KUALA LUMPUR: Interest rates news is likely to be the focus this Wednesday in Malaysia as well as the US, where several indicators showed further evidence that the economy may well be in recovery mode.
This is despite US regulators saying that Bank of America and Citigroup may still need capital.
HwangDBS Vickers Research Sdn Bhd said in a report that there was “a divided consensus view” on whether Bank Negara would cut or keep the country’s key interest rate - the overnight policy rate - at 2.0%.
It added that the US Federal Open Market Committee was likely to stand pat on the key federal funds rate, which already stood at near zero.
On the local bourse, it said the KLCI might attempt to recover to 970 and beyond but “any technical rebound is not expected to sustain.”
Meanwhile, the KLCI fell 8.60 points to 957.10 at 9.30am.
Singapore’s Straits Times Index was 0.67% higher at 1,820.59 while Shanghai’s A share index was unchanged.
Taipei’s Taiex Index was up 0.58% to 5,629.20 and Seoul’s Kospi Index rose 0.96% to 1,312.74.
At Bursa Malaysia, 56 counters were up, 153 were down and 84 others were traded unchanged. There were 157.68 million shares done at a total value of RM107.47 million.
Among plantation counters, KL Kepong fell 20 sen to RM11.20, Sime dropped 15 sen to RM6.30, Asiatic lost 12 sen to RM4.76 and Kulim was 10 sen lower at RM5.40.
Adventa was up 3 sen to RM1.03, Top Glove dropped 10 sen to RM5.90 and TNB lost 10 sen to RM7.05.
Construction stocks IJM fell 12 sen to RM4.60 while MRCB gained 3 sen to RM1.06.
Nymex crude oil in electronic trade was down 42 cents to US$49.50 per barrel.
Spot gold fell US$2.40 to US$891.97 per ounce.
The ringgit was quoted at 3.608 to the US dollar.
*******************************************************************
Source: The Star Online
Tuesday, April 28, 2009
Monday, April 27, 2009
Swine flu could mean new threat to US and global economy
WASHINGTON: The U.S. economy, which was showing tentative early signs of a recovery, faces a potentially grave new threat: swine flu.
A widespread outbreak could batter the tourism, food and transportation industries in particular, deepening the recession in the U.S. and possibly worldwide.
With the U.S. and the global economy already fragile, another severe blow could reverse any progress made in easing the recession.
The European Union advised against nonessential travel to the United States and Mexico.
And worried Wall Street investors pounded stocks of airline companies, hotels, cruise operators and some food firms on fears that the flu would crimp consumer demand.
But at least three major airlines said their operations are proceeding normally and have not canceled any flights to Mexico.
Brian Bethune, economist at IHS Global Insight, said, "You can argue that the swine flu amplifies the downside risks to the economy."
The U.S. economy could end up shrinking a bit more than now expected.
But most experts don't think a swine-flu outbreak by itself would eliminate many U.S. jobs or severely worsen the economy.
Simon Johnson, former chief economist to the International Monetary Fund and a professor at the Massachusetts Institute of Technology's Sloan School of Management, envisions only a "small hit" to economic activity in the United States - just a few tenths of 1 percentage point.
But if the problem persists for months, spreads broadly and leads to widespread flu cases, or even deaths, in the United States, the damage could be more severe.
It could delay an economic recovery well into 2010, said Mark Zandi, chief economist at Moody's Economy.com.
"Consumer confidence is already frayed, and something like that would push it over the edge," Zandi said.
Sherry Cooper, chief economist at BMO Capital Markets & BMO Nesbitt Burns, said: "The last thing we need is additional reason to cut spending, eliminate travel and introduce trade restrictions."
In a worst-case scenario, Bethune says the U.S. economy would contact by an extra 0.3 percent this year, on top of his prediction of a 3.5 percent drop.
That amounts to a roughly $50 billion loss of economic activity, he said.
The IMF already has predicted the U.S. economy will shrink 2.8 percent this year.
Both Bethune's and the IMF's estimates would mark the worst showing since an 11 percent plunge in 1946.
One big fear is that spooked consumers will cut back spending on travel, restaurant meals and trips to shopping malls.
Even so, the impact on the U.S. unemployment rate, which is expected to hit 10 percent by year's end, is likely to be small.
Bethune said a serious swine flu outbreak might end up raising the jobless rate a few tenths of a percentage point.
The unemployment rate is now at a quarter-century high of 8.5 percent.
Companies have laid off so many workers in the recession that they are already lean, analysts said.
Why do analysts expect only limited economic damage?
The world is now better prepared to deal with health crises, given the experience of SARS (severe acute respiratory syndrome) in 2003 and then the threat of the bird flu, Johnson and other economists said.
Vaccines can be rolled out fairly quickly. And many big companies now have contingency plans to keep essential operations going if employees can't make it to work.
"On the one hand, it's a terrible and traumatic thing - a flu pandemic," Johnson said.
"On the other hand, it almost certainly will not have a significant effect."
White House spokesman Robert Gibbs said it's a "little too early to determine the economic impact" but that the Treasury Department and agencies are "monitoring the situation and looking into it."
The swine flu outbreak started in Mexico and has spread to the United States and elsewhere.
The European Union advised against nonessential travel to the United States and Mexico.
But Dr. Richard Besser, acting head of the Centers for Disease Control and Prevention in Atlanta, called that unwarranted.
"At this point, I would not put a travel restriction or recommendation against coming to the United States," he said.
China, Taiwan and Russia, meanwhile, considered quarantines, and several Asian countries scrutinized visitors arriving at airports.
President Barack Obama said the threat of spreading swine flu infections is cause for concern but "not a cause for alarm."
