Showing posts with label property. Show all posts
Showing posts with label property. Show all posts

Wednesday 24 May 2023

Industry outlook – Malaysian property sector

Industry outlook – Malaysian property sector

The property market recorded an increase in 2022 supported by a better performance in all sectors compared to the previous year. In 2022, total transactions volume and value increased by 29.5% and 23.6%, respectively to 389,107 transactions and RM179.07 billion (2021: 300,497 transactions and RM144.87 billion). Total transactions volume in 2022 is the highest volume recorded within the period of 10 years (2012: 427,520 transactions) whilst total transactions value is higher than the previous record high in 2014 (RM162.97 billion).

Of the total transactions recorded in the review year, 20.7% (80,373) and 76.5% (297,700) were transfers dated 2021 and 2022 respectively while the remaining percentage share was for prior years’ transfer. Primary market formed 13.8% (53,698 transactions) of the total transactions (purchase from developers) while secondary market took up the remaining 86.2% (335,409 transactions).

The property market continued to record growth in 2022, supported by the implementation of various government initiatives and assistance, improving labour market conditions and higher tourist arrivals. Several initiatives which outlined under Budget 2022 by the government to a certain extent helped improve property market activities. These are:

i. RM1.5 billion allocation for low-income groups housing projects i.e. rumah mesra rakyat and maintenance assistance programmes.

ii. Lifting the imposition of Real Property Gains Tax on the disposal of properties in the 6th year onwards by Malaysian citizens, permanent residents and other than companies.

iii. Guarantees of up to RM2 billion to banks via Skim Jaminan Kredit Perumahan in assisting gig works, small entrepreneurs and farmers in obtaining home financing.

The Overnight Policy Rate (OPR) has increased gradually from the lowest level of 1.75% since May 2022 by 25 basis points each in May, July, September and November 2022 to 2.75%. The Monetary Policy Committee decided to further adjust the degree of monetary accommodation amid positive growth prospects for the Malaysian economy and to reduce inflationary pressures due to strong demand conditions, tight labour markets, and the elevated commodity process, despite some improvements in global supply chain conditions.

On the demand side, loan applications and approvals for residential purchase increased by 28.7% and 48.7% respectively in 2022. Higher levels recorded in 2022 as the data updated in accordance with the latest data definition and requirement. The new application and approval data will be based on real-time application and approval during the month, irrespective of time lag or application withdrawal by customer in the same month.

Though higher growth recorded by the growth trends remain broadly similar. Similarly, loan applications and approval for non-residential purchase also increased at 33.8% and 92.8% respectively.

Volume of transactions across the sub-sectors showed upward movements. Residential, commercial and industrial, agriculture and development land sub-sectors recorded year-on-year growths of 22.3%, 46.3%, 44.5%, 44.6% and 35.7% respectively. Value of transactions moved in tandem with residential, commercial, industrial, agriculture and development land sub-sectors recorded an increase of 22.6%, 16.7%, 24.8%,50.5% and 16.6% respectively.


Residential property

There were 243,190 transactions worth RM94.28 billion recorded in 2022, increased by 22.3% in volume and 22.6% in value as compared with 2021. Secondary market formed about 80.0% (194,749 transactions) of the total transactions while primary market (purchase from developers) formed nearly 20.0% (48,441 transactions).

All states recorded higher market volume except for Labuan which recorded decline in market activity. The uptrend recorded in Pulau Pinang (31.1%), Johor (24.3%), Perak (18.9%), Kuala Lumpur (18.4%) and Selangor (15.9%) supported the overall increase in the sub-sector. Combined, these states formed about 60% of the total national residential volume. Selangor contributed the highest volume and value to the national market share, with 23.2% in volume (56,514 transactions) and 32.4% in value (RM30.58 billion). Kuala Lumpur recorded 13,182 transactions but ranked the second highest in value at RM11.79 billion, contributing 12.5% market share. Demand continued to focus on terraced houses, formed around 42.0% of the total residential transactions, followed by vacant plots (15.1%), high-rise units (15.0%) and low-cost houses/ flats (10.6%). By price category, RM300,000 and below accounted for 55.8% of the total, followed by RM300,001 to RM500,000 (24.2%) and more than RM500,000 (20.0%).

The primary market recorded more than 54,000 newly launched units in 2022. In spite of the increase in new launches, market remained cautious as the numbers were lower than those recorded in the pre-pandemic years.

Sales performance was moderate at 36.0%. Selangor (11,176 units), Kuala Lumpur (10,324 units) and Johor (7,718 units) were the three leading states with higher new launches. Both Kuala Lumpur and Johor recorded better sales performance at more than 40.0% as compared to Selangor, which recorded a lower rate of 26.9%.

Condominium/apartment units dominated the new launches, capturing 45.0% (24,366 units) of the total, followed by terraced houses with 42.2% share, comprised single storey (9,422 units) and two to three storey (13,403 units).

The residential overhang situation improved as the numbers reduced compare to previous year. A total of 27,746 overhang units worth RM18.41 billion recorded in 2022, reduced by 24.7% and 19.2% in volume and value respectively against 2021 (36,863 units worth RM22.79 billion). Johor retained the highest number and value of overhang in the country with 5,258 units worth RM4.33 billion, accounting to 19.0% and 23.5% respectively of the national total. Selangor (3,698 units), Pulau Pinang (3,593 units) and Kuala Lumpur (3,429 units) followed suit. In terms of value, the second highest was Selangor (RM3.36 billion), followed by Kuala Lumpur (RM3.15 billion) and Pulau Pinang (RM2.74 billion). Condominium/apartment formed 61.9% (17,162 units) of the national total overhang, followed by terraced houses (20.3%; 5,636 units). By price range, those priced at RM500,001 to RM1.0 million formed 33.6% (9,323 units) of the total, higher than 30.2% in 2021.

