June 2011 - Malaysia Property Inc.

FACILITAT ING & PROMOT I N G I N VE ST M E N T F O R M A LAY S I A N R E A L E S TAT E | www.malaysiapropertyinc.com
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
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
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.
by Afiq Syarifuddin
Figure 1: Map of Mont’Kiara
In a period of just 15 years, Kuala
L u m p u r ’s M o n t ’ K i a r a e n c l a v e
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 highrise living” (Damansara Heights is one
of Malaysia’s premier landed residential
property enclaves).
(continued next page)
Source: Ho Chin Soon Research
COVER STORY
2
Figure 2: Existing Condominium Developments in Mont’ Kiara
Project Name
Developer
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
Gross Floor
Area (sq.ft)
Amarin Group
4,073-6,141
Asia Quest Holding
1,347-4,100
Bukit Kiara Properties 2,090-3,732
Bukit Kiara Properties
633-1,213
Dijaya / Sunway 1,235-4,573
Tian Gloval
1,615-5,490
Sunrise Bhd
931-2,147
Sunrise Bhd
1,787-4,487
Sunrise Bhd
2,272-11,000
Sunrise Bhd
798-2,300
Nikmat Kuasa
1,961-7,335
Subsale Price
(RM/sq.ft)
Asking Rental Rental
Completion
(RM/sq.ft) Yield (%) Date
600
400
600-800
800
430
455
520
650
590
500
456
2.89
3.00
3.20
6.00
2.50
2.62
2.50
2.50
3.00
3.00
3.04
5.78
9.00
6.40
9.00
6.98
6.91
5.77
4.62
6.10
7.20
8.00
Jan-08
2004
Mar-08
Ongoing
Apr-06
2006
Jan-04
Jan-09
Jul-04
Oct-02
2005
Source: MPI Research
(from previous page)
School, Mont’ Kiara International
School, Australian International School
M o n t ’ K i a ra c o m p r i s e s m o s t l y and Lycée Français de Kuala Lumpur
condominium developments, with which offer British, American and and
a some supporting retail and office French curricula.
components. The residents are,
interestingly, made up of 30 different Due to its desirable location and
nationalities, of which Japanese good accessibility, Mont’ Kiara
and Koreans constitute a majority. has experienced healthy capital
Mont’ Kiara also hosts a multitude of appreciation over the years. Prices here
businesses located in the office space hover in the region of RM500 to 750
and shoplots located around the per square foot and have been rising
steadily due constant demand. The
township.
average rental and yield is RM2.86 psf
The main business hub is known as Plaza and 6.89% respectively.
Mont’ Kiara, where many established
multi-national companies have taken T h e r e a r e c u r r e n t l y 1 4 2 , 0 5 9
up office space. Other commercial condominium units in the market,
hotspots are Seni Mont’ Kiara, Solaris reported by the National Property
Mont’ Kiara and Solaris Dutamas. A Information Centre (NAPIC) in the
notable foreign investment in Mont’ Property Market Report 2010. Of note
Kiara is Cheung Kong Group’s foray into is the fact that 17,922 units are coming
the area with ARA Asia Dragon Fund into the market, further increasing the
through One Mont’ Kiara. This retail- supply in Kuala Lumpur alone.
office development is valued at RM321
million.
Although there are concerns of
oversupply in the market, this is a broadThe competitive edge that Mont’ Kiara based phenomenon and occurs only in
has is its location which is 8km away specific pockets in Kuala Lumpur City
from the bustling city centre of Kuala Centre where branding, positioning and
Lumpur and proximity to exciting planning are ambiguous. In this respect,
townships with various amenities. Mont’Kiara has been way ahead of the
Accessibility to Mont’ Kiara from rest right from its inception, thanks
Petaling Jaya and Bangsar is convenient to the smart strategies employed by
through the SPRINT Expressway and Sunrise Berhad, the developer that was
the North-South Expressway’s Jalan instrumental for first carving a vertical
Duta exit.The area also boasts excellent city out of plantation land.
infrastructure and easy access to the
recreational facilities of nearby Bukit It is little wonder why investors are
attracted to Mont’ Kiara. Key factors
Kiara.
for a successful property market can
International schools have also found be determined through the saleability
their way into this township to serve and offer price. However, once the initial
and cater for the educational needs of developer price has reached a certain
the residents’ children. For instance, threshold, the asking price would then
only attract the upper-tier market and
Mont’ Kiara has Garden International
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 highrise 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.
