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FACILITATING & PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE

& PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE June 2011 issue 13 COVER STORY A Vertical City
& PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE June 2011 issue 13 COVER STORY A Vertical City
& PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE June 2011 issue 13 COVER STORY A Vertical City
& PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE June 2011 issue 13 COVER STORY A Vertical City
& PROMOTING INVESTMENT FOR MALAYSIAN REAL ESTATE June 2011 issue 13 COVER STORY A Vertical City

June 2011 issue 13

COVER STORY A Vertical City

SPOTLIGHT Southern Prosperity

SPECIAL REPORT Poised for Growth

INVESTOR PREFERENCES The China Report

POLICY It’s All a Question of Intention

IN A NUTSHELL Growing Retirement Savings Through Property

GRAPHICALLY SPEAKING Landed Property Price in 1Q2011p Compared with 1Q2010

|

www.malaysiapropertyinc.com

1Q2011p Compared with 1Q2010 | www.m alaysiapropertyinc.com A VERTICAL CITY The transformation of what was once
A VERTICAL CITY The transformation of what was once plantation land into one of Kuala
A VERTICAL CITY The transformation of what was once plantation land into one of Kuala

A VERTICAL CITY

The transformation of what was once plantation land into one of Kuala Lumpur’s premier high-rise residential enclaves offers a development model worthy of emulation

land into one of Kuala Lumpur’s premier high-rise residential enclaves offers a development model worthy of

Who would have thought that what was previously part of a rubber plantation would one day become a sought-after high-rise residential address? The tale of Mont’ Kiara’s evolution is one worthy of note, not just because it’s a true blue Malaysian real estate success story, but also because of the lessons it offers both developers and property investors alike.

In a period of just 15 years, Kuala L u m p u r ’s M o n t ’ K i a ra e n c l ave has garnered the respect not just of Malaysians, but also of the international community in Malaysia, many of whom make a bee-line to there to find a place to live. Attracted by the concept of community living and the developer’s focus on quality of life, their presence has helped turn it into a vibrant, desirable place to live and this has increasingly drawn Malaysians to high-rise living in the area.

Today, Mont’ Kiara has turned into a suburban township complete with amenities and lifestyle outlets. It is the only suburban township that constitutes primarily high-rise developments in Kuala Lumpur. Its reputation has grown in tandem with its size and it is now considered by many to be the “Damansara Heights of high- rise living” (Damansara Heights is one of Malaysia’s premier landed residential property enclaves).

(continued next page)

Figure 1: Map of Mont’Kiara

by Afiq Syarifuddin

property enclaves). (continued next page) Figure 1: Map of Mont’Kiara by Afiq Syarifuddin Source: Ho Chin

Source: Ho Chin Soon Research

COVER STORY

2

Figure 2: Existing Condominium Developments in Mont’ Kiara

Project Name

Developer

Gross Floor

Subsale Price

Asking Rental

Rental

Completion

 

Area (sq.ft)

(RM/sq.ft)

(RM/sq.ft)

Yield (%)

Date

Amarin Kiara Kiaramas Sutera Hijauan Kiara Verve Suites Casa Kiara I Flora Murni Laman Suria Mont’ Kiara Meridin Mont’ Kiara Damai Mont’ Kiara Bayu La Grande Kiara

Amarin Group Asia Quest Holding Bukit Kiara Properties Bukit Kiara Properties Dijaya / Sunway Tian Gloval Sunrise Bhd Sunrise Bhd Sunrise Bhd Sunrise Bhd Nikmat Kuasa

4,073-6,141

600

2.89

5.78

Jan-08

1,347-4,100

400

3.00

9.00

2004

2,090-3,732

600-800

3.20

6.40

Mar-08

633-1,213

800

6.00

9.00

Ongoing

1,235-4,573

430

2.50

6.98

Apr-06

1,615-5,490

455

2.62

6.91

2006

931-2,147

520

2.50

5.77

Jan-04

1,787-4,487

650

2.50

4.62

Jan-09

2,272-11,000

590

3.00

6.10

Jul-04

798-2,300

500

3.00

7.20

Oct-02

1,961-7,335

456

3.04

8.00

2005

Source: MPI Research

(from previous page)

Mont’ Kiara comprises mostly condominium developments, with a some supporting retail and office components. The residents are, interestingly, made up of 30 different nationalities, of which Japanese and Koreans constitute a majority. Mont’ Kiara also hosts a multitude of businesses located in the office space and shoplots located around the township.

The main business hub is known as Plaza Mont’ Kiara, where many established multi-national companies have taken up office space. Other commercial hotspots are Seni Mont’ Kiara, Solaris Mont’ Kiara and Solaris Dutamas. A notable foreign investment in Mont’ Kiara is Cheung Kong Group’s foray into the area with ARA Asia Dragon Fund through One Mont’ Kiara. This retail- office development is valued at RM321 million.

The competitive edge that Mont’ Kiara has is its location which is 8km away from the bustling city centre of Kuala Lumpur and proximity to exciting townships with various amenities. Accessibility to Mont’ Kiara from Petaling Jaya and Bangsar is convenient through the SPRINT Expressway and the North-South Expressway’s Jalan Duta exit.The area also boasts excellent infrastructure and easy access to the recreational facilities of nearby Bukit Kiara.

