HOUSING INDUSTRY:

OPPORTUNITIES AND CHALLENGES

12th International Surveyor’s Congress

18 June 2010
Dato’ Michael Yam
Deputy President, REHDA
1
Overview

• About REHDA Malaysia

• Property Sector: A Significant Contributor

• Current Scenario

• Challenges

• Opportunities

• Moving Forward: Our Recommendations

2
About REHDA Malaysia
• REHDA is the representative body of property
developers in the private sector.

• REHDA was founded in 1970 as the Housing Developers’ Association

(HDA), and was renamed in 2000 as the Real Estate and Housing
Developers’ Association to reflect its members’ diverse portfolio.

• There are about 1,000 members, who are active developers (80% of total
active developers)

• Protects the commercial interests of members and promotes sectoral

growth by engaging the Government

• Provides leadership to property developers in building quality housing and

real estate for the nation

3
Headquarters Remodelled, Rebuilt
To be completed in end-2011

REHDA

4
 Sources: Key Economic Indicators, Economic Planning Unit;
Property Market Report 2009 ,NAPIC

Property Sector, Significant Contributor:

GDP
2005 2006 2007 2008 2009

GDP (RM Mil) 449,250 475,192 505,353 528,804 528,860

Value of Transaction (RM Mil) 28,407 28,697 36,490 41,307 41,841

Property Transactions / GDP 6.32% 6.04% 7.22% 7.81% 7.91%

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
5
2005 2006 2007 2008 2009
As at Q4 2009,
Total of
4,322,921 housing units
3,305,079 Low-Medium
to High Cost
Developers:
- Sole builder of affordable houses Low-Cost House
- Build in cooperation with Federal
or State Housing
571,858
- Subsidised the construction and Low-Cost Flats
delivery of affordable housing 445,684
6
 Source: Annual Report 2009, Bank Negara

Property Sector, Significant Contributor:

Banking
RM (Mil)
900,000
783,400.8
800,000

700,000
601,546.4
600,000

500,000
352,602.8
400,000

300,000 260,994.7
209,700.9
200,000

100,000 164,112.1

0
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

Total Loan for Residential Property Purchase Total Loans to Property Sector Total Loan for All Sectors

7
Property Sector, Significant Contributor
Linkages to 140 economic activities, including:

8
CURRENT SCENARIO
9
 Sources: Property Market Reports,2007-2009, NAPIC

Property Market Robust

Property Market Performance,
Volume and Value (2007 – 2009) Volume of Transaction

Value of Transaction (RM Mil)

Volume (units) Value (RM Mil)

70,000 16,000.00

61,165 units 61,577 units

14,000.00
60,000

RM 11,430 mill 12,000.00

50,000

46,363 units 10,000.00

40,000

RM 8,483.24 mill 8,000.00

30,000
6,000.00
The property market in Q4 2009 has been robust, recovering to above
20,000
2007 levels 4,000.00

10,000
Values transacted climbed steeper than units transaction, hinting
2,000.00
towards either a hike in house prices or higher purchasing power
- 0.00
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09
10
 Low Cost Down, Medium to High Cost Up
Property Market Performance,
by Pricing Segment (2007 – 2009)
100% 1% 1% 1% 2% 2% 2% 2% 2% 1% 1% 2% 2%
3% 3% 4% 4% 4% 3% 3% 4% 3% 3% 4% 5%
90% 11% 11% 13% 13% 13% 12% 12% 12% 13% 12%
14%
15%
80%

70%
39% 37%
41% 39% 39% 38% 39%
40% 42% 40% 40%
60% 39%

50%

40%

30%

46% 47%
42% 42% 42% 43% 44% 44% 44%
20% 40% 41% 39%

10%

0%
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

LOW COST (25,000 - 100,000) MEDIUM COST MEDIUM COST (250,001 - 500,000)
(100,001 - 250,000)
11
HIGH COST (500,001 - 1,000,000) ABOVE HIGH COST (≥1,000,000)
 Sources: House Price Index Reports,2007-2009, NAPIC

Upward Price Trends – Business as Usual

Average House Price Trends, National
(2007-2009)
170,000

165,696
165,033
165,000
162,799
160,147
159,450 158,474
160,000
157,460 156,165 160,247
154,205
154,017
155,000
151,646
152,527 152,633
150,000

149,419
148,039
145,000
146,446

140,000

135,000
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

Terraced House High Rise

12
 Source: House Price Index,2007-2009, NAPIC

Key Local House Prices Quite Stable

Average House Price Trends,
KL, Selangor, Johor, Penang (2007 – 2009)
Average Price (RM)
450,000

400,000
Kuala Lumpur (Terrace)

350,000

300,000

Selangor (Terrace)
250,000

Penang (Terrace)
Kuala Lumpur (High-Rise)
200,000

Penang (High-Rise)
150,000 Selangor (High-Rise)
Johor (High-Rise)
Johor (Terrace)
100,000
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