Still, investors sold off stocks of companies involved in the travel and some food industries on fears the swine flu would crimp demand.
Starwood Hotels and Resorts Worldwide Inc. fell nearly 11 percent, Cruise operator Carnival Corp. 13.5 percent and Delta Air Lines Inc. 14.3 percent.
Some airline passengers have changed or canceled their plans to fly to Mexico.
"The loads are a little bit less than they normally would be for this time of day, but we are not seeing mass bookings away," said Michelle Mohr, a spokeswoman for US Airways.
American Airlines spokesman Tim Smith said his carrier has not seen large numbers of requests for travel changes, though there have been some.
Delta spokesman Anthony Black said: "We have seen minimal changes to customer bookings."
The airlines said their flights are operating as usual, with their normal slate of trips to Mexico.
Online travel agencies Orbitz Worldwide Inc. and Expedia Inc. are both waiving fees to change or cancel reservations for trips to Mexico. Priceline.com Inc. said it is matching the policies of its suppliers.
"If the supplier is waiving our fee, we're waiving our fee," said Priceline travel expert Brian Ek.
"It will depend on which carrier you're using."
The chief executive of The Cruise Outlet said his travel agency, which focuses on cruises, hasn't seen a rise in cancellations or calls from concerned passengers.
Neither Carnival nor Royal Caribbean said it plans to change its itineraries.
The flu could hurt the $5 billion export market for U.S. pork. China, Russia and Ukraine banned imports of pork and pork products from Mexico and three U.S. states that have reported cases of swine flu, and other governments were increasing screening of pork imports.
Shares of Smithfield Foods Inc., the nation's largest hog producer and pork processor, fell more than 12 percent.
Even though it's safe to eat pork (swine flu viruses don't spread through food), analysts still fear that consumers could shy away from eating pork and shift to other meats like chicken or beef.
"Though there is no evidence that swine flu can be obtained by eating pork, the fear generated by a disease named after hogs cannot be good for pork consumption," said JPMorgan analyst Ken Goldman.
Grocers have begun to face questions from concerned shoppers about any dangers of eating pork, Goldman said.
The industry-funded National Pork Producers Council launched a public relations effort to reassure consumers, saying the flu has not been detected in any U.S. swine herds.
The group said cooking pork would kill any traces of the virus and the sickness is spread only from human-to-human contact.
Tyson Foods Inc., the nation' second-biggest pork producer, was somewhat shielded from a drop in pork demand because the company also sells beef and chicken products and could benefit from an increase in demand for them. - AP
A widespread outbreak could batter the tourism, food and transportation industries in particular, deepening the recession in the U.S. and possibly worldwide.
With the U.S. and the global economy already fragile, another severe blow could reverse any progress made in easing the recession.
The European Union advised against nonessential travel to the United States and Mexico.
And worried Wall Street investors pounded stocks of airline companies, hotels, cruise operators and some food firms on fears that the flu would crimp consumer demand.
But at least three major airlines said their operations are proceeding normally and have not canceled any flights to Mexico.
Brian Bethune, economist at IHS Global Insight, said, "You can argue that the swine flu amplifies the downside risks to the economy."
The U.S. economy could end up shrinking a bit more than now expected.
But most experts don't think a swine-flu outbreak by itself would eliminate many U.S. jobs or severely worsen the economy.
Simon Johnson, former chief economist to the International Monetary Fund and a professor at the Massachusetts Institute of Technology's Sloan School of Management, envisions only a "small hit" to economic activity in the United States - just a few tenths of 1 percentage point.
But if the problem persists for months, spreads broadly and leads to widespread flu cases, or even deaths, in the United States, the damage could be more severe.
It could delay an economic recovery well into 2010, said Mark Zandi, chief economist at Moody's Economy.com.
"Consumer confidence is already frayed, and something like that would push it over the edge," Zandi said.
Sherry Cooper, chief economist at BMO Capital Markets & BMO Nesbitt Burns, said: "The last thing we need is additional reason to cut spending, eliminate travel and introduce trade restrictions."
In a worst-case scenario, Bethune says the U.S. economy would contact by an extra 0.3 percent this year, on top of his prediction of a 3.5 percent drop.
That amounts to a roughly $50 billion loss of economic activity, he said.
The IMF already has predicted the U.S. economy will shrink 2.8 percent this year.
Both Bethune's and the IMF's estimates would mark the worst showing since an 11 percent plunge in 1946.
One big fear is that spooked consumers will cut back spending on travel, restaurant meals and trips to shopping malls.
Even so, the impact on the U.S. unemployment rate, which is expected to hit 10 percent by year's end, is likely to be small.
Bethune said a serious swine flu outbreak might end up raising the jobless rate a few tenths of a percentage point.
The unemployment rate is now at a quarter-century high of 8.5 percent.
Companies have laid off so many workers in the recession that they are already lean, analysts said.
Why do analysts expect only limited economic damage?
The world is now better prepared to deal with health crises, given the experience of SARS (severe acute respiratory syndrome) in 2003 and then the threat of the bird flu, Johnson and other economists said.
Vaccines can be rolled out fairly quickly. And many big companies now have contingency plans to keep essential operations going if employees can't make it to work.
"On the one hand, it's a terrible and traumatic thing - a flu pandemic," Johnson said.
"On the other hand, it almost certainly will not have a significant effect."
White House spokesman Robert Gibbs said it's a "little too early to determine the economic impact" but that the Treasury Department and agencies are "monitoring the situation and looking into it."
The swine flu outbreak started in Mexico and has spread to the United States and elsewhere.
The European Union advised against nonessential travel to the United States and Mexico.
But Dr. Richard Besser, acting head of the Centers for Disease Control and Prevention in Atlanta, called that unwarranted.