International schools have also found their way into this township to serve and cater for the educational needs of the residents’ children. For instance, Mont’ Kiara has Garden International

School, Mont’ Kiara International School, Australian International School and Lycée Français de Kuala Lumpur which offer British, American and and French curricula.

Due to its desirable location and good accessibility, Mont’ Kiara has experienced healthy capital appreciation over the years. Prices here hover in the region of RM500 to 750 per square foot and have been rising steadily due constant demand. The average rental and yield is RM2.86 psf and 6.89% respectively.

T h e r e

condominium units in the market, reported by the National Property Information Centre (NAPIC) in the Property Market Report 2010. Of note is the fact that 17,922 units are coming into the market, further increasing the supply in Kuala Lumpur alone.

a r e c u r r e n t l y 1 4 2 , 0 5 9

Although there are concerns of oversupply in the market, this is a broad- based phenomenon and occurs only in specific pockets in Kuala Lumpur City Centre where branding, positioning and planning are ambiguous. In this respect, Mont’Kiara has been way ahead of the rest right from its inception, thanks to the smart strategies employed by Sunrise Berhad, the developer that was instrumental for first carving a vertical city out of plantation land.

It is little wonder why investors are attracted to Mont’ Kiara. Key factors for a successful property market can be determined through the saleability and offer price. However, once the initial developer price has reached a certain threshold, the asking price would then only attract the upper-tier market and

no longer be affordable to the masses.

Therefore it is pertinent that the proposed new development’s pricing is in tandem with the supply and demand situation.

On top of strategic location and accessibilities, developers also need to put extra weight on the building design, facilities and amenities that will improve the overall resident’s quality of life. The environment also has to be designed to include amenities such as schools, shopping complexes and parks, as these are necessary to create

a self-sustaining enclave that offers a convenient and vibrant lifestyle.

Once the “hardware” is in place the developer of such an enclave would need to put in the “software”, which is the services, activities and other offerings that will give residents a lifestyle experience unlike any other. In Mont’ Kiara, for example, even residents’ transportation needs are taken care of through a shuttle service that takes

them to major shopping areas in the vicinity. Exciting activities in the form of

a weekend bazaar offer the opportunity for community shopping and family outings, while the nearby commercial precincts hold out the taste of vibrant entertainment and dining out experiences.

Mont’Kiara appears to have avoided being marred by oversupply and slow take-up, a fact that developers of high- rise enclaves would want to take note of. Its secret lies in ensuring a winning formula right from the start and in sustaining the formula for the long

term.

of. Its secret lies in ensuring a winning formula right from the start and in sustaining

SPOTLIGHT

3

SOUTHERN

PROSPERITY

SOUTHERN PROSPERITY

by S.Sulocana Professor Joe Choo is not what you expect of a feng shui expert. The first thing that startles you upon making Prof Choo’s acquaintance is the fact that this feng shui master is in fact a feng shui mistress. And a petite, pretty one to boot. All thoughts of greying, bearded sages ruling the feng shui world fly out of the window the minute she begins to speak. She is witty, charming and chatty, and very modern in her outlook to life. She has the ability to make one feel totally at ease in her company within minutes of meeting her.

The diminutive President of the Malaysian Institute of Geomancy Sciences was recently awarded a Professorship by the Shanghai Jiao Tong University in China. She works with some notable listed companies in Malaysia and acts as consultant to various development projects. She also contributes articles on Real Estate Feng Shui for a number of publications in Malaysia.

Property Quotient (PQ) caught up with

her recently to learn about how feng shui has begun to influence real estate practices in Malaysia.

PQ: What is Feng Shui and why do people place great emphasis in adhering to its principles?

Prof. Choo: Feng Shui literally means wind and water. The whole idea of Feng Shui revolves around conserving Live Qi (Energy), using the understanding of its behaviour and response to wind and water.

There are four aspects to Feng Shui, namely Harmony, Money, Health and Advancement. These aspects impact a person’s needs at various times of their life. More and more people now have an understanding on Feng Shui and its disconnect from religion. They are more receptive to incorporating Feng Shui principles as a means to enrich and enhance their lives. Feng Shui principles

depend on individual ‘qua’ (energy areas), and there are altogether nine ‘quas’.

follows the wife’s ‘qua”. Feng Shui is all

follows the wife’s ‘qua”. Feng Shui is all

PQ: How does Feng Shui affect property values?

Prof. Choo: We can see over time how some properties or areas thrive while others stagnate.Human factors undoubtedly play a role, but Feng Shui also has influence in enhancing harmony and value of the property. For instance, auction properties are often shied away from as they are associated with bad energy. People are looking at all these factors and more when purchasing properties these days. There are many factors that contribute to the value of property such as location, design and developer. Feng Shui is just one part of it and not the sole contributing factor.

about finding the equilibrium of the Yin and Yang. In this case, Yang is the male and Ying is the female. Male attracts the energy, while female contains the

energy.

PQ: From a Feng Shui perspective, what are the upcoming areas in Greater Kuala Lumpur?

Prof. Choo: The Seri Kembangan area in the south of the Klang Valley. According to the ‘qua’, south is good for the next two years and this area will see positive growth for the next two years. Capitaland and YTL have gone into Seri Kembangan. The Klang Valley is prosperous because it is intertwined by the Gombak and Klang rivers. The KLCC

area will continue to be robust as it is positioned at the concave of the rivers.