Price range between RM300,001 and RM500,000 came second, accounting for 29.3% (8,128 units).

Meanwhile, houses in the affordable price range of below RM300,000 formed another 23.5% (6,509 units) of the total and followed by more than RM1.0 million price range formed 13.6% (3,786 units). The unsold under  construction improved as the numbers dropped to 57,649 units (2021: 70,231 units), declined by 17.9% meanwhile unsold not constructed recorded sharply decrease by 49.7% in number with 11,053 units (2021: 21,960 units).


Commercial property

The sub-sector recorded a further increase in market activity in 2022. There were 32,809 transactions worth RM32.61 billion recorded in 2022, increased by 46.3% in volume and 16.7% in value as compared with 2021 (22,428 transactions worth RM27.94 billion). The increase in all states and major transactions involving shopping complex and purpose-built office recorded in the review period contributed to the overall improved market. Selangor contributed the highest volume and value to the national market share, with 26.4% in volume (8,654 transactions) and 31.7% in value (RM10.35 billion). Kuala Lumpur came second with 14.6% in volume (4,777 transactions) and 26.0% in value (RM8.49 billion) and Johor with 14.6% in volume (4,787 transactions) and 14.0 % in value (RM4.57 billion).

Shop segment recorded 16,862 transactions worth RM14.2 billion, dominating 51.4% of the commercial property transactions volume and 43.5% of the total value. Market activity recorded an increase of 45.7% in volume and 48.2% in value (2021: 11,574 transactions worth RM9.6 billion). Selangor contributed the highest volume and value to the market share, with 19.0% (3,207 transactions) and 29.9% of the total value (RM4.2 billion) followed by Johor with 17.1% (2,880 transactions) and 16.3% of the total value (RM2.3 billion). By type, two to two and a-half storey shops captured more than 53.0% (8,970 transactions) of the shops’ market share, followed by three to three and a-half storey shops, registering 27.4% share (4,628 transactions). Shop overhang segment increased to 6,720 units with a value of RM5.84 billion, up by 1.6% in volume and up 1.1% in value against 2021. The unsold under construction and not constructed saw the reverse, down by 28.8% (2,777 units) and 9.0% (365 units). Johor accounted for nearly 26.0% of shop overhang volume and 28.7% in value (1,731 units worth RM1.67 billion) and the unsold under construction with 36.2% share (1,005 units).


Industrial property

The industrial sub-sector recorded 8,082 transactions worth RM21.16 billion in 2022. Compared to 2021, the market activity increased by 44.5% in volume and 24.8% in value. Selangor continued to dominate the market, with 33.8% of the nation’s volume, followed by Johor and Perak, each with 14.0% and 8.1% market share.

The industrial overhang remained manageable. The overhang volume decreased to 880 units worth nearly RM1.15 billion, down by 22.1% volume and 27.6% in value against 2021. On similar note, the unsold under construction decreased to 450 units, down by 31.2%. The unsold not constructed recorded 51 units, more than 22 units recorded in 2021. Sarawak held most of the overhang, with 33.8% share, followed by Johor (23.3%) and Pulau Pinang (9.7%). By type, terraced and semi-detach units formed the bulk of the overhang, each with 59.2% and 29.8% share. Most of the overhang were above RM1 million, forming 45.2% of the national total.

The property market is expected to continue its momentum with various initiatives outlined by the government under the revised Budget 2023. Among others:

1. Full stamp duty exemption on instrument of transfer and loan agreement for the purchase of the first  residential home priced up to RM500,000 by Malaysia citizens remained until 31 December 2025.

2. Increase of stamp duty remission from 50% to 75% for the purchase of the first residential properties priced between RM500,000 to RM1 million by Malaysian citizens and applicable for sale and purchase agreements executed until 31 December 2023.

3. Full stamp duty exemption up to RM1 million and 50% stamp duty remission for the remaining balance on transfers of property by way of love and affection between family members (father to child and grandfather to grandson).

4. Allocation of RM460.2 million for the building of new homes and home renovations in rural areas.

5. Allocation of RM389.5 million will be channeled to the People’s Housing Programme.

6. Allocation of RM358 million for the construction of affordable homes under Rumah Mesra Rakyat programme by Syarikat Perumahan Negara Berhad.

7. Allocation of RM462 million for the construction of 23,000 houses under Projek Perumahan Awam Malaysia.

8. Increase the guarantees of up to RM5 billion via Syarikat Jaminan Kredit Perumahan in assisting gig workers such as e-hailing workers in obtaining home financing up to RM500,000.

As the country’s GDP growth is projected to be moderately lower than the previous year and in line with other countries in the region, the property market performance is expected to be cautiously optimistic given the unpredictable external environment. The accommodative policies, continuous government support, well execution of measures outlined in the revised Budget 2023 and the proper implementation of strategies and initiatives under RMK-12 are expected to remain supportive of the property sector.

(Source: Property Market Report 2022, Valuation & Property Services Department Malaysia, Ministry of Finance.)


Friday 13 January 2023

Property Developers - Rising Interest Rates and Costs Add to Woes

Kenanga Research & Investment

Property Developers - Rising Interest Rates and Costs Add to Woes


kiasutrader

Publish date: Fri, 13 Jan 2023, 09:08 AM

We maintain NEUTRAL on the sector as it continues to be weighed down by oversupply and cautious lending by the banks, while housing affordability is eroding on the back of rising interest rates and soaring construction cost, not to mention the already high household debt to GDP ratio in Malaysia. Our key concerns going into 2023 are developers’ elevated net debt levels and tight cashflows, exacerbated by higher interest rates. Our top sector picks are developers with strong sales despite the tough operating environment, translating to cash flows that anchor good dividends, namely, ECOWLD (OP; TP: RM0.83) and IOIPG (OP; TP: RM1.60).