"At this point, I would not put a travel restriction or recommendation against coming to the United States," he said.
China, Taiwan and Russia, meanwhile, considered quarantines, and several Asian countries scrutinized visitors arriving at airports.
President Barack Obama said the threat of spreading swine flu infections is cause for concern but "not a cause for alarm."
Still, investors sold off stocks of companies involved in the travel and some food industries on fears the swine flu would crimp demand.
Starwood Hotels and Resorts Worldwide Inc. fell nearly 11 percent, Cruise operator Carnival Corp. 13.5 percent and Delta Air Lines Inc. 14.3 percent.
Some airline passengers have changed or canceled their plans to fly to Mexico.
"The loads are a little bit less than they normally would be for this time of day, but we are not seeing mass bookings away," said Michelle Mohr, a spokeswoman for US Airways.
American Airlines spokesman Tim Smith said his carrier has not seen large numbers of requests for travel changes, though there have been some.
Delta spokesman Anthony Black said: "We have seen minimal changes to customer bookings."
The airlines said their flights are operating as usual, with their normal slate of trips to Mexico.
Online travel agencies Orbitz Worldwide Inc. and Expedia Inc. are both waiving fees to change or cancel reservations for trips to Mexico. Priceline.com Inc. said it is matching the policies of its suppliers.
"If the supplier is waiving our fee, we're waiving our fee," said Priceline travel expert Brian Ek.
"It will depend on which carrier you're using."
The chief executive of The Cruise Outlet said his travel agency, which focuses on cruises, hasn't seen a rise in cancellations or calls from concerned passengers.
Neither Carnival nor Royal Caribbean said it plans to change its itineraries.
The flu could hurt the $5 billion export market for U.S. pork. China, Russia and Ukraine banned imports of pork and pork products from Mexico and three U.S. states that have reported cases of swine flu, and other governments were increasing screening of pork imports.
Shares of Smithfield Foods Inc., the nation's largest hog producer and pork processor, fell more than 12 percent.
Even though it's safe to eat pork (swine flu viruses don't spread through food), analysts still fear that consumers could shy away from eating pork and shift to other meats like chicken or beef.
"Though there is no evidence that swine flu can be obtained by eating pork, the fear generated by a disease named after hogs cannot be good for pork consumption," said JPMorgan analyst Ken Goldman.
Grocers have begun to face questions from concerned shoppers about any dangers of eating pork, Goldman said.
The industry-funded National Pork Producers Council launched a public relations effort to reassure consumers, saying the flu has not been detected in any U.S. swine herds.
The group said cooking pork would kill any traces of the virus and the sickness is spread only from human-to-human contact.
Tyson Foods Inc., the nation' second-biggest pork producer, was somewhat shielded from a drop in pork demand because the company also sells beef and chicken products and could benefit from an increase in demand for them. - AP
Government goes easy on financial sector
THE STAR ONLINE
Foreign ownership to rise from 49 to 70 percent equity
Zeti: Changes to local financial sector a gradual process
PUTRAJAYA: The Government will issue up to nine new banking and insurance licences until 2011 and allow foreigners to own up to 70% equity in the country’s Islamic banks, investment banks and insurance companies.
Prime Minister Datuk Seri Najib Tun Razak said the liberalisation package, comprising six thrusts, was aimed at enhancing Malaysia’s linkages with international economies.
“It will also bring about greater confidence into the economy and promote better economic regional integration,” Najib said when announcing the steps at his office yesterday.
Najib, also the Finance Minister, said there would be flexibility in allowing for an increase in foreign equity ownership limits of investment banks, Islamic banks, insurance companies and takaful operators from 49% to 70%.
“Such alliances will strengthen business potential and enhance growth prospects of financial institutions through the international expertise and global networks of foreign shareholders,” he said.
However, the foreign equity limit for commercial banks would remain at the current 30%, said Najib.
He said new licences for seven banks and two family takaful players would also be issued.
Under this, a maximum of two new Islamic banking licences would be issued to foreign players to establish banks with paid-up capital of at least US$1bil (RM3.62bil).
Also, two new commercial banking licences for foreign players that would bring in specialised expertise would also be issued.
These four licences would be issued this year, together with the two new family takaful licences.
In 2011, up to three new commercial banking licences would be issued to world-class banks.
The Government, Najib added, would offer operational flexibility to foreign institutions to increase the number of branches, while locally incorporated foreign commercial banks could establish four new full-fledged branches from 2010, and 10 micro-finance branches starting this year.
Effective June 1, holding companies in Labuan, incorporated under the Offshore Companies Act 1990, would be given flexibility to establish an operational and management office in Kuala Lumpur.
Najib said that offshore banking institutions and insurance companies licensed by the Labuan Offshore Financial Services Authority (Lofsa), which met the predetermined criteria, could be allowed to have a physical presence onshore from 2010 and 2011 respectively.
“Greater flexibility will also be accorded for employment of expatriates in specialist areas able to contribute to the development of the financial sector,” he said.
Najib said that over the last three years, the finance and insurance sector had expanded by 8.8% per annum, outpacing the growth in real gross domestic product of about 6%.
**************************************************************************
Tuesday April 28, 2009
By MAZWIN NIK ANIS
Foreign ownership to rise from 49 to 70 percent equity
Zeti: Changes to local financial sector a gradual process
PUTRAJAYA: The Government will issue up to nine new banking and insurance licences until 2011 and allow foreigners to own up to 70% equity in the country’s Islamic banks, investment banks and insurance companies.
Prime Minister Datuk Seri Najib Tun Razak said the liberalisation package, comprising six thrusts, was aimed at enhancing Malaysia’s linkages with international economies.
“It will also bring about greater confidence into the economy and promote better economic regional integration,” Najib said when announcing the steps at his office yesterday.