Kuala Lumpur Terraced House Kuala Lumpur High Rise

Selangor Terraced House Selangor High Rise
Johor Terraced House Johor High Rise 13
Penang Terraced House Penang High Rise
 Sources: Jobstreet, Kelly Services, Glassdoors; Global
Property Guide
Affordability Gap is Comparably Low
Estimated affordability for Senior Bank Managers
(2009 – 2010)
Points (x times)
30
28 27

25 23
21
20

15 14
13

10

5 4
5

Note: This index is measured as the number of times the average annual salary of a bank
manager for a typical 120sm deluxe apartment in the capital city 14
 Sources: Property Market Stock Reports,2007-2009, NAPIC

Future Supply Dwindling

New Planned Supply (2007 – 2009)
Units
50,000

45,000 43,680

40,000
36,459
35,000
30,452
29,150
30,000 32,815

25,000
25,868 20,247
18,426
20,000 17,272

15,000
New Planned Supply
10,000
Units where building plan approval have been obtained
5,000
within the review period.
-
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09
15
 Sources: Property Market Stock Reports,2007-2009, NAPIC

Future Supply Dwindling

Housing Starts (2007 – 2009)
Units

40,000
36,770
34,310
35,000

29,127
30,000
26,910

27,979 24,059
25,000
23,160

20,000
20,571
17,181
15,000
Housing Starts
Buildings where these works have commenced: Foundation
10,000
and footing works of low-rise buildings or works below ground
level including piling and foundation of high rise buildings have
5,000 started and site clearing, leveling and laying of infrastructure
to the whole site is ongoing
-
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

16
Projections…

RAM Holdings Economic

Research
• Inflation: • Little Risk of a broad-based
property bubble
2010: 2.5%
– Ample supply and cautious
2011 : 2.7% demand
• BLR: – Any increase in cost-push
end 2010 : +2.75%-3.00% price may be capped by excess
2011 : +3.25%-3.50% production capacity, cheaper
imports
• OPR:
– Construction costs remain
expected increase: +50-75 pts high

17
Summary

• Property Transactions Positive

• The market is moving towards a higher price
bracket
• House prices stable or show marginal
increase
• However, future supply is dwindling, due to
delayed launches impacted by the Global
Banking Crisis.

18
 Regulations and
Policies

Challenges
Market-Related Raw Land and
Factors Material Costs

Human
Resources

19
Regulatory and Policy Challenges

• Approval Process
– Time consuming land conversion and development process.

– Uncertainties in revised delivery process

• Inconsistent Policies
– Different States, different Bumi quota and discounts

– Unclear Bumiputera quota release mechanism

– Low-cost housing imposition (30%), and higher contributions

unrelated to demand or cost benefit

20
Regulatory and Policy Challenges

• Obstacles to Innovation and Trends

– Plot ratio vs Density

– Current regulations do not make smaller units (e.g. 600 sq ft)

viable in urban areas

• Others
– Weak transportation linkages

– Various blanket requirements (e.g. related to carparks; open

spaces; green zone perimeters; etc)

21
Market Challenges

Foreign Ownership Restriction

– Property purchases by foreigners restricted to RM500,000 across the
board

Demand Side

• Mismatch of pricing and product that the market demands

• Increased demands of quality, innovation and warranties / form of

guarantee from homebuyers

• Affordability Gap

22
Raw Land and Material Costs

• Rising Costs of Development

– Scarcity of land and building materials

– Short supply of professional experts within the country

• Many greenfield sites have no access, and is too

expensive to service due to total lack of infrastructure and services

• Protectionism and non-competitive markets

23
 Source: IMD World Competitiveness Report 2009, as presented in the 1Malaysia Conference, 2010, ACCCIM

Human Resources: A Nationwide Crisis

Labour force with Engineer Monthly Salary
tertiary education
% Malaysia 3,350
45
Thailand 3,723
40
35 China 3,915 USD / per
month
30 Singapore 6,827
25
41 41 Australia 8,818
20
15 30 UK 9,610
10 21
- 5,000 10,000 15,000
5
0 % High-Skilled Foreign Talent (%)
Ireland Singapore Korea Malaysia 40
35
35
% Total Labour Force 30 26
25 23
20
20
15 % High Skilled
12 12 Foreign Talent in
10 Malaysia
5
0.3
0
24
Can Ire UK Aus Mex Por Msia
Human Resources Challenges
There is a shortage of professionals
for the built environment
Education
• Fewer people taking physical sciences as an education
subject or career
Brain Drain
• Local experts or professionals are leaving the country for
better options elsewhere
Training and Talent Retention
• Inadequate training, apprenticeship and mentoring
schemes and financial reward for young talent.