Not out of the woods. We expect operating environment for developers to remain challenging in 2023. We foresee unfavourable industry trends during much of 2022 to persist into 2023. These include: 

(i) soft prices as reflected in a weak house price index as seen in a QoQ contraction in 3Q2022 despite the rising construction and land costs, and 

(ii) the still elevated household debt to GDP ratio at 85% in 1H2022.


While the loan approval rate for 10M2022 already recovered back to pre-pandemic levels of 43%, it is still pale in comparison to 45-51% seen during the upcycle in 2011-2014. Meanwhile, housing affordability is eroding on the back of rising interest rates and soaring construction cost. Property developers are struggling to pass on higher construction cost to end-buyers as price hikes will hurt take-up, putting the viability of the new launches at risk. Most of them choose to sacrifice on margins.


Overhang eases but remains high. Based on NAPIC’s latest 3Q2022 publication, there was some reduction in units in circulation (which includes overhang and unsold under construction units) against the peak recorded in 2021. Despite the reprieve, we note that there is still a long way towards recovery as units in circulation are still rather high versus historical levels – creating price competition and pressure for new unit launches.


A bright spot in landed homes. Since the onset of the pandemic, we note that prices for terrace homes were the only sub-segment that have shown notable growth while prices of high-rises and detached homes have either declined or only grew marginally. Taking cue from such trend, we believe developers focusing on landed townships, i.e. ECOWLD, IOIPG, and SIMEPROP (OP; TP: RM0.55) will fare better than the rest.


Balance sheet concerns linger. Going into 2023, we grow increasingly cautious over developers’ high borrowings levels which would translate to higher financing costs and potential liquidity crunch. Already faced with a tough operating climate, developers’ earnings will be hurt further by the high financial leverage. Developers under our coverage have all shown increased net debt levels over the pandemic, with the exception of ECOWLD and UOADEV (MP; TP: RM1.75).


Overall, we reiterate our top picks being developers with strong cash flows that could anchor good dividends, namely, ECOWLD and IOIPG. We like ECOWLD for its strong branding and prudent cashflow management while IOIPG is for its hidden value within in its prime investment properties in the Klang Valley, Singapore and China, which could potentially be unlocked via a REIT.


Source: Kenanga Research - 13 Jan 2023


https://klse.i3investor.com/web/blog/detail/kenangaresearch/2023-01-13-story-h-301086692-Property_Developers_Rising_Interest_Rates_and_Costs_Add_to_Woes

Monday 5 August 2019

Property counters: How are shareholders rewarded? How exciting are property counters in terms of investment returns?

Property counters

1. Land held for development.

2. Land being developed and properties for sale.

3. Investment properties held for rental income.



How are shareholders rewarded?

After successful development and realisation of profits from the projects, the property counter may choose to reward the shareholders by paying half their earnings as dividends.

The investment income from properties held as investment can also be partially disbursed as dividends.

[How exciting are property counters in terms of investment returns?]

Monday 5 September 2016

How to analyze real estate developers

How to analyze real estate developers

Real estate stocks make up a significant number of companies in Asian stock exchanges and many of them are among the the most volatile stocks. Whether the real estate developer is listed or not, they are influenced by a host of cyclical factors ranging from government policies, interest rates, unemployment rates, affordability, etc. Hence, it is important to understand how real estate companies can be analyzed.


Profit Model

Real estate industry can be separated into the following sub-industries or types of real estate developers:

  1. Residential real estate developers
  2. Commercial and mixed use real estate developers
  3. Industrial real estate developers

Profit model of residential real estate developers

Residential real estate developers are more dependent on economies of scale than ever because of increasing land prices and declining rate of increase in residential property prices. In many developing countries, developers used to be able to acquire land at cheap prices and hope for rapid increase in home prices to make huge profits. In developed countries, land prices are higher, and price increases are more muted. Hence, brands and good management are playing an increasingly important role.


Profit model of commercial real estate developers

As prime real estate for commercial developments become more scare, commercial real estate developers tend to prefer to have rental incomes rather than selling units so that they can have consistent income and manage the properties. These developers are also more likely to sell their commercial properties to real estate investment trusts to free up capital and many are REITs that also develop properties.


Profit model of industrial real estate developers

Industrial real estate developers operate more like commercial real estate developers as they seek to have stable rental incomes and also sometimes selling their properties. Some industrial estate developers might even have a fund to invest in promising industrial companies so as to achieve higher profits.



Factors that Affect Value


1.  Land bank - the value of a real estate developer is directly influenced by its land bank. As the larger the land bank, usually means the developer can make more profits from developing the land banks later. Hence, the land bank that a real estate company has is always disclosed in detail in the listed companies' reports.

2.  Inventories - Real estate inventories can be separated into a few categories. Usually increasing values of construction-in-progress and land held for development will translate to higher future earnings for the company:
  • Completed developments - properties whose construction has been completed
  • Construction-in-progress - means the value of properties under construction.
  • Land held for development - value of land help for future developments.
  • Investment properties - properties held for rent or sale

3.  Customers deposits - for residential projects, it is often that developers will collect customers deposits or even prepayments of entire houses prior to completion of the units. As these properties are pre-sold and their profit and loss have yet to be recognized in the income statement, growing customer deposits could signal increasing revenue and most likely profits in the coming years ahead.

4.  Housing prices - the profits from real estate developers that primarily sell their developments come from selling the units at above costs. Hence, the moving of housing prices have direct impact on the profitability of residential real estate developers. Usually the stock price of real estate developers have high correlation with the anticipated housing price direction.