SPOTLIGHT
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
3
depend on individual ‘qua’ (energy
areas), and there are altogether nine
‘quas’.
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.
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.
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
dispersed. We can see the effects on the
fertility of the soil. The vegetation on
the concave side is greener and lusher
compared to the convex side.
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
follows the wife’s ‘qua”. Feng Shui is all
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: 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.
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
project.
.
PQ: What is the property outlook for
year 2011?
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.
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
Figure 3: Tourist Arrivals and Receipts to Malaysia, 2001-2010
Receipts
(RM’ million)
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.
The hospitality industry appears to be
flourishing in Kuala Lumpur, Johor Baru,
Penang, Kota Kinabalu and Langkawi.
A total of 24.6 million tourists entered
Malaysia in 2010, marking an increase of
4.2% year-on-year compared with 23.6
million in 2009.
10
10,000
5
0
0
Receipts (LHS)
Legend:
Arrivals (RHS)
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%.
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.
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 fourstar and five-star hotels in Malaysia, of
which 60 hotels offering 23,129 rooms
are located in the Klang Valley area.
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 average hotel occupancy rate in
2010 was fairly stable, standing at 60%
in 2010. The average room rate for three,
four and five-star and budget hotels
hovered around RM160, RM224, RM365
and RM100 respectively.
Figure 4: Number of Hotels and Rooms Supply in Malaysia, 2001-2010
No. of rooms
(in ‘000)
No. of hotels
(in ‘000)
180
2.6
2.4
150
2.2
120
2.0
90
1.8
1.6
60
1.4
30
1.2
Supply of Rooms (LHS)
Source: Tourism Malaysia
2010
2009
2008
2007
2006
2005
2004
2003
2002
1.0
2001
0
Legend:
2010
20,000
2009
15
2008
30,000
2007
20
2006
40,000
2005
25
2004
50,000
2003
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- ConventionsExhibitions (MICE) industry segments.
30
2002
by S.Sulocana
60,000
2001
The Malaysian hospitality
industry is growing on the back
of increasing tourism and MICE
activities
Tourist Arrivals
(in’ million)
Supply of Hotels (RHS)
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
2013. The hotel will offer 412 rooms,
bringing the total inventory of Hyatt to
1,030 rooms.
St. Regis by Starwood Hotels and Resort
Group will be entering the industry in
2014, setting a new benchmark in
terms of room rates. Located in KL
Sentral, the primary transportation
hub in Kuala Lumpur, hotel rates are
expected to hover around RM1,000. The
development will include a 208-room
hotel and 160 units of apartments.
(continued next page)
SPECIAL REPORT
5
Figure 5: Recently Opened Establishment, 2010
Opening in 2010
Hotel
Rating
No. of Rooms/
Facilities
Location Completion
Date
Banjaran Hotsprings625 unitsPerakJan-10
G City Club Hotel
5
180 rooms
Kuala Lumpur
Mar-10
Shah Alam Convention Centre
n/a
208,000 sq.ft
Selangor
Apr-10
Fraser Place (Serviced Apartment)
5
215 units KLCC
May-10
The Philea Resort & Spa
6 201 units
Malacca
May-10
DoubleTree by Hilton
5
540 rooms,
Kuala Lumpur
Aug-10
20,000 sq.ft
(meeting space)
TOTAL720 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.
DoubleTree by Hilton
Figure 6: Incoming Supply of Rooms/ Facilities until 2016
New Development
Hotel
Rating
No. of Rooms/
Facilities
Location Expected
Completion Date
The Regent5236 roomsKLCC2011
The Regent Residence
5
115 units
KLCC
2011
Allson Capital Hotel
4
236 rooms
Kuala Lumpur
2011
Pullman
5
515 units Kuala Lumpur
2011
Impiana Hotel (extension)
4 180 rooms
KLCC
2011
(existing 335 rooms)
Fraser Residence
n/a
n/a
Kuala Lumpur
2012
Traders Hotel4286 roomsJohor Bahru2012
Grand Hyatt5450 roomsKLCC2013
St. Regis Hotel6200 rooms,Kuala Lumpur2014
32,300 sq.ft
(meeting space)
MATRADE Convention Centre n/a
1 million sq.ft
Kuala Lumpur
2014
W Hotel5150 roomsKuala Lumpur2016
TOTAL1,765 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
Tianjin
Beijing
Chengdu
Bohai Rim
Shanghai
Chongqing
Yangtze
Delta
Guangzhou
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:
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,
• Agreement on Expanding and
making Malaysia one of the few global
Deepening Economic and Trade
human resource centers for Huawei.