Najib, also the Finance Minister, said there would be flexibility in allowing for an increase in foreign equity ownership limits of investment banks, Islamic banks, insurance companies and takaful operators from 49% to 70%.
“Such alliances will strengthen business potential and enhance growth prospects of financial institutions through the international expertise and global networks of foreign shareholders,” he said.
However, the foreign equity limit for commercial banks would remain at the current 30%, said Najib.
He said new licences for seven banks and two family takaful players would also be issued.
Under this, a maximum of two new Islamic banking licences would be issued to foreign players to establish banks with paid-up capital of at least US$1bil (RM3.62bil).
Also, two new commercial banking licences for foreign players that would bring in specialised expertise would also be issued.
These four licences would be issued this year, together with the two new family takaful licences.
In 2011, up to three new commercial banking licences would be issued to world-class banks.
The Government, Najib added, would offer operational flexibility to foreign institutions to increase the number of branches, while locally incorporated foreign commercial banks could establish four new full-fledged branches from 2010, and 10 micro-finance branches starting this year.
Effective June 1, holding companies in Labuan, incorporated under the Offshore Companies Act 1990, would be given flexibility to establish an operational and management office in Kuala Lumpur.
Najib said that offshore banking institutions and insurance companies licensed by the Labuan Offshore Financial Services Authority (Lofsa), which met the predetermined criteria, could be allowed to have a physical presence onshore from 2010 and 2011 respectively.
“Greater flexibility will also be accorded for employment of expatriates in specialist areas able to contribute to the development of the financial sector,” he said.
Najib said that over the last three years, the finance and insurance sector had expanded by 8.8% per annum, outpacing the growth in real gross domestic product of about 6%.
**************************************************************************
Tuesday April 28, 2009
By MAZWIN NIK ANIS
Sunday, April 26, 2009
Malaysia - TheStar - Still some momentum ahead
Monday July 2, 2007
By ONG CHEE TING
The Government may be considering measures to encourage more property ownership for the mass market after the earlier initiatives to spur activities in the medium to high-end segment.
SINCE the relaxation of residential ownership rules for foreigners and the real property gains tax (RPGT) waiver, high-end residential properties in Malaysia have attracted a fair amount of interest from abroad.
The changes initiated by the Government, which were targeted at stimulating property activities in the medium- to high-end segment, have thus far mainly benefited the high-end segment of the market.
In the last six months, we have seen greater interest from foreign buyers (as well as local buyers) looking to get into the Malaysian residential property market, which is relatively cheaper vis-à-vis global prices. The RPGT waiver was therefore timely in speeding up acquisitions in Kuala Lumpur.
With the anticipated 4.3% appreciation of the ringgit against the US dollar to RM3.30 (from RM3.45 currently) by year end and eventually RM3.10 by end-2008, the investment proposition in Malaysian assets has an added sweetener.
Developers with ongoing developments were seen raising selling prices by 5% to 100% year-on-year from their launch prices. Just last year, eyebrows were raised when high-end properties around the Kuala Lumpur City Centre (KLCC) were going for RM1,000 per sq ft (psf). Today, the upcoming Four Seasons is said to fetch RM2,000 psf.
We expect the pricing gap between mass market and high-end residences in Malaysia to continue to widen in line with the regional phenomenon, as petrodollars and stock market wealth continue to have spill-over effects on property demand in Malaysia as prices remain cheap vis-à-vis regional peers.
With the recent spike in property prices, we are also experiencing a spike in land prices around the KLCC vicinity. We understand that a piece of land along Jalan Kia Peng, where the present Hakka Restaurant is located, was sold via tender for over RM1,300 psf in 2Q07 – a record price.
This was more than 30% above Glomac’s recent purchase of 1.3 acres of freehold commercial land at RM1,000psf (at the junction of Jalan P. Ramlee and Jalan Pinang) in 4Q06.
We believe the current high-end residential prices are sustainable and may continue to set new records as long as the political and economic climates of Malaysia and the world remain favourable, and Malaysia remains business friendly.
Unlike typical residential investments which require investment returns (in the form of rental), the high-end residential game plan differs with the surplus liquidity in the world. Buyers of these properties have varying reasons for such purchases – speculation, prestige, address, excess cash, and status, to name a few. We understand that high-end residences in Dubai are a classic example, whereby rental returns are almost non-existent, despite soaring prices of over US$1,000 psf.
More incentives to come
Following the initiatives benefiting high-end residences, we believe the Government is also looking at options to encourage more property ownership for the mass market. Among the speculated measures that the Government is considering are:
• Restructuring of EPF depositors’ acco-unts to allow for more withdrawals. We understand that there may be plans to restructure the monthly contribution to Accounts I and II from 70%:30% presently to about 50%:50%; and/or to allow simultaneous withdrawals from Account II for purchases of second houses without the need to sell the first house funded by EPF savings.
• A potential temporary waiver or reduction of stamp duty tax, as was the case in 2003, where for a period of one year starting from June 1, 2003, purchases of houses priced at RM180,000 and below from the developers were eligible for stamp duty exemptions, and the secondary market was exempted from RPGT.
• Further relaxation of property ownership. There are talks that the Government may consider extending the relaxation of rules to commercial properties, to encourage more direct investments. However, we note that foreign ownership remains a delicate issue in the country. And without a comprehensive restructuring plan to liberalise the economy in place, any long-term benefits of such a measure remain opaque.
• Fine-tuning the Malaysia My Second Home Programme. The present Malaysia My Second Home programme has had mixed results, with some suggesting that it is drawing the wrong group of people into the country. The Government is mindful of the present outcome, and we understand regulations may be fine-tuned to attract the “right” group of people to stay in Malaysia.