5.  Rental rates - Rental rates are especially important for commercial and industrial real estate developers as most of them do not sell all the units that they developed but they keep these units for rental returns. Rental rates have direct bearing on stock prices of such developers and REITs.

6.  Industry consolidation - as economic difficulties mount and economies of scale becomes more important, mergers and acquisition activities will also drive prices of real estate companies as the merged entities might be more efficient given a larger land bank.

7.  Macro economic factors - government policies play a huge role in controlling property prices as the following factors will determine the direction of property prices. We have listed

Factor                 Movement      Likely Effects
Interest rates         Up                Negative
Land supply          Down            Positive on short term price but will affect future
                                                  profitability if land bank dries up
Loan Quantum      Up                 Positive
Reserve ratio         Up                Negative
GDP                     Up                Positive
Unemployment      Up                       Negative




Valuing Real Estate Developers

A common method to value real estate developers is using the Revalued Net Asset Value ("RNAV") approach which basically determines the net asset value of a real estate developer by adding up

  • the change in value of the investment properties held by the company, 
  • the surplus value of properties held for development using Discounted Cash Flow method and 
  • the net asset value of the company with any other adjustments that are deemed necessary.


Usually a discount or premium percentage is multiplied with the RNAV base on the developers other qualities such as management capabiltiies, branding, track record, etc. A smaller developer with poor record of continuously generating consistent income is usually given a significant discount to its RNAV.

Using the RNAV approach only takes into account of what the developer can earn with the assets that it has in its books at the time of the valuation. If properly applied, it is usually more conservative than the market approach such as P/E multiples.

However, to use this method, it requires a lot of work in revaluing the properties held by the developer, making it difficult to implement by most people as information needed to determine RNAV needs some skill in obtaining.

The price earnings ratio method could also be useful to cross check the RNAV method.

Source: http://roccapitalholdings.com/content/how-analyze-real-estate-developers

Wednesday 23 March 2016

Help young M’sian graduates own houses, urges INCEIF deputy dean

March 21, 2016, Monday

The average monthly salary of fresh graduates, mainly degree holders, is only around RM3,000 and for diploma holders lower.
With the current house prices, which are appreciating, it is impossible for the young graduates to own houses in the Klang Valley and other major cities.
The house values in these areas are over 100 times the monthly income of a fresh degree holder. Thus, more graduates have opted for depreciating assets, including cars and motorcycles, to fulfil their desires to own assets.
Associate Professor Dr Mohd Eskandar Shah Mohd Rasid said this trend was unhealthy for the graduates, especially in their long-term financial journey.
The International Centre for Education in Islamic Finance (INCEIF) School of Graduate Studies deputy dean, said the government, as the regulator, may need to find a solution to help these graduates own something that would help them move up in the value chain as the time goes by.
By purchasing only the depreciating assets, he said, it would be harder for them to improve their standards of living in the future.
“One thing the government can do is to look at subsidising the purchase of properties as we are currently subsidising quite a lot in terms of (other) consumption.
“Maybe the savings that we have from removing all these subsidies can be channelled into subsidising property purchases because it’s so important for the young graduates to own something (appreciating assets) in the country and build up their life,” he told
Bernama.
By allowing graduates to own a house at a subsidised price for a start, Mohd Eskandar said, it would eventually help them in their long-term financial journey, as well as moving away from debt-based society to ownership society.
“Another way the government can do is maybe to make the car prices more competitive, which in turn could free up some of their financing to make them available to purchase a house,” he said.
Mohd Eskandar said a study on housing subsidy was needed.
“There must be a mechanism so that only the right group of people would benefit from the incentive.
“We have to undertake the study. If you do not do it properly than the people can also abuse the subsidy. We don’t want that to happen,” he said.
Mohd Eskandar also suggested the government adopt the Singapore Housing and Development Board model, which, in a way, provided subsidy for its people in purchasing houses.
“By allowing people to own the appreciating assets, it would allow them (in the future) to move into a better houses.
Rather than setting the standard (house price) too high, we should allow the people to own something first.
“Without taking the first step, they will not be able to move to higher step,” he said.
Meanwhile, Mohd Eskandar said, INCEIF was concerned the saving rate among Malaysians was going down, and that they were borrowing a lot.
“It is not a good sign of sustainable economy. We need to change that. Maybe the reason people are not saving is that they are not getting the value for their savings,” he said.
He said this is where Islamic finance could play the role.
“When you follow the Islamic finance value, which is more of risk sharing, you take higher risk to get higher return.
And if the banking system can  provide better value for the investments rather than looking at the customers as depositors but investors and give better value, they might encourage more people to save,” he said.
The scholar said creating wealth was important in Islamic finance, as well as chanelling wealth through zakat and waqaf. — Bernama


Read more: http://www.theborneopost.com/2016/03/21/help-young-msian-graduates-own-houses-urges-inceif-deputy-dean/#ixzz43i71qqDT

Thursday 17 December 2015

Health Care REIT

Health Care REIT, Inc.
HCN (NYSE)
Website: www.hcreit.com

Sector:  Health Care
Beta Coefficient: 0.43
10 Yr Compound EPS Growth:  20.5%
10 Yr Compound DPS Growth: 2.5%
Dividend raises, past 10 years: 10 times.


Financial Result Year 2014

Revenues (m)     3,344
Net Income (m)    505.0
Funds from operations per share  4.13
Real Estate owned per share 69.5
DPS 3.18
Current yield 4.4%

High Price  78.2      DY 4.07%
Low Price   52.9     DY 6.01%


This is a large REIT, paying yield exceeding 5 percent.

It invests primarily in senior living and medical care properties primarily in the U.S.  