Cooperation between Malaysia and This would be followed by plans to
China
develop a Malaysian training centre to
• Agreement between Malaysia and
fulfill the training initiative. Currently,
China on Framework Agreement
Huawei has 645 employees in Malaysia,
to Facilitate Mutual Recognition
where close to 10% are Chinese nationals
in Academic Higher Education
Taken from a wider view, this is but one
Qualifications.
of 120 companies with Chinese interest
• Joint-Venture Agreement between
across various industries operating in
Smelter Asia Sdn Bhd and Aluminium Malaysia as of 2011. Suffice to say, the
Corporation of China Limited
expanding presence of international
(CHALCO)
• MoU between Beijing Foreign Studies
Malaysia is the Country of
University and Universiti Malaya on
Jointly Establishing Chinese Studies
Honour in the upcoming
Centre
8th China-ASEAN Expo held
• MoU Resolving Traffic Congestion in
annually in Nanning, Guangxi.
Penang between the state
Industry
clusters to be featured
government and Beijing Urban
Construction Group Co. Ltd
in the Malaysia Pavilion include
• MoU on MSC Malaysia Human
Property Development, Food &
Capital Development Programme
Beverages, Health & Wellness,
in ICT Industry between Multimedia
Building Materials and a
Corporation Sdn Bhd (Mdec) and
Dream Catcher Consulting Sdn Bhd
strong representation from
with Huawei Technologies (M) Sdn
all government offices with a
Bhd
companies in Malaysia will bring along
an increased demand for housing,
amenities and other services associated
with serving the business community.
How does this bode for the Malaysian
(continued next page)
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.
presence in China.
INVESTOR PREFERENCES
7
Malaysia
6,187,400
6,000,000
3,000,000
1,000,000
500,000
Figure 7: Chinese Diaspora
200,000
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
o f g e o g ra p h i c a l p r ox i m i t y a n d
benefits conferred by being part of the
China-ASEAN Free Trade Agreement,
enhancing the current government-togovernment 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 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.
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
IT’S ALL A
QUESTION OF
INTENTION
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.
8
chasing the property was not the In one case [1], the Courts held that
the gains arising from the disposal of
expectation of profit by sale.
the land were subject to RPGT. It was
So how does one distinguish between commented that the evidence showed
a property held as trading stock or that the property was the only property
investment? The Malaysian Courts have bought and kept by the taxpayer for
decided in a number of recent cases that investment. There was no evidence
the distinction simply depends on the to show that the taxpayer had been
intention of the taxpayer.
dealing in land before they acquired the
property. In fact, there was no evidence
The Courts have held that the mere to show that the taxpayer had other
realisation of investment is not income transactions in property before. There
under the ordinary concepts and usages was also no evidence to show that the
of mankind. However, profits arising taxpayer was a developer before the
from the sale of any property acquired transaction. The purchase of the said
for the purpose of trading are subject property was the only transaction
to income tax. In these circumstances, carried out by the taxpayer. In those
the focal point of enquiry by the Courts circumstances, the Courts held that
is the dominant purpose for which it could not be said that dealing in
the particular property was originally land was the principal activity of the
acquired.It is encouraging that the taxpayer.
Courts have commented that the mere
presence of an intention to sell property Similarly, the Courts had also held that
at a profit at some future date is not of where a taxpayer takes no serious effort
itself, sufficient to cause the profit to to obtain a loan facility from a financial
be taxable if the dominant motive in institution and has no capabilities to
purchasing the property was not the develop land [2], such land is held to be
expectation of profit by sale.
the taxpayer’s investment. The gains are
then subjected to RPGT.The mere fact
The Courts are guided by the badges of that a taxpayer made a gain because
trade as the criteria for distinguishing the land was near the main road or a
between profits subject to income tax good location does not automatically
and those subject to RPGT. The main make the gain liable to income tax. In
badges of trade are the dominant another interesting case [3], it was held
purpose of acquiring the property, that the taxpayer had invested in the
subject matter of transactions, property by reason of its proximity to a
period of ownership, frequency of nearby town. The value of the taxpayer’s
transactions, circumstances for sale, land merely appreciated in the course
motive or intention of taxpayer and of time due to the development of the
methods of sale.
surrounding areas.