• While this initiative is unlikely to have a significant impact on the property market in the short term, it will nonetheless draw more foreign investments into the country over the longer run and benefit retail spending, tourism and the healthcare industry in the country.
• Non-competitive REIT structure. One of the common complaints we gathered from local and foreign investors in our past roadshows, is a lack of tax incentives for real estate investment trusts (REITs) in Malaysia. Despite Malaysia’s introduction of a lower 15% withholding tax (WHT) for individuals (previously at individuals’ prevailing tax rates) and 20% WHT for institutional investors (previously at the corporate tax rate of 28%) in last year’s budget, Malaysia’s attractiveness as a REIT investment destination still lags behind its peers in the region.
Further REIT tax incentives to revive interest
The current withholding tax structure for Malaysian REITs is generally seen to be hampering REITs’ price performance, and an obstacle in attracting new equity issuances among existing players.
The existing structure is also discouraging others from joining the bandwagon, as potential players are enticed by better valuations in other regional markets.
We believe the Government is aware of the need to provide more incentives to make our REITs more competitive and on par with the regional peers.
We remain overweight on the property sector, as it is set to gain further boost ahead of the upcoming general election.
Among property sector players, we like Sunrise and YNH Property for exposure to high-end developments, Mah Sing for its unique business model, SP Setia and WCT Land for their exposure to the mass market, and Sunway City for both property development and asset reflation play.
Among REITs, we prefer exposure to commercial related REITs.
*********************************************************************************
(Source: The Star Online, 2007)
By ONG CHEE TING
The Government may be considering measures to encourage more property ownership for the mass market after the earlier initiatives to spur activities in the medium to high-end segment.
SINCE the relaxation of residential ownership rules for foreigners and the real property gains tax (RPGT) waiver, high-end residential properties in Malaysia have attracted a fair amount of interest from abroad.
The changes initiated by the Government, which were targeted at stimulating property activities in the medium- to high-end segment, have thus far mainly benefited the high-end segment of the market.
In the last six months, we have seen greater interest from foreign buyers (as well as local buyers) looking to get into the Malaysian residential property market, which is relatively cheaper vis-à-vis global prices. The RPGT waiver was therefore timely in speeding up acquisitions in Kuala Lumpur.
With the anticipated 4.3% appreciation of the ringgit against the US dollar to RM3.30 (from RM3.45 currently) by year end and eventually RM3.10 by end-2008, the investment proposition in Malaysian assets has an added sweetener.
Developers with ongoing developments were seen raising selling prices by 5% to 100% year-on-year from their launch prices. Just last year, eyebrows were raised when high-end properties around the Kuala Lumpur City Centre (KLCC) were going for RM1,000 per sq ft (psf). Today, the upcoming Four Seasons is said to fetch RM2,000 psf.
We expect the pricing gap between mass market and high-end residences in Malaysia to continue to widen in line with the regional phenomenon, as petrodollars and stock market wealth continue to have spill-over effects on property demand in Malaysia as prices remain cheap vis-à-vis regional peers.
With the recent spike in property prices, we are also experiencing a spike in land prices around the KLCC vicinity. We understand that a piece of land along Jalan Kia Peng, where the present Hakka Restaurant is located, was sold via tender for over RM1,300 psf in 2Q07 – a record price.
This was more than 30% above Glomac’s recent purchase of 1.3 acres of freehold commercial land at RM1,000psf (at the junction of Jalan P. Ramlee and Jalan Pinang) in 4Q06.
We believe the current high-end residential prices are sustainable and may continue to set new records as long as the political and economic climates of Malaysia and the world remain favourable, and Malaysia remains business friendly.
Unlike typical residential investments which require investment returns (in the form of rental), the high-end residential game plan differs with the surplus liquidity in the world. Buyers of these properties have varying reasons for such purchases – speculation, prestige, address, excess cash, and status, to name a few. We understand that high-end residences in Dubai are a classic example, whereby rental returns are almost non-existent, despite soaring prices of over US$1,000 psf.
More incentives to come
Following the initiatives benefiting high-end residences, we believe the Government is also looking at options to encourage more property ownership for the mass market. Among the speculated measures that the Government is considering are:
• Restructuring of EPF depositors’ acco-unts to allow for more withdrawals. We understand that there may be plans to restructure the monthly contribution to Accounts I and II from 70%:30% presently to about 50%:50%; and/or to allow simultaneous withdrawals from Account II for purchases of second houses without the need to sell the first house funded by EPF savings.
• A potential temporary waiver or reduction of stamp duty tax, as was the case in 2003, where for a period of one year starting from June 1, 2003, purchases of houses priced at RM180,000 and below from the developers were eligible for stamp duty exemptions, and the secondary market was exempted from RPGT.
• Further relaxation of property ownership. There are talks that the Government may consider extending the relaxation of rules to commercial properties, to encourage more direct investments. However, we note that foreign ownership remains a delicate issue in the country. And without a comprehensive restructuring plan to liberalise the economy in place, any long-term benefits of such a measure remain opaque.
• Fine-tuning the Malaysia My Second Home Programme. The present Malaysia My Second Home programme has had mixed results, with some suggesting that it is drawing the wrong group of people into the country. The Government is mindful of the present outcome, and we understand regulations may be fine-tuned to attract the “right” group of people to stay in Malaysia.
• While this initiative is unlikely to have a significant impact on the property market in the short term, it will nonetheless draw more foreign investments into the country over the longer run and benefit retail spending, tourism and the healthcare industry in the country.