The REIT owns and/or operates some 1,328 properties in three countries and operates assisted living, skilled nursing, independent-living and the medical centers.

Health Care REIT operates in three primary business segments:
  • Seniors Housing "triplet-net" segment:  primarily owning senior housing properties.  This segment owns 666 properties, most in the US and contributes 33% of revenues.
  • Seniors Housing Operating segment which operates 202 properties in 34 states, 54 in Canada and 41 in UK and contributes about 43% of revenues.  This is the fastest-growing segment.
  • Medical Facilities which operates office space set in 241 facilities for medical purposes, inpatient and outpatient medical centers and life science laboratories, contributing about 14% to revenues.

Occupancy rates are 87.7% in the Seniors Housing triple-net segment, 90.3% in the Seniors Housing Operating, and 94.4% in the Medical Facilities segment.

In 2014 and early 2015, the company made two medium-sized common stock sales, which hurt the stock price temporarily but also funded the acquisition of $3.7 billion in new real estate investments.

The company added a modest number of shares again in 2015 to fund acquisitions and to approach a goal of 60% equity.

REITS are typically good income producers, as they are required by law to pay a substantial portion of their cash flow to investors.

The accounting rules are different, and REIT investors should focus on Funds From Operations (FFO), which is analogous to operating income.
(Net income figures have depreciation expense deducted, which can vary in timing and not always be realistic.)

FFO support the dividends paid to investors.

Investing in such a REIT, you are investing in real estate and in the health-care industry, and with the property mix owned by Health Care REIT, you are investing in the aging population.



HCN (NYSE)

Wednesday 29 April 2015

How to analyze real estate developers***

Real estate stocks make up a significant number of companies in Asian stock exchanges and many of them are among the the most volatile stocks. Whether the real estate developer is listed or not, they are influenced by a host of cyclical factors ranging from government policies, interest rates, unemployment rates, affordability, etc. Hence, it is important to understand how real estate companies can be analyzed.

Profit Model

Real estate industry can be separated into the following sub-industries or types of real estate developers:
  • Residential real estate developers
  • Commercial and mixed use real estate developers
  • Industrial real estate developers

Profit model of residential real estate developers

Residential real estate developers are more dependent on economies of scale than ever because of increasing land prices and declining rate of increase in residential property prices. In many developing countries, developers used to be able to acquire land at cheap prices and hope for rapid increase in home prices to make huge profits. In developed countries, land prices are higher, and price increases are more muted. Hence, brands and good management are playing an increasingly important role.

Profit model of commercial real estate developers

As prime real estate for commercial developments become more scare, commercial real estate developers tend to prefer to have rental incomes rather than selling units so that they can have consistent income and manage the properties. These developers are also more likely to sell their commercial properties to real estate investment trusts to free up capital and many are REITs that also develop properties.

Profit model of industrial real estate developers

Industrial real estate developers operate more like commercial real estate developers as they seek to have stable rental incomes and also sometimes selling their properties. Some industrial estate developers might even have a fund to invest in promising industrial companies so as to achieve higher profits.

Factors that Affect Value

  • Land bank - the value of a real estate developer is directly influenced by its land bank. As the larger the land bank, usually means the developer can make more profits from developing the land banks later. Hence, the land bank that a real estate company has is always disclosed in detail in the listed companies' reports.
  • Inventories - Real estate inventories an be separated into a few categories. Usually increasing values of construction-in-progress and land held for development will translate to higher future earningswill translate to higher future earnings for the company:
    • Completed developments - properties whose construction has been completed
    • Construction-in-progress - means the value of properties under construction.
    • Land held for development - value of land help for future developments.
    • Investment properties - properties held for rent or sale
  • Customers deposits - for residential projects, it is often that developers will collect customers deposits or even prepayments of entire houses prior to completion of the units. As these properties are pre-sold and their profit and loss have yet to be recognized in the income statement, growing customer deposits could signal increasing revenue and most likely profits in the coming years ahead.
  • Housing prices - the profits from real estate developers that primarily sell their developments come from selling the units at above costs. Hence, the moving of housing prices have direct impact on the profitability of residential real estate developers. Usually the stock price of real estate developers have high correlation with the anticipated housing price direction.
  • Rental rates - Rental rates are especially important for commercial and industrial real estate developers as most of them do not sell all the units that they developed but they keep these units for rental returns. Rental rates have direct bearing on stock prices of such developers and REITs.
  • Industry consolidation -  as economic difficulties mount and economies of scale becomes more important, mergers and acquisition activities will also drive prices of real estate companies as the merged entities might be more efficient given a larger land bank.
  • Macro economic factors - government policies play a huge role in controlling property prices as the following factors will determine the direction of property prices. We have listed
FactorMovementLikely Effects
Interest ratesUpNegative
Land supplyDownPositive on short term price but will affect future profitability if land bank dries up
Loan QuantumUpPositive
Reserve ratioUpNegative
GDPUpPositive
UnemploymentUpNegative

 

Valuing Real Estate Developers

A common method to value real estate developers is using the Revalued Net Asset Value ("RNAV") approach which basically determines the net asset value of a real estate developer by adding up the change in value of the investment properties held by the company, the surplus value of properties held for development using Discounted Cash Flow method and the net asset value of the company with any other adjustments that are deemed necessary.
Usually a discount or premium percentage is multiplied with the RNAV base on the developers other qualities such as management capabiltiies, branding, track record, etc. A smaller developer with poor record of continuously generating consistent income is usually given a significant discount to its RNAV.
Using the RNAV approach only takes into account of what the developer can earn with the assets that it has in its books at the time of the valuation. If properly applied, it is usually more conservative than the market approach such as P/E multiples.
However, to use this method, it requires a lot of work in revaluing the properties held by the developer, making it difficult to implement by most people as information needed to determine RNAV needs some skill in obtaining.
The price earnings ratio method could also be useful to cross check the RNAV method.