25
Opportunities

26
 Sources: Population, Households and Living Quarters, Department of
Statistics; Malaysian House Price Index (NAPIC)

Housing Demand Projections

2010 - 2015 Note: Projected demand reflects fundamental demand, and is not inclusive of
investment / speculative demand, urban migration and inward migration.

ESTIMATED VALUE
Household Living Quarters
Year (RM ‘000,000)
Formation Formation

2010 141,579 165,231 30,497

2011 144,709 168,957 31,184

2012 147,909 172,767 31,888

2013 151,179 176,662 32,607

2014 154,522 180,646 33,343

2015 157,938 184,720 34,094

Applies a 2.22% Applies a 2.26% Living Quarters x Current

Assumptions / growth rate from growth rate from Average Malaysian House
Workings 2009 figures 2009 figures Price of 27
RM 184,574
Housing Demand Projections
2010 - 2015 5-year average of Units Completed
(2006-2009)

Units 153,983
200,000

180,000

160,000

140,000

120,000

100,000
Units
80,000

60,000

40,000

20,000

-
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009

28
 Sources: Population, Households and Living Quarters, Department of
Statistics; Malaysian House Price Index (NAPIC)

Housing Demand Projections

2010 - 2015 Note: Projected demand reflects fundamental demand, and is not inclusive of
investment / speculative demand, urban migration and inward migration.

Household Living Quarters

Year DEMAND VS SUPPLY
Formation Formation

2010 141,579 165,231 -12,404

2011 144,709 168,957 -9,274

2012 147,909 172,767 -6,074

2013 151,179 176,662 -2,804

2014 154,522 180,646 539

2015 157,938 184,720 3,955

Applies a 2.22% Applies a 2.26% Household formation against

Assumptions / growth rate from growth rate from 5-Year Average Housing
Workings 2009 figures 2009 figures Completions (153,983) 29
Attractive to Investors

Global Property Guide lists Malaysia as the top Asian country to invest,
with the following reasons from the
Property Recommendations mid-2010:

• Good rental yields in Kuala Lumpur, at around 8.8%

• Prices around US1,424 per sq. mt.
• Low round-trip buy-sell costs at around 5.5.%
• Capital gains low, at 5.2%
• Sound banking system
• Healthy international reserves
• Low budget deficits and debt

30
Accomodative Financial Sector

• Banking sector remains liquid

• Credit profile for construction players are

improving as non-performing loans are
substantially lower than previous years since
2006

• Housing non-performing loans have been

declining since 2007
31
Plans for Urban Redevelopment

• Higher intensification of Government policy provides

opportunity for regeneration of Brownfield sites

• Self-contained and economically sustainable

development policies platform for township development

• Embrace green technology and carbon footprint reducing

development

32
Improvement of Government Policies
• Clear and easy land and property ownership

• Registered title and strata

• Local Plans to be gazetted

• Transport linkages and networks (MRT)

• Efforts to improve ease of doing business in Malaysia to

welcome foreign investors

• New foreign worker policy (80:20)

• Foreigners can own and borrow freehold and lease

(RM500,000) 33
Good News
10th Malaysia Plan
• RM230 billion development expenditure

• GNI per capita to increase to RM38,850 +64.8%

• RM2.7 billion for roads and rail

• 37% of local workforce to be skilled by 2015 (Current:

23%)

• Lowering the entry barrier for foreign skilled workers

34
Good News
10th Malaysia Plan
• 78,000 public housing units to be built by Federal
Government

• RM500 million for Tabung Perumahan Malaysia, for

major repairs and maintenance work for private and
public low-cost housing units

• En bloc sale to be allowed

• Greater KL as a National Key Economic Area

35
 Policies

Moving Forward: REHDA

Our
Recommendations
Property
Industry

36
Government Policies
Conducive for Local and Foreign Involvement
• Low-cost development to revert back to
Government
• Clear Bumiputera quota guidelines
• Uplifting of protectionism and cross-subsidies
borne by developers
• Restriction for foreign ownership of property to
be readjusted
• Consistency of policies
• Adjustments to regulations to reflect current
building practices
37
REHDA
Higher Standards and Self Regulation

• More comprehensive disclosure to buyers on property, including on

neighbourhood details for, e.g. 100 m radius
• Show rooms must be reflective of the true property, e.g. 1 fully
furnished showroom and 1 basic showroom for every model unit
• Specifications must be detailed out

A Code of Best Practice (Clients’ Charter)

• Drawing up higher standards for the industry supported by the
Government
• Moving towards responsible and quality building through
transparency, accountability, and excellence.
• Better corporate governance with independent directors,
adjudicators, compliance panels
• Adoption of QLASSIC or CONQUAS quality standards for projects 38
Property Industry
Higher Standards

• More comprehensive disclosure to buyers on

property, including on neighbourhood details
for, e.g. 100 m radius
• Show rooms must be reflective of the true
property, e.g. 1 fully furnished showroom and 1
basic showroom for every model unit
• Specifications must be detailed out

39