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.
On the other hand, trading requires an
intention to trade. The question to be
So how does one distinguish between asked is whether that intention existed
a property held as trading stock or at the time of the acquisition of the
investment? The Malaysian Courts have property. Was the property acquired
decided in a number of recent cases that with the intention of disposing of it at a
the distinction simply depends on the profit, or was it acquired as a permanent
intention of the taxpayer.
investment?
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-
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.
[1] ALF Properties Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2005] 3 CLJ 936
Often, it is necessary to ask further [2] Au How Cheong Sdn Bhd v Ketua Pengarah Hasil questions: an investment may be sold Dalam Negeri (No.R(3)(1)-14-02-2006
in order to acquire another investment [3] E v Comptroller-General of Inland Revenue (1950thought to be more satisfactory and 1985) MSTC 106
that does not involve an operation of
trade notwithstanding whether the Next issue: What are the factors that
first investment is sold at a profit or at allude to trading?
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.
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
Figure 8: Total Assets in US$ trillion and Annualised Growth in Asset of Top 20
Funds, 2010 (Split by Fund Domicile)
Total Asset
(US$’ trillion)
1.6
50
40.6
1.4
40
1.2
1.0
30
0.8
Asian pension funds are becoming
incresingly enamoured of real
estate as a long term investment
option
0.6
11.7
0.4
0.2
3.5
3.6
5.0
11.8
20
14.7
10
Legend:
China
Denmark
Singapore
Canada
Malaysia
Korea
Netherlands
S. Africa
0
Total Assets in USD trillion (LHS)
Annualised Growth Rate (RHS)
asset growth of 12.4%. China’s National
Social Security Fund has shown
tremendous growth of 40.6%, followed
by Denmark (14.7%), Singapore (14.0%),
Canada (12.8%), Malaysia (11.8%) and
Korea (11.7%).
Towers Watson estimates that the
Top 20 pension funds worldwide
contributed more than 13% to the
market. From 2004 to 2009, this sector
has undergone an average annualised
In many countries, particularly the
developed nations of the West, the
real estate sector has generally been
considered to be an attractive asset
class for long term investment. In the
Source: Towers Watson
Figure 9: Top 20 Pension Funds
Rank
FundCountryTotal Asset
(US$ million)
Government Pension Investment
Government Pension Fund-Global
ABP
National Pension
Federal Retirement Thrift
California Public Employees
Local Government Officials
California State Teachers
New York State Common
PFWZ
Central Provident Fund
Canada Pension
Florida State Board
National Social Security
Pension Fund Association
ATP
New York City Retirement
GEPF
Employees Provident Fund
General Motors
Source: Towers Watson
14.0
6.3
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.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
12.8
0
Japan
by Hazrul Izwan & A.Lalitha
Annualised
Growth
(%)
USA
GROWING
RETIREMENT
SAVINGS
THROUGH
PROPERTY
9
Japan
Norway
Netherlands
Korea
USA
USA
Japan
USA
USA
Netherlands
Singapore
Canada
USA
China
Japan
Denmark
USA
South Africa
Malaysia
USA
1,315,071
475,859
299,873
234,946
234,404
198,765
164,510
130,461
125,692
123,390
122,497
122,067
114,663
113,716
113,364
111,887
111,669
110,976
109,002
99,200
“
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 riskadjusted 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.
(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.
in an effective risk-adjusted manner,” he
explained in a report on the significance
of real estate in Asian pension funds.
“
With greater
institutional involvement in
direct real estate
investment in Asia, more
income producing properties
are now being traded”
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
This scenario appears to be changing, now being traded.”
however, as more and more Asian
pension funds look for new asset Recent years have witnessed intense
David Faulkner,
classes in a search of good and stable reform efforts in pension funds around
Colliers International (HK) Ltd
yields. Real estate is increasingly being the globe. Malaysia’s largest pension
considered as one such asset class that fund, the Employee Provident Fund Recently, EPF and Singapore’s
offers safe diversification with stable (EPF) has also stepped up to increase Guocoland entered into 20-80 jointyield.
the asset allocation for real estate.
venture agreement to develop a US$2.6
billion mixed-use development which is
Figure 10: EPF’s Gross Investment Income in 2010
expected to be completed in 2015.