Source: http://roccapitalholdings.com/content/how-analyze-real-estate-developers



http://secret-gems.blogspot.com/2013/04/how-to-analyze-real-estate-developers.html

Saturday 14 December 2013

Property - London’s lure dimmed by capital gains tax

London’s lure dimmed by capital gains tax
Published: 2013/12/10


LONDON: London’s status as a magnet for foreign property investment was burnished in the years after the financial crisis by an investor-friendly tax regime and the falling value of the pound. That may be changing.

A new capital-gains tax on homes sold by people living abroad and a growing British economy that’s lifting the currency may dull the capital city’s appeal to property buyers from abroad.

The government “will put people off by changing the rules constantly and making it less tax-friendly for buyers,” Andrew Sneddon, head of tax law at Trowers & Hamlins, said by phone. “If these wealthy buyers choose to go to Monaco, Paris or New York to spend their summers and their money, what’s that going to cost the U.K. economy?”

Investors from the Middle East to Asia have been splurging on London homes, buying everything from multi million-pound mansions to apartments in Battersea and the City of London. That’s driving prices beyond the reach of many British buyers and sparking a development surge that’s increasingly dependent on non-U.K. investors buying homes before they’re completed.

South Asian buyers account for two-thirds of new London homes sold before completion, according to Land Securities Group Plc, the largest U.K. real estate investment trust. The high-end market is dependent on pre-sales to overseas buyers to help get development finance and deal with rising land costs, Michael Lister, a lecturer at University of Westminster, said in a Nov. 22 interview.


‘International Hiccup’


The market “only needs a bit of an international hiccup for the buyers to hold back, and then you’re really stuck,” said Lister, a former head of U.K. property lending at Bank of Ireland Plc. “You can’t possibly afford to sell to the domestic buyers because they can’t afford to pay those figures.”

Battersea Power Station Holding Co. raised a 790 million- pound ($1.3 billion) syndicated loan to develop and refurbish the first phase of the site after it pre-sold about $1 billion of apartments and townhouses in May, the company said in a Nov. 21 statement. The record of pre-sales was reflected in the terms of the financing, it said.

Chancellor of the Exchequer George Osborne announced the new capital-gains tax in a statement to Parliament on Dec. 5. It will apply to “future gains” after the tax goes into effect in April 2015, he said without specifying the size of the levy. Capital-gains tax rates for second homes of U.K. residents currently range from 18 percent to 28 percent.


Building Luxury


Luxury-home developers plan to build more than 20,000 properties in London with a value of about 50 billion pounds in the next decade, Mark Farmer, head of residential property at consulting firm EC Harris LLP wrote in a Nov. 25 report. As well as a strengthening pound, the developers face rising building costs and a risk that investors will grow weary of repeated sales exhibitions, he said.

“You’ll see softening in pricing, at the bottom end of the luxury-housing market,” Farmer said. Investors will remain interested though they will “drive a harder deal.” EC Harris defines the lower-end of the luxury homes market as 1,250 pounds to 1,700 pounds a square foot.

In central London, about 28 percent of home buyers in the two years to June didn’t live in the U.K., according to broker Knight Frank LLP. That rises to about 49 percent for new homes. In Greater London, 10 percent to 15 percent of new homes are bought by non-residents, Knight Frank estimated in October.


Moving Goalposts


Singapore and Hong Kong, two destinations also favored by south Asian buyers, have introduced measures to cool property prices and curb speculation. Singapore linked borrowers’ maximum debt levels to their incomes and raised transaction and capital- gains taxes. Hong Kong has increased minimum down payments six times in fewer than three years and in February doubled stamp- duty taxes for all properties over HK$2 million ($258,000).

Transactions in Hong Kong will probably drop as much as a third this year compared with 2012, Knight Frank estimated. In Singapore, home-price declines accelerated in October from a month earlier to 1.2 percent.

The frequency of changes to U.K. property-tax law and the possibility of further levies are also seen as a hindrance to homebuyers from abroad. Osborne raised a transaction tax known as stamp duty to 7 percent from 5 percent for properties priced at more than 2 million pounds in March 2012.

Labour Party leader Ed Miliband and Nick Clegg, head of the Liberal Democrats, which govern in a coalition with Prime Minister David Cameron’s Conservative Party, support an annual levy on houses valued at more than 2 million pounds known as the mansion tax. Cameron opposes the idea.


Missed Opportunity


“The government had a chance to review property taxes in 2012 and they fudged it,” Rob Perrins, managing director of U.K. homebuilder Berkeley Group Holdings Plc said in a telephone interview. “Our real concern is that the government will keep playing around and changing the tax every six months. Property is a long-term acquisition and people deserve to know where they stand.”

About 30 percent of Berkeley’s customers are foreign, Perrins said.

The capital-gains tax will affect prices at the lower-end of the prime central London homes market where “speculators” who didn’t intend to live in the properties are more involved said Alex Michelin, a founder of luxury developer Finchatton Ltd. “It’s not going to switch off the tide. The marginal investor will say ‘this no longer makes it as attractive for me and I will stop doing it.’”


Top End


The tax won’t affect the superprime market, he said, as buyers there are more likely to live in their homes. Superprime homes are valued at 5 million pounds or more, according to broker Savills Plc.

“It’s not an unfair tax. It brings London in line with Paris and New York,” he said. “This is just trying to say we want to make it fair for everyone.”

U.K. economic growth is increasing more rapidly than previously expected, Osborne said last week. That may affect property investors from abroad more than the new tax as it puts pressure on the Bank of England to raise interest rates, boosting a pound that has already been rising.

