Published January 23, 2014

Pre-launch property sales, investor clubs in M'sia could come under scrutiny

By pauline ng in Kuala Lumpur

ARE property pre-launch sales and bulk purchases by investor clubs distorting the prices of homes?

Abdul Wahid Omar, the Minister in Malaysia's Prime Minister's Department, seems to think that pre-launch sales, at least, do, going by his remarks on Tuesday, which could pave the way to such practices being more closely watched.

He was quoted by The New Straits Times as saying at a Cagamas event: "While we appreciate that developers want to sell their products and that the move (to hold a pre-launch sale) is part of risk mitigation, I don't think we should continue to allow this, as it will lead to property speculation."

He was referring to the developers' practice of holding pre-launches, but the National House Buyers Association (HBA) jumped in and fingered investor clubs for fuelling speculation, which is sending home prices spiralling, since their en bloc purchases at hefty discounts are ultimately borne by other homebuyers.

HBA secretary-general Chang Kim Loong said that investor clubs are given discounts of up to a quarter off the purchase price; some developers are more open to giving large discounts as it helps them meet the sales targets set by the banks, without which a draw-down on bridging loans cannot take place.

The Sun newspaper reported Mr Chang as saying that there are at least seven such clubs in the Klang Valley and suggested that the authorities look deeper into the issue.

Developers defend pre-launches as a way to "test the market" - even if it is often their staff, friends and associates who get first dibs on units in the property development, followed by select groups such as returning customers or premium customers of banks.

Tang Chee Meng, managing director of Henry Butcher Malaysia, a real estate consultancy, does not fault pre-launches per se: "There is nothing wrong with them. What is wrong - or rather morally wrong - is if the developer marks units as 'sold' when they are not, to give the impression of good sales."

He said that it is quite usual for a builder to hold three to four pre-launches over two months before advertising the launch of the development, during which time 30 to 40 per cent of sales would have been achieved at discounted prices. "Of course if he has achieved 80 to 90 per cent, he would be kicking himself because it means he has under-priced his products," said Mr Tang.

He added, however, that the way investor clubs operate is a cause for concern because they distort the market.

It would be different if these clubs buy the remaining units of a development, instead of purchasing them before the launch and getting 20 to 25 per cent discount, he said, because the developer would have to ensure that other homebuyers end up shouldering the discounts given.

In his view, investor clubs make excessive profits, since they often sell the units to members at a discount of about 8 per cent and pocket the rest.

Even so, he does not see how such clubs can be regulated, though he agrees that their practice warrants a closer look. "The club pays the deposit so it is a business arrangement, but because it acts as a middleman, prices do get bumped up."

The interest in properties in Iskandar Malaysia has attracted Singapore-based investor clubs into that market as well.

Concerned about rocketing home prices, Malaysia has already introduced a number of measures to cool the market, such as more stringent lending guidelines, higher tax penalties and scrapping easy-financing schemes.