PQ: How do developers in Malaysia incorporate Feng Shui into their developments?

Prof. Choo: It depends on how intensely they want to adhere to the principles. The principles are best incorporated from inception to completion. This includes the design and structure of the building, drainage, energy substation, water tank, sewerage pond, landscaping features and flow of the road.

According to Feng Shui principles, if the river embraces the land (‘concave’), the energy will be collected. On the opposite side (‘convex’), the energy is

One of the residential projects that has fully incorporated the principles is Mitrajaya Berhad’s C180° condominium project in Cheras. I worked with the architects to draw up plans for the

dispersed. We can see the effects on the

project.

fertility of the soil. The vegetation on

.

the concave side is greener and lusher compared to the convex side.

PQ: What is the property outlook for year 2011?

PQ: What are the basic Feng Shui principles to consider when purchasing properties?

Prof. Choo: The Flow of the river. Properties that are positioned on the concave of the river will prosper.

When purchasing residential property the back portion of the house needs to be higher than the entrance. This will ensure the prosperity of the unit does not flow out of the property. The position of the entrance depends on the individual ‘qua’. The ‘qua’ is determined by the date of birth of the individuals. The position of the main entrance follows the ‘qua’ of the man of the house and the master bedroom and kitchen

Prof. Choo: The southern part of Malaysia, which is Johor will be doing well. Property prices in Johor, especially the high-end and commercial properties, will see a consistent and steady growth.

In the northern part of Malaysia, Penang will see rapid growth and prices are moving upwards parallel to the Klang Valley. In the Klang Valley, the areas that will see an increase in activity and growth are those in the southern part such as Sri Kembangan, Sungai Besi and

Balakong.
Balakong.

If you would like to know more about Feng Shui, kindly contact Prof. Joe Choo: joechoo@divine-element.com

SPECIAL REPORT

4

POISED FOR GROWTH

The Malaysian hospitality industry is growing on the back of increasing tourism and MICE activities

The Malaysian hospitality industry is growing on the back of increasing tourism and MICE activities

by S.Sulocana

Malaysia’s Hospitality Industry is flourishing thanks to the ‘Malaysia Truly Asia’ campaigns carried out around the globe by Tourism Malaysia. The industry

is experiencing additions in the form of

hotels and hospitality-related services to cater for an increasing number of business travelers, as well as the tourism and Meeting-Incentives- Conventions- Exhibitions (MICE) industry segments.

Tourism Malaysia is also actively promoting the MICE segment to mark Malaysia as the preferred destination to hold such events. Malaysia’s unique selling proposition is its strategic location as the hub of the Asia Pacific region, its sophisticated facilities and the lower cost compared with the rest of the region.

Figure 3: Tourist Arrivals and Receipts to Malaysia, 2001-2010

Receipts Tourist Arrivals (RM’ million) (in’ million) 60,000 30 50,000 25 40,000 20 30,000 15
Receipts
Tourist Arrivals
(RM’ million)
(in’ million)
60,000
30
50,000
25
40,000
20
30,000
15
20,000
10
10,000
5
0
0
Legend:
Receipts (LHS)
Arrivals (RHS)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Source: Tourism Malaysia

The tourism industry in Malaysia

continues to show resilience despite the global economic crisis. The total receipts in 2010 increased to RM56.50 billion compared with RM53.37 billion in 2009. Total receipts have been experiencing

a steady 10-year compounded annual growth rate of 13%.

Tourism Malaysia figures show there were 2,367 hotels and 168,497 rooms in the country as at the end of 2010. As at March 2011 there were 215 four- star and five-star hotels in Malaysia, of which 60 hotels offering 23,129 rooms are located in the Klang Valley area.

Several big names entered the hospitality industry last year. DoubleTree by Hilton made its mark by opening a 540-room hotel in the Kuala Lumpur city centre and Banjaran Hotsprings resort by local hotel operator Sunway City Berhad opened 25 luxury villas.

Notable brands that will be coming on stream are The Regent, Hyatt and St Regis. The Regent will be entering the market in 2011 with a 250-room hotel complemented by 102 luxury residential apartments in Kuala Lumpur city centre.

The hospitality industry appears to be flourishing in Kuala Lumpur, Johor Baru, Penang, Kota Kinabalu
The hospitality industry appears to be
flourishing in Kuala Lumpur, Johor Baru,
Penang, Kota Kinabalu and Langkawi.
The average hotel occupancy rate in
2010 was fairly stable, standing at 60%
in 2010. The average room rate for three,
A total of 24.6 million tourists entered
Malaysia in 2010, marking an increase of
4.2% year-on-year compared with 23.6
four and five-star and budget hotels
hovered around RM160, RM224, RM365
and RM100 respectively.
million in 2009.
Figure 4: Number of Hotels and Rooms Supply in Malaysia, 2001-2010
No. of rooms
(in ‘000)
No. of hotels
(in ‘000)
Hyatt Hotels & Resorts, which currently
operates two hotels in Malaysia, will
be growing its brand to have bigger
representation in popular tourist cities
in Malaysia namely Penang, Malacca,
Langkawi and Johor Bahru. Hyatt
currently manages the 330-room Hyatt
Regency Kuantan in Pahang and the
288-room Hyatt Regency Kinabalu in
Sabah. The hotel chain owners are also
anticipating the opening of Grand Hyatt
hotel located in the Golden Triangle in
180
2.6 2013. The hotel will offer 412 rooms,
2.4 bringing the total inventory of Hyatt to
150
1,030 rooms.
2.2
120
2.0 St. Regis by Starwood Hotels and Resort
90
1.8 Group will be entering the industry in
2014, setting a new benchmark in
1.6 terms of room rates. Located in KL
60
1.4 Sentral, the primary transportation
30
1.2 hub in Kuala Lumpur, hotel rates are
expected to hover around RM1,000. The
0
1.0 development will include a 208-room
hotel and 160 units of apartments.
Legend:
Supply of Rooms (LHS)
Supply of Hotels (RHS)
(continued next page)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Source: Tourism Malaysia