The pound plummeted against a basket of major currencies after the collapse of Lehman Brothers Holdings Inc., making London homes a relative bargain for wealthy investors and buyers from emerging Asian economies. The Singapore dollar gained 60 percent against the pound from September 2007 to June this year and the Malaysian ringgit climbed by 50 percent. Since then, the pound has risen 6.8 percent and 12 percent respectively against the Asian currencies.

“One of the key drivers around demand in that market, particularly from the Far East, has been the relative weakness of sterling over the last three or four years,” said Farmer of EC Harris. “The improving economy is good for U.K. Plc but it might make residential investment slightly less competitive or good value in the eyes of the international community.” -- BLOOMBERG


Read more: London’s lure dimmed by capital gains tax http://www.btimes.com.my/Current_News/BTIMES/articles/20131210163205/Article/index_html#ixzz2n4ff9sPr

Sunday 13 October 2013

Reality check on debt mountain of Malaysian households

Saturday October 12, 2013 

Reality check on debt mountain

A YOUNGSTER came to me recently to seek views about his financial stress. He says the first thing he does when he gets his pay cheque is to repay loans, including a car loan, credit card payments and personal loan. Owning a house is on his wish list, but it is yet to be realised.
His case mirrors many similar situations faced by Malaysians nowadays, not only confined to the younger generation. It has become a concern to the authorities as our household debt ratio against the GDP (gross domestic product) has reached an all-time high of 83% as of March this year, the highest for a developing country in the region. In comparison, Indonesia’s household debt ratio stands at 15.8%, Hong Kong at 58%, and Singapore at 67%, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz’s comment recently.
While we are concerned about the high debt level, we should also take a closer look at the root cause. What is underneath the “debt mountain” and how can we address the issue?
The major components of household debt are housing, car, personal and credit card loans. According to Bank Negara statistics, as at April 2013, the total residential housing loans taken by Malaysians is RM316.2bil, passenger car loans amounts to RM145bil, personal loans stand at RM55.8bil, and credit card loans at RM32.3bil.
In terms of debt ratio for the four components mentioned above, housing loans account for 57.5% of the total debt, with car, personal and credit card loans accounting for 26.5%, 10% and 6% respectively (see chart).
As housing loans seem to be the biggest contributor to household debt, there are already several measures being put in place to cool the housing sector and to curb mortgage growth.
However, if we take further steps to scrutinise the breakdown of the loans, and study the interest incurred in absolute terms, and the appreciation or depreciation in value of the underlying assets, we will soon discover the source of the real burden.
Property is truly an asset, compared with a car, personal loan or credit card spending in which the value of the purchases depreciates over time.
According to the Malaysian House Price Index by the National Property Information Centre, the overall housing price in Malaysia has increased by an average of 5% every year since 2000. Thus, servicing a housing loan is like paying for “good debt” as the asset will gain in value in the long term and eventually protect us against the inflation.
On the other hand, based on car insurance calculations and accounting practice, the value of cars depreciates about 10% to 20% per year. This means that the car loan and interest is paid for item that is contracting in value every year, it is a liability instead of an asset.
In addition, based on our current structure, the average interest rate for housing loan is 4.2%. If we apply this rate across the board, the absolute interest incurred for RM316.2bil housing loan will be about RM13.3bil a year, which is only 43% in terms of absolute interest paid compared with its loan amount component of 57.5%. Whereas, personal loans which account for only 10% of the total household debt, would incur absolute interest of 22% of overall household debt due to its high interest rate of 12%.
As mentioned in some of my previous articles, the younger generation is advised to purchase a house instead of a car first. Let’s visualise this via the following scenarios.
Let’s assume a young couple which has a household income of RM6,000. The ideal mortgage (housing loan) repayment is always one third of the income, i.e. RM2,000.
After deducting RM2,000 from their income, they will still have RM4,000 household income available.
If the couple decides to own a car, the loan repayment, petrol, parking and maintenance fees are most likely to come up to RM1,000 to RM1,500 depending on the types of car they are getting.
This leaves the family with a household income of only RM2,500 to RM3,000 provided they are just owning one car instead of two.
With the same household income, if the couple decides to utilise public transport, the monthly transport expenses may be in the range of RM300 to RM400 for two persons. They will still have a household income of RM3,600 every month after paying for house loan interest and transportation cost.
To help lessen the debt burden of the rakyat, the authorities must accelerate the effort of providing comprehensive public transportation network including MRT, buses, mini buses and taxis, to reduce public dependency on private vehicles.
A total review on the cost of car and motorcycle ownership in Malaysia would also help reduce this debt burden.
For households that wish to reduce their debt level, they should avoid the temptation of instant gratification, and instead should place importance to assets that grow in value.
When we look in detail at the household debt level of the nation, it provides more insights than the headline number at first glance. Sometimes, it is as simple as to differentiate the “healthy” debt from the rest to make a significant difference in our financial position.
FIABCI Asia-Pacific Regional secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman ofBukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

Thursday 11 July 2013

Maybank Research says Hua Yang is “hot”

