were all owned by the Government and there were budget constraints.  But today all the utility companies are large corporations with billion dollar budgets and it seems unfair the developers still have to pay the total cost of services.  


These eventually gets passed over to the consumer. It is a significant percentage of the cost of each house that is purchased.

A check on the affordable housing portfolio on a total volume of low cost housing as obtained from NAPIC records gets a picture that while we have a substantial number of low-cost and medium-cost housing, the overhang in some of the projects are such that these have been built in places where the consumer does not wish to stay for logistics reasons, such as lack of transport or lack of services.  


Such houses have been a waste of resources both by state governments and by the private sector.  Most developers looking at the object of building affordable housing under the new scheme are probably hoping that one of the ingredients would be free.  


It could be the land or it could be the infrastructure or even no duties on imported products/material used for construction or a grant.  Any of these would help to reduce the cost of construction in such a way that the house prices could become affordable.

Lets Talk About our Real Estate

MPI has had many Fund Managers come to our office seeking information on investment opportunities and data on property transactions that are current. It is not very encouraging to discover that investment funds from Japan, Korea, Hong Kong and Singapore have so little information on real estate in Malaysia.

One particular fund manager, an American Japanese fund which had invested in Singapore and had an Asian base in Singapore knew nothing of the investment opportunities in Malaysia other than what was garnered from Government pronouncements on the Iskandar region and Penang, and a little bit on the Economic Transformation Programme and the Klang Valley.

Local information is everywhere and almost every home owner in Malaysia is an expert on some aspects of Malaysian real estate. We have valuation firms providing data and analysis but they do not seem to have a market outside the country since what is published is usually a few paragraphs in the dailies or weeklies.

Our main issue is that there is a paucity of investment in large chunk real estate by large international funds. Any time we get some we do make a noise but it is only heard locally so the foreign media have no knowledge. In countries like Hong Kong or Singapore every agency disseminates information about real estate to the media and to the embassies all over the world about the latest trends in the property market. Thailand uses the Tourism Ministry to also publish trends and transactions and recent high profile investments into the country, especially in the motor industry.

We have lots of oil and gas and investment corridor information. Investment in the IT industry in Penang is growing, yet this information remains within the state or the company. It is not picked up by any of the Ministries to showcase investments done in the country. Having seen the seamless delivery of investment information in a positive way by other countries, there must be an opportunity for Malaysia to do the same. Information not only has to be topical but also in-depth and disseminated through a dedicated delivery system.

UNLOCKING LAND VALUE

When the Kuala Lumpur International Financial District (KLIFD) was announced, I was quite pleased at its location at the other end of Bukit Bintang as that part of the city was long the purview of dilapidated civil service residences which degenerated to car wash premises and some unsavoury practices on premises built nearly 100 years ago.

All that is a memory now as the land is finally cleared and a new master plan began to emerge.

Kuala Lumpur is sorely in need of a financial district such as Connaught Place in Hong Kong or Raffles Place in Singapore or even Canary Wharf in London, a location that every international financial institution would have to be in to be counted as a world leader. 



The KLCC location could have been ideal but Petronas is not property centric and preferred to surround itself with the oil and gas services industry. There are still a number of vacant sites after 15 years.



Malaysia has now a worldwide reputation as a sukuk platform and a halal platform both valuable commodities if you want to do business in the Middle East and be in the running for a syariah compliant financial service. Or if you want to sell your food products to the Middle East.

With the tsunami of change in North Africa and the continued instability in that region for some time, more and more banks and funds will want to relocate to safer locations and it's Malaysia and not Singapore or Hong Kong that will be the first port of call if we have the right product and the right location.

But after that announcement and the setting up of a great office and hiring people in 2009, there was a long period of silence. In the current gossip-laden environment there was not a peep from the company in explaining anything.

Then suddenly after a long lull the KLIFD project is in the news again, with a slew of appointments being made recently for the RM26 billion development.

To be fair, from the beginning its master developer 1MDB has made it clear it would let action speak louder than words. But in doing so it had had to resolve issues raised by several parties, transparency being one of the major ones.

Now though, more pieces are being put together and the picture is beginning to get a little clearer.

For a project of that scale, it is understandable that many will want to have a piece of the action and concerns of fairness when it comes to awarding contracts are bound to arise. From the outside looking in, some may say that not much effort has been done to allay these concerns and curiosity.

But it could also be said that 1MDB maintained its own pace in conducting the selection process. The company certainly remains either unaware or impervious, which is necessary for a project like this.

Given the 20-year timeline of the project, wouldn't any developer want to ensure all its vendors have the necessary resources and ability to deliver?