SPECIAL REPORT

5

Figure 5: Recently Opened Establishment, 2010

Opening in 2010

Hotel

No. of Rooms/ Facilities

Location

Completion

Rating

Date

Banjaran Hotsprings G City Club Hotel Shah Alam Convention Centre Fraser Place (Serviced Apartment) The Philea Resort & Spa DoubleTree by Hilton

6

25 units

Perak

Jan-10

5

180 rooms

Kuala Lumpur

Mar-10

n/a

208,000 sq.ft

Selangor

Apr-10

5

215 units

KLCC

May-10

6

201 units

Malacca

May-10

5

540 rooms,

Kuala Lumpur

Aug-10

 

20,000 sq.ft

(meeting space)

TOTAL

720 rooms / 441 units

Source: MyCEB

(from previous page)

The need for branded budget hotels in Malaysia has also increased over the years, due to cheap travel offered by low cost carriers (LCC), Air Asia and FireFly. The rapid expansion of local and international routes has also contributed to the growth of budget travelers and even business travellers looking for economical fares.

The LCCs have become a transit mode to other destinations. Air Asia has expanded its routes to 78 destinations around the world, including the recent additions of Seoul, Paris and Christchurch. Firefly, on the other hand, flies to 18 destinations and will

be expanding its routes in the coming years. Currently, Tune Hotels and Grand Paradise Hotels are the only two branded budget hotel chains in Malaysia. The chains operate nine and two hotels respectively in various states in Malaysia.

Malaysia’s hospitality industry has a long term growth potential, judging by its resilience despite the global economic turmoil and global pandemic outbreaks. An important point to note is that the hospitality industry is investor-friendly, with no restrictions on foreigners owning any type of hospitality asset. At present, 58% of four and five-star hotels in Kuala

Lumpur are owned by foreign entities.

hotels in Kuala Lumpur are owned by foreign entities. Figure 6: Incoming Supply of Rooms/ Facilities

Figure 6: Incoming Supply of Rooms/ Facilities until 2016

DoubleTree by Hilton
DoubleTree by Hilton

New Development

Hotel

No. of Rooms/ Facilities

Location

Expected

Rating

Completion Date

The Regent The Regent Residence Allson Capital Hotel Pullman Impiana Hotel (extension)

5

236 rooms 115 units 236 rooms 515 units 180 rooms (existing 335 rooms) n/a 286 rooms 450 rooms 200 rooms, 32,300 sq.ft (meeting space) 1 million sq.ft 150 rooms

KLCC

2011

5

KLCC

2011

4

Kuala Lumpur

2011

5

Kuala Lumpur

2011

4

KLCC

2011

Fraser Residence Traders Hotel Grand Hyatt St. Regis Hotel

n/a

Kuala Lumpur

2012

4

Johor Bahru

2012

5

KLCC

2013

6

Kuala Lumpur

2014

MATRADE Convention Centre W Hotel

n/a

Kuala Lumpur

2014

5

Kuala Lumpur

2016

TOTAL

1,765 rooms / 115 units

Source: MyCEB, MPI Research

INVESTOR PREFERENCES

6

THE CHINA REPORT

Malaysia-China diplomatic and trade relations are on a strengthening momentum with a timely visit from Premier Wen Jiabao to Kuala Lumpur, April this year

relations are on a strengthening momentum with a timely visit from Premier Wen Jiabao to Kuala

by Chan Tze Wee

In terms of bilateral transactions, China is Malaysia’s largest trading partner, second largest export destination and largest source of import in 2010. Malaysia has also been China’s largest trading partner in ASEAN for three consecutive years since 2008. Despite the global economic crisis, Malaysia’s export to China registered double digit growth of 14.5% valued at RM80.60 billion in 2010. During Premier Wen’s visit on 29th April, a total of eight agreements and MoUs were signed between Malaysia and China. The list includes:

• Agreement on Expanding and Deepening Economic and Trade Cooperation between Malaysia and China

• Agreement between Malaysia and China on Framework Agreement to Facilitate Mutual Recognition in Academic Higher Education Qualifications.