Updated: Thursday July 11, 2013 MYT 2:26:55 PM
KUALA LUMPUR: Maybank Research is picking Hua Yang Berhad, a housing developer specialising in homes costing under RM500,000, as its “hot stock” pick with a target price of RM3.73 from its current trading price of around RM3.03.
It said on top of sound management and solid recent performance, Hua Yang was unlikely to be affected by the credit-tightening measures introduced by Bank Negara as it was in the affordable property segment. 
In fact, it stood to benefit from Budget 2013 due to improvements expected to be made to the My First Home Scheme.
Citing the Population and Housing Census Malaysia 2010 report, the research house pointed out that 25% of Malaysians purchasing property are first-time home buyers within the 25-40 age range. Hua Yang properties, particularly in Johor and Perak, are priced between RM100-400k a unit and 70% of its customers are first-time home buyers, and as such it was in a growth good position.  
To date, Hua Yang has completed more than 13,000 residential, commercial and industrial projects with a gross development value (GDV) of more than RM1.8bil. It is primarily focused in three main regions – Selangor, Johor and Perak, with projects such as One South in Selangor, Taman Pulai Indah/Hijauan in Johor and Bandar Universiti Seri Iskandar (BUSK) in Perak.
“Consensus estimates HYB to make a net profit of RM89.7mil in financial year ended March 2014, translating to a five-year earnings compound annual growth rate (CAGR) of 59%.  The stock is trading at a prospective CY14 PER of 5.6x, lower than its small/mid-cap peers’ average of 6.5x despite a superior return on equity (ROE) of 23%.
“It paid a dividend per share of 12 sen in the financial year ended March 2013 (33% net profit payout) and is expected to pay 14 sen dividend per share in the financial year ended March 2014, which translates to a net yield of 4.6%.
HYB has unbilled sales of MYR523m as at Mar 31, 2013 and plans to launch RM1bil worth of new projects in the financial year end March 2014, including six new projects in the Klang Valley, Johor and Perak. The group has 1,505 acres of landbank, of which 700 acres are undeveloped.  
It has a remaining GDV of RM4.05bil which should last the group another 10 years. Recent land acquisitions in Desa Pandan, Puchong, Seri Kembangan and Shah Alam will boost its GDV in the Klang Valley to 50%, with another 30% from Johor and 20% from Perak.

Monday 27 May 2013

The risks in property development

The risks in property development are:

1.  Insufficient own capital to fund the project.
2.  Over-leverage and excessive borrowings.
3.  Poor sales for various reasons - poor location, industry related reasons.
4.  Cyclical downturn.

Many property projects are launched in the cyclical upturn of the industry.  Soon many more jumped in the game.  When the cyclical downturn comes, the weaker developers suffer.

Friday 1 March 2013

Singapore to raise property tax rates for luxury homeowners



WRITTEN BY BLOOMBERG   
TUESDAY, 26 FEBRUARY 2013 17:54

Singapore plans to raise taxes for luxury homeowners and investment properties, widening a four- year campaign to curb speculation after prices in Asia’s second- most expensive housing market rose to a record.

The higher tax will apply to the top 1% of homeowners who live in their own residences, or 12,000 properties, Singapore Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday, without giving a definition of what constitutes a high-end home. The government will also raise tax rates for vacant investment properties or those that are rented out, he said.
Singapore joins Hong Kong in extending anti-speculation measures as low interest rates and capital inflows drive up demand and make housing unaffordable. Residential prices in Singapore climbed to a record in the fourth quarter as an increase in the number of millionaires drove up demand.

“The graduated property tax on luxury properties may impact investors, particularly corporates and high-net-worth investors,” Petra Blazkova, head of CBRE Research for Singapore and Southeast Asia said in a statement. “It may put pressure on the holding cost of investment properties held by developers and investors.”

The property index tracking 39 developers fell 1.2% to a one-month low at the close in Singapore. CapitaLand, Singapore’s biggest developer by assets, declined 1.5% to $3.86. City Developments, the second largest, slid 1.8% to $11.15.

HONG KONG
Singapore’s latest efforts were announced three days after Hong Kong increased property taxes. The Hong Kong government last week doubled sales taxes on property costing more than HK$2 million ($319,900) and targeted commercial real estate for the first time as bubble risks spread in the world’s most expensive place to buy an apartment.

“The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out,” Shanmugaratnam said. “Those who live in the most expensive homes should pay more property tax than others.”

For a condominium occupied by the owner in Singapore’s central region with an assessed annual rental value of $70,000, the tax will rise 5% to $2,780, according to the budget statement. If that home is rented out, the tax will climb 21% to $8,500, according to an example highlighted in the statement.

Based on a 3% rental yield, that property is worth $2.3 million. Gains in levies for properties assessed at higher rental values will also increase at a faster pace, it said. For a house with an assessed rental value of S$150,000, worth $5 million based on the same yield assumption, the tax will rise 60% to $24,000. The revised taxes will take full effect from January 2015, according to the statement.

Singapore is Asia’s most-expensive housing market after Hong Kong, according to a Knight Frank LLP and Citi Private Bank report released last year that compared 63 locations globally.

http://www.theedgesingapore.com/the-daily-edge/business/42916-singapore-to-raise-property-tax-rates-for-luxury-homeowners-updated.html

Tuesday 25 September 2012

KLCC Property Holdings Bhd


KLCCP Period (Yrs) 6
Dec-05 Dec-11 Change CAGR
millions millions
Equity 2268.48 6461.07 184.82% 19.06%
LT Assets 5725.37 13203.98 130.62% 14.94%
Current Assets 638.39 775.12 21.42% 3.29%
LT Liabilities 2635.2 3522.2 33.66% 4.95%
Current Liabilities 384.18 305.74 -20.42% -3.73%
Sales 598.02 745.89 24.73% 3.75%
Earnings 114.44 657.7 474.71% 33.84%
Interest expense 165.12 87.58 -46.96% -10.03%
D/E 1.19 0.37
ROA 1.80% 4.70%
ROE  5.04% 10.18%
Number of shares (m) 934.07 934.07 0.00%
Market cap 1882.2 3231.9 71.71% 9.43%
P/E 16.45 4.91
Earnings Yield 6.08% 20.35%
P/BV 0.83 0.50

DPO ratio (historical) 37.64%
Dividend Yield range 4.0%-3.2%
Capital changes  -






Stock Performance Chart for KLCC Property Holdings Bhd