• Non-competitive REIT structure. One of the common complaints we gathered from local and foreign investors in our past roadshows, is a lack of tax incentives for real estate investment trusts (REITs) in Malaysia. Despite Malaysia’s introduction of a lower 15% withholding tax (WHT) for individuals (previously at individuals’ prevailing tax rates) and 20% WHT for institutional investors (previously at the corporate tax rate of 28%) in last year’s budget, Malaysia’s attractiveness as a REIT investment destination still lags behind its peers in the region.
Further REIT tax incentives to revive interest
The current withholding tax structure for Malaysian REITs is generally seen to be hampering REITs’ price performance, and an obstacle in attracting new equity issuances among existing players.
The existing structure is also discouraging others from joining the bandwagon, as potential players are enticed by better valuations in other regional markets.
We believe the Government is aware of the need to provide more incentives to make our REITs more competitive and on par with the regional peers.
We remain overweight on the property sector, as it is set to gain further boost ahead of the upcoming general election.
Among property sector players, we like Sunrise and YNH Property for exposure to high-end developments, Mah Sing for its unique business model, SP Setia and WCT Land for their exposure to the mass market, and Sunway City for both property development and asset reflation play.
Among REITs, we prefer exposure to commercial related REITs.
*********************************************************************************
(Source: The Star Online, 2007)
Thursday, April 23, 2009
New SC measures to boost REITs industry
The SC in its revised REITS guidelines which came into effect on 21 August 2008, has just announce some of the following measures to enhance the attractiveness of Bursa Malaysia as a destination for REIT listings and promote a vibrant and competitive REIT industry domestically and regionally:
•REIT would now be able to acquire property under construction or uncompleted real estate. However, a REIT is only allowed to acquire property under construction or uncompleted real estates up to 10% of their total asset value.
•REITs still cannot acquire non-income generating real estates such as vacant land.
•More freedom for REIT managers to invest in foreign real estate
•Allowing a portion of a REIT’s portfolio to consist of properties it does not wholly own or have majority ownership.
•REIT managers had to appoint a designated person responsible for compliance. This is to ensure that securities laws, land laws and guidelines and rules are complied with at all times.
•On the issue of units for cash (other than rights issue), the number of units to be issued must not exceed 20% of the approved fund size while the placement to one single placee must not exceed 10% of the approved fund size.
•Foreigners can now own up to 70% of the real estate investment trusts (REIT) management companies, up from 49% since 2005.
According to experts, benefits/effects accruing from the above are:
•REITS are able to acquire partially completed building REIT could now participate in the construction too. A REIT will then be able to buy assets at a lower price and if there is a contracted tenant, as a result the REIT can obtain higher yield.
•There are some clear move that that SC’s is moving toward enhancing corporate governance among REITs, including the setting up of internal auditors and the harmonising of the rules for REITs was good.
•The SC’s conditions for issuance of units for cash other than rights issues-this could hinder the capital raising exercises of smaller REITs whose fund size is less than RM100mil. However, this ruling would not have an effect on the larger players.
•REIT managers would have more freedom to invest in foreign real estates.
•It also allowed a portion of a REIT’s portfolio to consist of real estates that it does not wholly own or have a majority ownership.
•REIT Managers are now able to raise funds faster for acquisitions or capital expenditure purposes.
•REIT Managers are now allow to seek a general mandate from unit holders for issuance of units up to 20% of its fund size. Previously, the issuance of any number of new units required REIT Managers to hold meetings to seek unit holders’ specific approval.
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Source: http://reits.a-z-finance.net/
•REIT would now be able to acquire property under construction or uncompleted real estate. However, a REIT is only allowed to acquire property under construction or uncompleted real estates up to 10% of their total asset value.
•REITs still cannot acquire non-income generating real estates such as vacant land.
•More freedom for REIT managers to invest in foreign real estate
•Allowing a portion of a REIT’s portfolio to consist of properties it does not wholly own or have majority ownership.
•REIT managers had to appoint a designated person responsible for compliance. This is to ensure that securities laws, land laws and guidelines and rules are complied with at all times.
•On the issue of units for cash (other than rights issue), the number of units to be issued must not exceed 20% of the approved fund size while the placement to one single placee must not exceed 10% of the approved fund size.
•Foreigners can now own up to 70% of the real estate investment trusts (REIT) management companies, up from 49% since 2005.
According to experts, benefits/effects accruing from the above are:
•REITS are able to acquire partially completed building REIT could now participate in the construction too. A REIT will then be able to buy assets at a lower price and if there is a contracted tenant, as a result the REIT can obtain higher yield.
•There are some clear move that that SC’s is moving toward enhancing corporate governance among REITs, including the setting up of internal auditors and the harmonising of the rules for REITs was good.
•The SC’s conditions for issuance of units for cash other than rights issues-this could hinder the capital raising exercises of smaller REITs whose fund size is less than RM100mil. However, this ruling would not have an effect on the larger players.
•REIT managers would have more freedom to invest in foreign real estates.
•It also allowed a portion of a REIT’s portfolio to consist of real estates that it does not wholly own or have a majority ownership.
•REIT Managers are now able to raise funds faster for acquisitions or capital expenditure purposes.
•REIT Managers are now allow to seek a general mandate from unit holders for issuance of units up to 20% of its fund size. Previously, the issuance of any number of new units required REIT Managers to hold meetings to seek unit holders’ specific approval.