• Joint-Venture Agreement between Smelter Asia Sdn Bhd and Aluminium Corporation of China Limited (CHALCO)

• MoU between Beijing Foreign Studies University and Universiti Malaya on Jointly Establishing Chinese Studies Centre

• MoU Resolving Traffic Congestion in Penang between the state government and Beijing Urban Construction Group Co. Ltd

• MoU on MSC Malaysia Human Capital Development Programme in ICT Industry between Multimedia Corporation Sdn Bhd (Mdec) and Dream Catcher Consulting Sdn Bhd with Huawei Technologies (M) Sdn Bhd

How does this bode for the Malaysian

Tianjin Bohai Rim Beijing Shanghai Chengdu Yangtze Delta Chongqing Guangzhou Pearl River Delta
Tianjin
Bohai Rim
Beijing
Shanghai
Chengdu
Yangtze
Delta
Chongqing
Guangzhou
Pearl River
Delta

Source: www.chinasuccessstories.com

real estate sector? The obvious beneficiary is increased investments in corporate real estate. Using Huawei Technologies’ presence in Malaysia as a case study, Huawei is the country’s largest Chinese investor since entering the Malaysian market in April 2001, as tracked by the Malaysian Investment Development Authority (MIDA). The MoU signed on assistance to help Malaysia train 10,000 telecom professionals in the next five years, making Malaysia one of the few global human resource centers for Huawei. This would be followed by plans to develop a Malaysian training centre to fulfill the training initiative. Currently, Huawei has 645 employees in Malaysia, where close to 10% are Chinese nationals Taken from a wider view, this is but one of 120 companies with Chinese interest across various industries operating in Malaysia as of 2011. Suffice to say, the expanding presence of international

Malaysia is the Country of Honour in the upcoming 8th China-ASEAN Expo held annually in Nanning, Guangxi. Industry clusters to be featured in the Malaysia Pavilion include Property Development, Food & Beverages, Health & Wellness, Building Materials and a strong representation from all government offices with a presence in China.

companies in Malaysia will bring along an increased demand for housing, amenities and other services associated with serving the business community.

Malaysian real estate potential to the Chinese investor

With one of the world’s fastest growing insurance markets, China’s insurance premium totaled RMB 1,452.8 billion and this market is expected to become the world’s fourth largest insurance market by 2018. By February 2011, Chinese insurers have total assets under management (AUM) of RMB5.2 trillion. The China Insurance Regulatory Commission (CIRC) issued a September 2010 circular (“CIRC Circular 79”) that explicitly permits China’s insurance companies to invest their assets in private equity. The allowed investments may be either direct or indirect, making China’s insurance companies potential equity investors in onshore companies as well as limited partners in onshore private equity funds or “RMB funds”. The aggregate investment in any one private equity fund may not exceed 20% of the fund’s total offering size.

With this, up to 10% of the RMB5.2 trillion assets are allowed to invest in real estate. For some context, real estate investment by Chinese insurers stood at RMB40 billion at end 2009, less than 10% of the RMB520 billion permitted as at February 2011.

(continued next page)

INVESTOR PREFERENCES

7

Malaysia 6,187,400 6,000,000 3,000,000 1,000,000 500,000 200,000 Figure 7: Chinese Diaspora Source: WSJ Research,
Malaysia
6,187,400
6,000,000
3,000,000
1,000,000
500,000
200,000
Figure 7: Chinese Diaspora
Source: WSJ Research, The Shao Center at Ohio University, CIA World Factbook

(from previous page)

With the Chinese insurance market’s widening investment horizon as an example of further liberal steps by the Chinese government, Malaysian players targeting inbound investments must continue positioning and lobbying for China’s attention and beyond.

Aside from the immediate advantage of geographical proximity and benefits conferred by being part of the China-ASEAN Free Trade Agreement, enhancing the current government-to- government relations between Malaysia and China is crucial to continue creating buy-in from Chinese conglomerates and investors alike. Over the course of 2011, the Malaysia-China engagement looks to solidify with further official visits such as the minister of industry and trade’s return visit to Shanghai in December, following the Deputy Prime Minister’s visit in March.

On the homebuyer level, increasing enquiries on Malaysian real estate opportunities have been recorded from Q2 2011. Some attribute this to Premier Wen’s recent visit as recognition of China’s closer ties with Malaysia. Various forms of enquiries have emerged. Chinese real estate agents are testing the viability of promoting prime Malaysian properties to their local clients in 1st tier cities.

Similar to the requirements of most foreign real estate buyers in Malaysia, the sought after formats are condominiums within the range of 500 – 2,000sq.ft. An additional criteria more

Factbox The many angles of potential Chinese interest into Malaysian real estate: • Shanghai’s high

Factbox

The many angles of potential Chinese interest into Malaysian real estate:

• Shanghai’s high concentration of Malaysians offers the opportunity of tapping into an accessible database as well leveraging on Shanghai’s extensive business networks

• Hong Kong’s corporate community includes China mainland companies that have larger exposure to foreign markets by virtue of being listed in Hong Kong

• The Pearl River Delta Region is made up of China’s southern coastal cities and provinces. Familiarity with Malaysia is highest in this part of China.

• Malaysia is the 4th largest population within the Chinese diaspora around the world (Wall Street Journal, July 2010).

unique to the Chinese target market is higher enquiries for themed properties such as golf villas and beachfront properties. Kuala Lumpur, Penang and Kota Kinabalu are the immediate areas of interest.

On the construction and development front, Chinese companies are enquiring on the prospects of development or equity joint ventures with credible Malaysian parties. At this stage of infancy, most investor questions are still focused on supplementing their initial market research stages – understanding Malaysia’s real estate outlook, growth prospects and clarification of government regulations.