Early August, it had announced Akitek Jururancang Malaysia Sdn Bhd and US-based Machado Silvetti & Associates as its master planners, chosen for a "highly functioning, interesting, innovative, and aesthetically pleasing urban district that will establish KLIFD as a financial centre of choice".

A few weeks ago, it followed with 11 more appointments consisting international and local outfits in various fields of expertise, from infrastructure engineer to traffic experts to sustainability consultant.

This is quite a pleasant change, and redeemed 1MDB from some of its detractors' criticism of being unable to make decisions.

1MDB reiterated that its selection process adopted best global practices, including at pre-qualification and request for proposals (RFP) stages.

1MDB also said it had engaged all potential vendors in numerous discussions to ensure all parties are able to work together to realise its vision for KLIFD.

The need for keeping information close to the heart of the matter is, of course, understandable for fearing it will jeopardise negotiations and project's progress. However, 1MDB should still be aware of the public's curiosity and allow certain details to be available on a regular basis.

For one, this action will keep speculations to a minimum and at the same time it enables the public to make up their mind better on whether KLIFD is indeed a beneficial project or otherwise.

KLIFD is currently in its master planning phase, with a detailed plan set to be delivered early next year. Construction is scheduled to start in June next year.

According to news reports, the first phase of the development is expected to be operational by 2016, when the first line of Malaysia's mass rapid transit system is set to be up and running.

When fully complete, KLIFD aims to bring together leading financial institutions and top companies from all over the world into one place. With Malaysia's edge in Islamic finance as well as the country's location in Asia, it should well attract major players, complementing other financial centres in the region.

If the project is indeed going to be one of the main drivers of the economy, the public would want to know what kind of animal it would be, or how the project could boost the surrounding areas with incentives to complement KLIFD.

1MDB perhaps is ready to shift gears. It should continue with its initiative to be more forthcoming, and assume the spotlight it has always been put under. Besides KLIFD, 1MDB is also the master developer for Bandar Malaysia, the urban redevelopment project where the old Sungai Besi airport is located.

It has said that the selection of consultants for Bandar Malaysia, as the project is named, will undergo the same rigorous selection process with a mix of international and local companies. That should be a good thing.

This article have been published on Business Times, Nov 17, 2011

TO KEEP AFFORDABLE HOUSING AFFORDABLE - Part 1

The most talked about property news this month that has got young people very excited is the Government’s initiative for affordable housing in Greater Kuala Lumpur where Malaysia’s largest population resides.

This arises out of recent concerns that young people entering the property market are unable to purchase affordable homes and to purchase a home within their budget they have to go further and further away from the city centre, thereby incurring additional costs of transport and infrastructure facilities.

It is a fact that almost all capital cities are expensive and if we look at our sales statistics for the Greater Klang Valley for the first quarter of 2010 with the first quarter of 2011, we can see that overall in Kuala Lumpur property prices went up by an average of 10 – 12%, which even in this current world’s shaky economy is a fairly substantial increment.  In some branded districts it has exceeded this figure.

Not allowing Malaysians to own affordable homes is not sustainable economically or politically as other socio economic forces come into play.  It was Lee Kuan Yew who said “People who have a stake in the ownership of a country are evolutionary and not revolutionary”.

The issue is we have had attempts at affordable homes or low-cost homes before, but the process of identifying suitable land for low-cost housing and to also force private sector developers to build low-cost housing as a cross subsidy of their own housing programmes on a greenfield site has been poor. 

While developers have built their houses for the market and successfully sold them many have quietly abandoned the idea of building low-cost housing.  Providing the necessary infrastructure for such a development as a subsidy between the cost of the project and the returns of investment is quite large and if it can be avoided it usually is.    

to be continue in Part 2

Blog Writing is Personal - Part 3

On a lighter note, what are the other ‘”Black Swans’” that can possibly happen over the next few years?  Look at the electronic industry.  We now know that I.T. companies are already feeling the pinch in the sale of computers as smart phones become more efficient as mobile platforms.  The need to be actively engaged in a connected p.c. in the office will become less and less viable. 

DVDs and movie piracy would be a thing of the past in the next few years as there are companies who are already streaming music and movies directly to homes either wirelessly or through a fixed line network thereby rendering the purchase of movies to almost like calling for a pizza or a hamburger on line.   Watch the jockeying for new IPTV licences.

Next, manufacturing is also going through a catharsis of change.  We are looking at 3D modeling that are making parts for motorcars and for small engineering solutions where the 3D modeling on a computer can actually show a part as it is made and all the components that go within it by design. Already these 3D modeling machines and computers are manufacturing models before a full production machine is done.  Which means the work of artistic modelers and those who are providing home or models for exhibition could soon find their work being taken over by machines, unless they are also designers.