*********************************************************************
Source: http://reits.a-z-finance.net/
Updates On Witholding Tax Rate On Malaysian REITs
Malaysian reits have been disadvantaged by the following existing unfavorable witholding tax rate:
•foreign institutional investors especially pension funds and collective investment funds receiving income fro REITs listed in Bursa Malaysia are currently subject to a final witholding tax rate of 20% for 5 years; and
•non-corporate investors including resident and non-resident individuals as well as other local entities receiving income from REITs listed in Bursa Malaysia are currently subject to a final witholding tax of 15% for 5 years
Good news are in, as the Budget 2009 has allows the final witholding tax rate imposed on foreign institutional as well as non-corporate investors including individual residents and non-residents reduce to 10% . This is effective from 1.1.2009 until 31.12.2011
•foreign institutional investors especially pension funds and collective investment funds receiving income fro REITs listed in Bursa Malaysia are currently subject to a final witholding tax rate of 20% for 5 years; and
•non-corporate investors including resident and non-resident individuals as well as other local entities receiving income from REITs listed in Bursa Malaysia are currently subject to a final witholding tax of 15% for 5 years
Good news are in, as the Budget 2009 has allows the final witholding tax rate imposed on foreign institutional as well as non-corporate investors including individual residents and non-residents reduce to 10% . This is effective from 1.1.2009 until 31.12.2011
Wednesday, April 22, 2009
Malaysian Reits
Investors are spoilt for choice in their search for yield as many shares and most of the real estate investment trusts (REITs) in Malaysia offer dividend yields in the high single digit to low teens. Like their counterparts in the developed markets, however, they are also scared and uncertain if both the yield and capital value of REITs will hold.
A sell-down in REITs last year that intensified in December has pushed their unit prices lower and, therefore, lifted their yields. Axis REIT, for instance, fell from a 52-week high of RM2.00 and from RM1.20 in late November to RM1.00 less than two weeks later. It has since recovered to around the RM1.20 level.
Such price fluctuations may be the norm in these volatile markets but retail, and even institutional investors, did not expect prices for REITs to swing like that. Typically, REITs have tenancies leased for a number of years in contrast with trading businesses in which revenue varies from day to day or contract to contract.
REITs, of course, face the property market risk of tenants moving out and in the global credit crunch, the risk in rolling over their loans. Prices of REITs also fell in the general sell-off of securities by investors going into cash.
As a result, Axis REIT was carrying a historical yield of about 13% for 2008, annualising its nine-month income distribution.
REITs in Singapore and Hong Kong showed similar, or even higher, historical yields as their unit prices fell further, reflecting the greater risks in the property markets there.
Starhill Global REIT, the former Macquarie Pacific REIT, listed in Singapore, shows a historical yield of 13.6% with its units traded at 52 cents. That is still much lower than the 82 cents a unit that YTL Corp Bhd paid for a 26% stake in the REIT. Furthermore, the REIT now has the support of the very large YTL group.
On Dec 23, Starhill told the Singapore Exchange it is consulting its legal advisers to assess Future Revolution’s and Futuregement’s ability to meet their obligations to the REIT’s properties in Japan.
http://www.malaysianpropertypartners.com/
A sell-down in REITs last year that intensified in December has pushed their unit prices lower and, therefore, lifted their yields. Axis REIT, for instance, fell from a 52-week high of RM2.00 and from RM1.20 in late November to RM1.00 less than two weeks later. It has since recovered to around the RM1.20 level.
Such price fluctuations may be the norm in these volatile markets but retail, and even institutional investors, did not expect prices for REITs to swing like that. Typically, REITs have tenancies leased for a number of years in contrast with trading businesses in which revenue varies from day to day or contract to contract.
REITs, of course, face the property market risk of tenants moving out and in the global credit crunch, the risk in rolling over their loans. Prices of REITs also fell in the general sell-off of securities by investors going into cash.
As a result, Axis REIT was carrying a historical yield of about 13% for 2008, annualising its nine-month income distribution.
REITs in Singapore and Hong Kong showed similar, or even higher, historical yields as their unit prices fell further, reflecting the greater risks in the property markets there.
Starhill Global REIT, the former Macquarie Pacific REIT, listed in Singapore, shows a historical yield of 13.6% with its units traded at 52 cents. That is still much lower than the 82 cents a unit that YTL Corp Bhd paid for a 26% stake in the REIT. Furthermore, the REIT now has the support of the very large YTL group.
On Dec 23, Starhill told the Singapore Exchange it is consulting its legal advisers to assess Future Revolution’s and Futuregement’s ability to meet their obligations to the REIT’s properties in Japan.
Future Revolution and related entities directly occupy 33% of the space in Starhill’s Japanese properties. The bulk of Starhill’s properties are, however, in Singapore.
Fortune REIT, with retail properties in Hong Kong but listed in Singapore, was yielding as high as 18% for 2008, one of the highest in the sector. The REIT is sponsored by Cheung Kong (Holdings) Ltd, the flagship company of Li Ka-shing. Interestingly, a report by Macquarie Research forecasts Fortune REIT’s high yield will be sustained this year.
A yield of even 10% is very high for any asset class and if the Malaysian REITs can sustain their current yields, this is a rich field for investors in search of income.
High yields prevent expansion
The window of expansion for real estate investment trusts (REITs) has closed for the time being as their high yields preclude the possibility of any yield-enhancing acquisitions.
When the stock market was buoyant last year, prices for the units of REITs were higher and their yields were thus lower, at around 7% and even as low as 3%.
With that, it was possible for REITs to purchase properties that yield 8% to 9% and that would increase the yield of the trust.
With current yields of about 10% in the REITs, any purchases of properties with yields below that would reduce the trust’s yield.
It appears that even where the REIT promoter thinks it will be fruitful to purchase a property with a yield lower than the trust’s, shareholders may reject it.
That happened at Atrium REIT which proposed to purchase an industrial property for RM17.8mil cash from a related party. This is not unusual because sponsors provides a pipeline of properties for many of their REITs.
However, as the property offered a yield of 8.75%, lower than Atrium’s own yield that was then about 10%, minority unitholders rejected the purchase resolution at an EGM in November.