In the long run, Malaysia’s favourable position within the ASEAN countries and its outward looking policies will need to remain highly competitive against the

promising growth prospects of other South East Asian countries. Perhaps

a larger aspiration would be to fit into

a China + 1 strategy where Malaysia features as the complementary regional office to China for global investors

expanding into Asia Pacific.

to China for global investors expanding into Asia Pacific. Upcoming MPI China Market Events are open
to China for global investors expanding into Asia Pacific. Upcoming MPI China Market Events are open

Upcoming MPI China Market Events are open for participation from Malaysian developers and real estate companies. Please contact MPI for further information.

September 2011: Malaysia Property Showcase, Shanghai

• October 2011: China-ASEAN Expo, Malaysia Pavilion, Nanning

POLICY

8

IT’S ALL A QUESTION OF INTENTION

S. Saravana Kumar discusses the

distinction between income tax and real property gains tax

S. Saravana Kumar discusses the distinction between income tax and real property gains tax

In property transactions, profits

derived upon disposal of a property by

a taxpayer are subject to income tax or

real property gains tax. This distinction depends on the taxpayer’s intention to hold the parcel of property either as a trading stock or as an investment.

It is important to identify this intention

as the tax treatment between the two types of property is different and

disputes can occur between the taxman and taxpayer about the nature of the profits derived upon disposal of the property.

Any profits arising from disposal of a trading stock are subject to income tax at the rate of 25%. Meanwhile, any gains arising from the realisation of an investment are subject to real property

gains tax (RPGT) at the rate of 5%, if it was owned for a period of less than 5 years. If the investment was owned for

a period of more than 5 years, it is not subject to RPGT.

So how does one distinguish between

a property held as trading stock or

investment? The Malaysian Courts have decided in a number of recent cases that the distinction simply depends on the intention of the taxpayer.

The Courts have held that the mere realisation of investment is not income under the ordinary concepts and usages of mankind. However, profits arising from the sale of any property acquired for the purpose of trading are subject to income tax.In these circumstances, the focal point of enquiry by the Courts is the dominant purpose for which the particular property was originally acquired. It is encouraging that the

Courts have commented that the mere presence of an intention to sell property

at a profit at some future date is not of

itself, sufficient to cause the profit to be taxable if the dominant motive in pur-

chasing the property was not the expectation of profit by sale.

So how does one distinguish between

a property held as trading stock or

investment? The Malaysian Courts have decided in a number of recent cases that

the distinction simply depends on the intention of the taxpayer.

The Courts have held that the mere realisation of investment is not income under the ordinary concepts and usages of mankind. However, profits arising from the sale of any property acquired for the purpose of trading are subject to income tax. In these circumstances, the focal point of enquiry by the Courts is the dominant purpose for which the particular property was originally

acquired.It is encouraging that the Courts have commented that the mere presence of an intention to sell property

at a profit at some future date is not of

itself, sufficient to cause the profit to be taxable if the dominant motive in purchasing the property was not the expectation of profit by sale.

The Courts are guided by the badges of trade as the criteria for distinguishing between profits subject to income tax and those subject to RPGT. The main badges of trade are the dominant purpose of acquiring the property, subject matter of transactions, period of ownership, frequency of transactions, circumstances for sale, motive or intention of taxpayer and methods of sale.

On the other hand, trading requires an intention to trade. The question to be asked is whether that intention existed at the time of the acquisition of the property. Was the property acquired with the intention of disposing of it at a profit, or was it acquired as a permanent investment?

Often, it is necessary to ask further questions: an investment may be sold

in order to acquire another investment

thought to be more satisfactory and that does not involve an operation of trade notwithstanding whether the first investment is sold at a profit or at a loss.

The Courts have held that a purpose so qualified and suspended does not amount to an intention to trade. At best, it is a mere contemplation until the materials necessary to a decision on the commercial merits are available and have resulted in such a decision.

In one case [1], the Courts held that the gains arising from the disposal of the land were subject to RPGT. It was commented that the evidence showed that the property was the only property bought and kept by the taxpayer for investment. There was no evidence to show that the taxpayer had been dealing in land before they acquired the property. In fact, there was no evidence to show that the taxpayer had other transactions in property before. There was also no evidence to show that the taxpayer was a developer before the transaction. The purchase of the said property was the only transaction carried out by the taxpayer. In those circumstances, the Courts held that it could not be said that dealing in land was the principal activity of the taxpayer.

Similarly, the Courts had also held that where a taxpayer takes no serious effort to obtain a loan facility from a financial institution and has no capabilities to develop land [2], such land is held to be the taxpayer’s investment. The gains are then subjected to RPGT.The mere fact that a taxpayer made a gain because the land was near the main road or a good location does not automatically make the gain liable to income tax. In another interesting case [3], it was held that the taxpayer had invested in the property by reason of its proximity to a nearby town. The value of the taxpayer’s land merely appreciated in the course of time due to the development of the surrounding areas.

The factors highlighted above were not seen by the Courts as factors alluding to trading but rather investment. In this regard, it is crucial that a taxpayer is aware of the potential tax implication

in managing his tax affairs prudently.

tax implication in managing his tax affairs prudently. [1] ALF Properties Sdn Bhd v Ketua Pengarah

[1] ALF Properties Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2005] 3 CLJ 936 [2] Au How Cheong Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (No.R(3)(1)-14-02-2006 [3] E v Comptroller-General of Inland Revenue (1950- 1985) MSTC 106

Next issue: What are the factors that allude to trading?