In the South East Asia property grid, Vietnam is a country with great potential at one point and now looks to change it business model as it finds its products and its people unable to provide the products that the world wants.  China as neighbor to Vietnam provides the same products as Vietnam does, cheaper and faster.  Vietnam used to have a huge market in US and Europe but the recession in Europe put an end to high values.  So Vietnam is looking to find ways in which it can re-engineer its population to be more proactive.   It is a microcosm of what is happening with the rest of South East Asia as economies that depended on manpower and low-cost production find themselves caught in a middle income or low income trap.  They will find that their people cannot feed themselves with rising inflation thereby setting the tone for other solutions.

Finally, on a happy note, Malaysia is rated by AT Kearney as the 3^rd most popular place for business process outsource services but provides a lacuna and a warning that Malaysia’s poor human talent  especially the English speaking part, may not survive that status for long.

Blog Writing is Personal - Part 2

The next note on my blog has to be on the current world political and economic situation and how it affects us.  Because Malaysia is an open economy, we are forced to react to situations that are beyond our control.  Recent happenings in North Africa and the contagion effect across that region has put Malaysians in an inflationary spiral.  That is because those countries having a contagion problem are also the greatest oil producers in the world and Malaysia has yet to come out of an oil consuming syndrome into a more energy efficient manner.   The short term effect of that would be a spike in our petroleum prices and our cost of living. 

How does this affect real estate?  Real estate is usually a hedge against inflation. The first thing that will happen is the prices of raw materials will increase, the prices of commodities will increase and the cost of construction will go up and at the end of that, we have a situation where developers will be forced to raise prices and there will be a rush to buy houses before the prices go out of control.  At some point, supply will exceed demand because will be unaffordable for a larger and larger section of the population.  And at that time, prices will begin to peak and developers will be forced to look at alternative solution to make houses affordable again.  The cycle of real estate development is always between affordability and desire.  We have had statistics to show that over the last two years there had been actually fewer houses being developed by developers as their land banks reach maturity and they are having difficulty in buying more land especially in the Klang Valley.

An interesting corollary often quoted is the famous “Black Swan” theory.  “Black Swan” theory is primarily a theory where an unexplained, un-planned event causes major disruptions around the world. The North African contagion, disturbances and the overthrow of long-established governments is a “Black Swan”.  Are there are other “Black Swan” as well in Asia?  A Tsunami is a “Black Swan” too. 

China is the largest investor around the world and has in excess of 50 billion US Dollars in every continent looking for strategic investments.  They seek to protect the continued expansion of the Chinese economy and feeding the growing urban population.  In a forecast by the Chinese Minister for Environment, he said that in 10 years’ time the Chinese will not work as maids anymore.  In 20 years’ time Indonesians will not want to work as maids anymore.  Just as 30 years ago Malaysians women moved into factories and business enterprises and stopped working as maids. 

So the urbanization and the improving of living standards also does provide social upheaval.  The Malaysian population therefore is already having smaller families as parents find it more and more difficult to manage a family and a working environment, especially women.  

Blog Writing is Personal - Part 1

The experience of writing a blog is probably more personal than writing an article for a newspaper or for a magazine.  I have written articles before and I have noticed that there are opportunities in blogs to be more meteoric, more personal, more punchy.  Why?  Is it because people want other people to read them and create some discussion?  Or is it because they do not want to come across as boring and repetitive?  Nevertheless, this is my experience reading other blogs so let me start with a couple of points I want to consider. 

The first one is the question of gated residences.  Twenty years ago we were living in terrace houses, bungalows and Semi-Ds in quiet streets in the country and we used to go past the jail in Pudu which we realized was an incarceration of criminals.  The Pudu jail is a small microcosm of the original British jails in the U.K., perhaps dating back to 500 years ago to the Tower of London or the Bastille in Paris.  But we understood at that time that the criminals were behind bars and we were free to walk around the streets. 


Today, we are seen to be living in barbed-wire and gated enclosures while the criminals are walking the streets and occupying the open public spaces that were ours.  So the question that arises here is, who is the prisoner here?   Well, I certainly do not have the answer for that question.  So people who own those homes who are now behind makeshift barriers, desperately trying to keep their families safe, are victims from the perceived breakdown of law and order. 


On the other hand, anybody who travels to countries like Yemen will realize that in those countries everybody lives behind walls and have bodyguards and carry guns and knives.  I do not believe there is random violence on the streets.  We will not ever come to that stage.  Malaysia is often portrayed as a role model and free economy and to a certain extent that is true as Malaysians are heavily invested in their own country.