[B][SIZE=5]Unsold unit costs add to squeeze on developers in sluggish market[/SIZE][/B]

[B]Lengthy approval process allowing unsold bumiputra lots to be released to other buyers also a costly affair[/B]

By Pauline Ng

[email][email protected][/email]

May 5, 2016

Kuala Lumpur

DEVELOPERS of strata titled properties in Malaysia are feeling the squeeze as sales remain sluggish - not only do they have to contend with holding costs, having to pony up associated fees on completed but unsold units is adding to their burden.

As unsold units continue to mount, the amounts can be considerable.

Hall Chadwick Asia Sdn Bhd chairman Kumar Tharmalingam said, in the past, unsold stock in a development averaged 15 per cent, mainly because the units were poorly designed or located (for instance, on the ground level or below it).

In the current environment, he estimated unsold stock to have doubled as many prospective purchasers shy away, owing to economic uncertainties, or are turned away by banks because of tighter lending guidelines.

"If you add up the volume of unsold stock, there is quite a lot," he said, adding this was particularly evident in Iskandar Malaysia and Klang Valley. "I would not be surprised if the unsold stock of the top five developers in town exceeds RM5 billion (S$1.7 billion)."

Unbilled sales of most developers have certainly inched up. Tropicana Corporation, for example, reported a record RM3.4 billion as at end-January, which it said would tide it over the next 2-3 years.

Unlike Singapore, Malaysian developers are not levied extension charges on unsold units in condominium projects. Even so, local developers have their own "cross to bear". In addition to bridging finance charges, the lengthy process for state approval allowing unsold bumiputra lots to be released to other buyers can be costly.

On top of that, the significant drop in sales (the overall volume of property transactions fell 5.7 per cent last year) means developers have also to shoulder maintenance fees and other ancillary charges - all of which have increased significantly because of a 6 per cent goods & services tax (GST) imposed from April 2015 as well as the weaker ringgit.

Based on 50 sen per square foot (inclusive of sinking fund charges), the annual maintenance charges on a 1,500 sq ft apartment amounts to some RM9,000. If there are 100 units unsold in a block, the developer would have to hand over nearly RM1 million in fees excluding annual assessment and quit rent charges.

Henry Butcher Malaysia chief operating officer Tang Chee Meng said it was common to have unsold stock because of bumiputra quotas (set at about 30 per cent in Kuala Lumpur and as high as 50-60 per cent for some developments in Selangor).

But he agreed the stock has increased in quantity, quipping: "I now have to work three times as hard to earn half as much."

"Because of the holding costs, developers might as well give freebies as incentives," Mr Tang observed.

To move unsold stock, builders have come up with all sorts of schemes, figuring that their outlay is cheaper in the general scheme of things. Some are offering estate agents bigger incentives to clinch a sale, increasing commissions to 5 per cent from about 2-3 per cent.

One builder reckoned "word-of- mouth introduction" was the way to go, and opted to incentivise its past purchasers by introducing a "referral reward programme" for one of its developments even though it was pitched as "an appreciation for your loyalty and support".

Under the programme, past purchasers who make a successful introduction are entitled to a cash reward of 3 per cent of the net selling price.

But carrots have also been dangled in front of prospective buyers of the development. They include low downpayment, rebate of up to 20 per cent, exemption from first-year maintenance fees, and waiver of legal fees on the sale-and-purchase agreement and loan documentation.

Others are offering easy payment schemes and loans even though the Association of Banks in Malaysia maintains that only one-in-five housing loan applications is rejected.

Developers contend rejection rates are much higher sometimes - as high as 50-60 per cent - and a few have decided to take the bull by the horns.

Until the end of September, Sunway Bhd is offering loans of up to 88 per cent for its new launches of condominiums and serviced apartments, at a fixed rate and tenure of 15 years.

For buyers unable to come up with the downpayment, IOI Properties has a deferred payment scheme of instalments over 18-24 months.

And for a limited period last month, Tropicana Corporation urged prospective buyers to put in a bid for their dream property although it dictated a minimum floor price.