106 Next issue: What are the factors that allude to trading? S. Saravana Kumar is a

S. Saravana Kumar is a tax lawyer with Lee Hishammuddin Allen & Gledhill. He holds a Master of Laws in Taxation from the London School of Economics. He appears regularly in court for various tax and customs disputes. Saravana also advises on tax advisory & planning, tax audit & investigation, transfer pricing and international tax aspects.

IN THE NUTSHELL

9

GROWING

RETIREMENT

SAVINGS

THROUGH

PROPERTY

Asian pension funds are becoming incresingly enamoured of real estate as a long term investment option

PROPERTY Asian pension funds are becoming incresingly enamoured of real estate as a long term investment
enamoured of real estate as a long term investment option by Hazrul Izwan & A.Lalitha A

by Hazrul Izwan & A.Lalitha

A pension fund is generally the biggest player in the investment world, ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds, hedge funds, or private equity. Over the past decade, the total assets of pension funds globally have increased more than 75%, from US$17 trillion in 2001 to over US$30 trillion in 2010.

Towers Watson estimates that the Top 20 pension funds worldwide contributed more than 13% to the market. From 2004 to 2009, this sector has undergone an average annualised

Figure 8: Total Assets in US$ trillion and Annualised Growth in Asset of Top 20 Funds, 2010 (Split by Fund Domicile)

Total Asset Annualised (US$’ trillion) Growth (%) 1.6 50 40.6 1.4 40 1.2 1.0 30
Total Asset
Annualised
(US$’ trillion)
Growth
(%)
1.6
50
40.6
1.4
40
1.2
1.0
30
0.8
20
0.6
14.0
14.7
12.8
11.7
11.8
0.4
6.3
10
5.0
0.2
3.5
3.6
0
0
Legend:
Total Assets in USD trillion (LHS)
Japan
USA
S. Africa
Netherlands
Korea
Malaysia
Canada
Singapore
Denmark
China
Korea Malaysia Canada Singapore Denmark China Annualised Growth Rate (RHS) Source: Towers Watson asset

Annualised Growth Rate (RHS)

Source: Towers Watson

asset growth of 12.4%. China’s National Social Security Fund has shown tremendous growth of 40.6%, followed by Denmark (14.7%), Singapore (14.0%), Canada (12.8%), Malaysia (11.8%) and Korea (11.7%).

In many countries, particularly the developed nations of the West, the real estate sector has generally been considered to be an attractive asset class for long term investment. In the

Major demographic

changes in Asia will see Asian pension funds reassessing their current conservative asset allocations. Increased levels of real estate in their portfolios offer an important asset class for Asian pension funds to achieve portfolio diversification and meet their significantly increasing future liabilities in an effective risk- adjusted manner”

Professor Graeme Newell, University of Western Sydney

early 70s, pension funds began investing in real estate, predominantly in the office, retail and industrial sectors. Over the last 40 years, more than a hundred billion dollars have been injected into the property market through a number of investment modes such as direct acquisition, real estate investment trust (REITs), unlisted real estate funds and joint-ventures.

In Asia, however, real estate has not traditionally made up a significant level in most portfolios. Asian pension funds focus mainly on domestic low-yield assets, particularly fixed income and equities.

Figure 9: Top 20 Pension Funds

Rank

Fund

Country

Total Asset

 

(US$ million)

1

Government Pension Investment

Japan

1,315,071

2

Government Pension Fund-Global

Norway

475,859

3

ABP

Netherlands

299,873

4

National Pension

Korea

234,946

5

Federal Retirement Thrift

USA

234,404

6

California Public Employees

USA

198,765

7

Local Government Officials

Japan

164,510

8

California State Teachers

USA

130,461

9

New York State Common

USA

125,692

10

PFWZ

Netherlands

123,390

11

Central Provident Fund

Singapore

122,497

12

Canada Pension

Canada

122,067

13

Florida State Board

USA

114,663

14

National Social Security

China

113,716

15

Pension Fund Association

Japan

113,364

16

ATP

Denmark

111,887

17

New York City Retirement

USA

111,669

18

GEPF

South Africa

110,976

19

Employees Provident Fund

Malaysia

109,002

20

General Motors

USA

99,200

Source: Towers Watson

(continued next page)

IN THE NUTSHELL

10

(from previous page)

The exposure level in Asian pension funds is typically lower than in US, Canada, UK and Australia. Japan, which has the world’s largest pension fund, allocates less than 2% to real estate investments.

This scenario appears to be changing, however, as more and more Asian pension funds look for new asset classes in a search of good and stable yields. Real estate is increasingly being considered as one such asset class that offers safe diversification with stable yield.

in an effective risk-adjusted manner,” he explained in a report on the significance of real estate in Asian pension funds.

Colliers International (HK) Ltd regional director David Faulkner said, “With greater institutional involvement in direct real estate investment in Asia, more income producing properties are now being traded.”

Recent years have witnessed intense reform efforts in pension funds around the globe. Malaysia’s largest pension fund, the Employee Provident Fund (EPF) has also stepped up to increase the asset allocation for real estate.

Figure 10: EPF’s Gross Investment Income in 2010

US$ 8.02 billion
US$ 8.02
billion

Money Market

Instrument 2.9%

Property &

Equities 45.5%

Miscellaneous

Income 0.5%

Malaysian

Government

Securities 22.1%

Loans & Bonds 29.2%

Source: Employees Provident Fund (EPF)

University of Western Sydney professor of property investment Graeme Newell said major demographic changes in Asia will see Asian pension funds reassessing their current conservative asset allocations.