Fortune REIT, with retail properties in Hong Kong but listed in Singapore, was yielding as high as 18% for 2008, one of the highest in the sector. The REIT is sponsored by Cheung Kong (Holdings) Ltd, the flagship company of Li Ka-shing. Interestingly, a report by Macquarie Research forecasts Fortune REIT’s high yield will be sustained this year.
A yield of even 10% is very high for any asset class and if the Malaysian REITs can sustain their current yields, this is a rich field for investors in search of income.
High yields prevent expansion
The window of expansion for real estate investment trusts (REITs) has closed for the time being as their high yields preclude the possibility of any yield-enhancing acquisitions.
When the stock market was buoyant last year, prices for the units of REITs were higher and their yields were thus lower, at around 7% and even as low as 3%.
With that, it was possible for REITs to purchase properties that yield 8% to 9% and that would increase the yield of the trust.
With current yields of about 10% in the REITs, any purchases of properties with yields below that would reduce the trust’s yield.
It appears that even where the REIT promoter thinks it will be fruitful to purchase a property with a yield lower than the trust’s, shareholders may reject it.
That happened at Atrium REIT which proposed to purchase an industrial property for RM17.8mil cash from a related party. This is not unusual because sponsors provides a pipeline of properties for many of their REITs.
However, as the property offered a yield of 8.75%, lower than Atrium’s own yield that was then about 10%, minority unitholders rejected the purchase resolution at an EGM in November.
The financing window for REITs is also, for the moment, closed. REITs need to issue new units to raise capital now and then so as to raise their borrowing capacity and to repay loans.
REITs are regulated to maintain borrowings below 50% of their total assets but they do not retain the cashflow to repay their loans. They normally pay out 90% of their income so as to qualify for tax exemption, which leaves very little for loan repayment. Some REITs have a policy of distributing 99% of their income.
With the units of some the REITs trading below their par value and a lack of institutional interest, REITs will have to wait for markets to improve before they can substantially expand their asset size.
Fundamental flaws in trusts
Real estate investment trusts (REITs) are pitched to retail investors, including moms and pops and retirees, that they are a handy alternative to owning a house or condomium for rental income.
In a REIT, maintenance and tenancies for the properties are handled by a manager whereas an individual, buying a house to rent out, has to look for a tenant, ensure rents are paid and done so on time, and he has to take care of repairs and maintenance himself. REITs are, therefore, appealing to busy investors and retirees who do not want the drudgery of that work.
The price performance of REITs last year, however, show it does not mirror that of real properties. While a house of RM500,000 has held up its value so far, the value of REITs would easily has lost 50% in the last 12 months.
The first difference is that REITs are listed in stock markets and, like all listed securities, are subject to a sell-down whenever there is fear.
Secondly, REITs in most markets finance their property purchases with short-term loans. This exposes them to risks of banks willing to refinance and higher interest rates. This is an aspect not considered by many retail investors even if the facts were made known by the REITs in their prospectuses.
Would they buy a house with a loan repayable in five years or less? Probably not, but that’s the characteristic of a REIT. In some cases, a REIT may have its borrowings due within the year.
The reason for a preference for short-term debt could be that interest costs are lower than long-term debt, which boosts the bottomline. If REIT prices move up, they can issue more units to pare down debts, or make more purchases.
Last year, investors in Singapore heaved a sigh of relief that CapitaCommercial Trust, a REIT managed by the CapitaLand Ltd group, obtained a three-year loan of S$580mil at a very favourable rate of about 4% a year to refinance a loan coming due in March. Earlier, there were concerns that banks might charge 7% or 8% which would knock off a lot of its income.
REITs are regulated to maintain borrowings below 50% of their total assets but they do not retain the cashflow to repay their loans. They normally pay out 90% of their income so as to qualify for tax exemption, which leaves very little for loan repayment. Some REITs have a policy of distributing 99% of their income.
With the units of some the REITs trading below their par value and a lack of institutional interest, REITs will have to wait for markets to improve before they can substantially expand their asset size.
Fundamental flaws in trusts
Real estate investment trusts (REITs) are pitched to retail investors, including moms and pops and retirees, that they are a handy alternative to owning a house or condomium for rental income.
In a REIT, maintenance and tenancies for the properties are handled by a manager whereas an individual, buying a house to rent out, has to look for a tenant, ensure rents are paid and done so on time, and he has to take care of repairs and maintenance himself. REITs are, therefore, appealing to busy investors and retirees who do not want the drudgery of that work.
The price performance of REITs last year, however, show it does not mirror that of real properties. While a house of RM500,000 has held up its value so far, the value of REITs would easily has lost 50% in the last 12 months.
The first difference is that REITs are listed in stock markets and, like all listed securities, are subject to a sell-down whenever there is fear.
Secondly, REITs in most markets finance their property purchases with short-term loans. This exposes them to risks of banks willing to refinance and higher interest rates. This is an aspect not considered by many retail investors even if the facts were made known by the REITs in their prospectuses.
Would they buy a house with a loan repayable in five years or less? Probably not, but that’s the characteristic of a REIT. In some cases, a REIT may have its borrowings due within the year.
The reason for a preference for short-term debt could be that interest costs are lower than long-term debt, which boosts the bottomline. If REIT prices move up, they can issue more units to pare down debts, or make more purchases.
Last year, investors in Singapore heaved a sigh of relief that CapitaCommercial Trust, a REIT managed by the CapitaLand Ltd group, obtained a three-year loan of S$580mil at a very favourable rate of about 4% a year to refinance a loan coming due in March. Earlier, there were concerns that banks might charge 7% or 8% which would knock off a lot of its income.
************************************************************************************
Source:
http://www.malaysianpropertypartners.com/
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