Money Market
Instrument 2.9%
Since early last year, EPF has been
Property &
revealing its top equity investments
Equities 45.5%
Miscellaneous
in Bursa Malaysia on a quarterly basis.
Income 0.5%
This is to promote greater transparency
and to reassure its members that the
investments are being undertaken in
the interest of growing their retirement
savings and in accordance with
Malaysian
investment and corporate governance
Government
best practices.
Securities 22.1%
EPF has shares in property development
and property-related companies such
Loans & Bonds 29.2%
as Malaysian Building Society Berhad
Source: Employees Provident Fund (EPF)
(67.25%), Malaysian Resources
University of Western Sydney professor “Currently, the pension fund has less
Corporation Berhad (41.78%), WCT
of property investment Graeme Newell than 2% of its total accumulated funds Berhad (21.33%), Sime Darby Berhad
said major demographic changes in Asia [amounting to US$ 140 billion] invested (15.29%), SP Setia Berhad (14.86%) and
will see Asian pension funds reassessing in properties. However, it has a IJM Corporation Berhad (14.67%).
their current conservative asset strategic asset allocation target of 5%
allocations.
for properties,” said EPF deputy chief In order to create a vibrant domestic
executive officer for investment Shahril property market, EPF has pledged to
“Increased levels of real estate in their Ridza Ridzuan.
continuously increase its real estate
portfolios offer an important asset
exposure. Although EPF’s fund size is
class for Asian pension funds to achieve Local properties owned by the EPF smaller compared with pension funds
portfolio diversification and meet their include Sogo Shopping Complex, Wisma in Europe and US, it is more proactive in
significantly increasing future liabilities KFC, MAS Academy, Block A (Plaza implementing its real estate strategy.
Sentral) and Gurney Resort Hotel. EPF
is also involved in a mixed development EPF reported that its property and
greenfield project at the 3,000-acre miscellaneous income last year rose
Rubber Research Institute Malaysia 17% to USD34.4 million in 2010 from
Currently, the pension
land in Sungai Buloh which it acquired US$29.3 million in the preceding year. As
for close to US$1 billion.
such, total gross investment income in
fund has less than 2% of its
2010 reached US$8.02 billion compared
total accumulated funds
While aggressively exploring the with US$5.74 billion in 2009.
invested in properties.
domestic market, the EPF is also
However, it has a strategic
increasing its exposure overseas and is Moving forward, Malaysian pension
actively seeking investable properties funds can adapt to increase their
asset allocation target of 5%
in Singapore, Australia and the United exposure and stimulate the property
for properties”
Kingdom.
market by establishing clear real
estate risk management procedures,
Shahril Ridza Ridzuan,
Its international investment strategy particularly in terms of a risk-sharing
Employees Provident Fund (EPF)
includes the acquisition of London strategy that includes joint-ventures
properties The Fleet Street, One and co-investment with other major
Sheldon Square and Portman Square for pension funds, sovereign wealth funds
US$789 million in August 2010.
and real estate investors.
US$ 8.02
billion
“
GRAPHICALLY SPEAKING
11
LANDED PROPERTY PRICE IN 1Q2011p
COMPARED TO 1Q2010
PENANG
• Island: +5%
• Seberang Perai: +3%
SELANGOR
• Petaling: +12%
• Kelang: +5%
• Gombak: +8%
• Hulu Langat: +12%
KUALA LUMPUR
• Central: +7%
• North: +9%
• South: +17%
JOHOR
• Johor Bahru: -4%
• Batu Pahat: +5%
• Muar: +1%
• Kluang: -4%
• Segamat: +11%
CAPITAL APPRECIATION FOR VARIOUS HOTSPOTS IN KLANG
VALLEY, PENANG AND JOHOR
KLANG VALLEYPENANGJOHOR
Bandar Utama
+23.3%
Greenlane
+12.3%
Bdr. Baru Permas Jaya
Bandar Sri Damansara +21.8%
Sungai Dua
+11.6%
Taman Daya
Bangsar
+12.9%
Pulau Tikus
+10.7%
Taman Perling
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
+9.5%
+8.8%
+8.3%
12
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up under the Economic Planning Unit to drive investments in
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As the first port-of-call for real estate investment queries,
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MPI has two core objectives; to create international awareness
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For further information and
up-to-date tracking of Malaysian real estate data, visit:
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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
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