“Increased levels of real estate in their portfolios offer an important asset class for Asian pension funds to achieve portfolio diversification and meet their significantly increasing future liabilities

Currently, the pension

fund has less than 2% of its total accumulated funds invested in properties. However, it has a strategic asset allocation target of 5% for properties”

Shahril Ridza Ridzuan, Employees Provident Fund (EPF)

“Currently, the pension fund has less than 2% of its total accumulated funds [amounting to US$ 140 billion] invested in properties. However, it has a strategic asset allocation target of 5% for properties,” said EPF deputy chief executive officer for investment Shahril Ridza Ridzuan.

Local properties owned by the EPF include Sogo Shopping Complex, Wisma KFC, MAS Academy, Block A (Plaza Sentral) and Gurney Resort Hotel. EPF is also involved in a mixed development greenfield project at the 3,000-acre Rubber Research Institute Malaysia land in Sungai Buloh which it acquired for close to US$1 billion.

While aggressively exploring the domestic market, the EPF is also increasing its exposure overseas and is actively seeking investable properties in Singapore, Australia and the United Kingdom.

Its international investment strategy includes the acquisition of London properties The Fleet Street, One Sheldon Square and Portman Square for US$789 million in August 2010.

With greater

institutional involvement in

direct real estate investment in Asia, more income producing properties are now being traded”

David Faulkner, Colliers International (HK) Ltd

Recently, EPF and Singapore’s Guocoland entered into 20-80 joint- venture agreement to develop a US$2.6 billion mixed-use development which is expected to be completed in 2015.

Since early last year, EPF has been revealing its top equity investments in Bursa Malaysia on a quarterly basis. This is to promote greater transparency and to reassure its members that the investments are being undertaken in the interest of growing their retirement savings and in accordance with investment and corporate governance best practices.

EPF has shares in property development and property-related companies such as Malaysian Building Society Berhad (67.25%), Malaysian Resources Corporation Berhad (41.78%), WCT Berhad (21.33%), Sime Darby Berhad (15.29%), SP Setia Berhad (14.86%) and IJM Corporation Berhad (14.67%).

In order to create a vibrant domestic property market, EPF has pledged to continuously increase its real estate exposure. Although EPF’s fund size is smaller compared with pension funds in Europe and US, it is more proactive in implementing its real estate strategy.

EPF reported that its property and miscellaneous income last year rose 17% to USD34.4 million in 2010 from US$29.3 million in the preceding year. As such, total gross investment income in 2010 reached US$8.02 billion compared with US$5.74 billion in 2009.

Moving forward, Malaysian pension funds can adapt to increase their exposure and stimulate the property market by establishing clear real estate risk management procedures, particularly in terms of a risk-sharing strategy that includes joint-ventures and co-investment with other major pension funds, sovereign wealth funds

and real estate investors.

joint-ventures and co-investment with other major pension funds, sovereign wealth funds and real estate investors.

GRAPHICALLY SPEAKING

11

LANDED PROPERTY PRICE IN 1Q2011p COMPARED TO 1Q2010

• • • +12% • • • • •
+12%
TO 1Q2010 • • • +12% • • • • • PENANG • • Seberang Perai:

PENANG

• Seberang Perai: +3%

KUALA LUMPUR

Island: +5%

Central: +7%

North: +9%

South: +17%

SELANGOR

• Petaling: +12%

• Kelang: +5%

• Gombak: +8%

JOHOR

• Hulu Langat:

Johor Bahru: -4%

Batu Pahat: +5%

Muar: +1%

Kluang: -4%

Segamat: +11%

CAPITAL APPRECIATION FOR VARIOUS HOTSPOTS IN KLANG VALLEY, PENANG AND JOHOR

KLANG VALLEY

PENANG

JOHOR

Bandar Utama Bandar Sri Damansara Bangsar

+23.3%

Greenlane

+12.3%

Bdr. Baru Permas Jaya Taman Daya Taman Perling

+9.5%

+21.8%

Sungai Dua

+11.6%

+8.8%

+12.9%

Pulau Tikus

+10.7%

+8.3%

Source: NAPIC, CBRE, Raine & Horne, KGV-LSH, MPI Research Note: All analysis is based on Capital appreciation as at 1Q 2011p compared with 1Q 2010 Selected housing schemes p = Preliminary data

12

ABOUT US

Malaysia Property Incorporated is a Government initiative set up under the Economic Planning Unit to drive investments in real estate into Malaysia.

As the first port-of-call for real estate investment queries, Malaysia Property Inc. connects interested parties through an extensive network of government agencies, private sector companies, real estate firms, business councils and real estate- related associations.

MPI has two core objectives; to create international awareness and to establish connections between foreign interests and Malaysian real estate industry players, ultimately contributing to real estate investments into the country.

For further information and up-to-date tracking of Malaysian real estate data, visit:

www.malaysiapropertyinc.com

For further enquiry, write to:

info@malaysiapropertyinc.com

Disclamer: This report contains information that is publicly-available and has been relied on by Malaysia Property Incorporated on the basis that it is accurate and complete. MPI is not liable if the case proves to be otherwise. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed.