Financial institutions positive on HSR’s potential

THE proposed KL-Singapore high-speed rail (HSR) will create new business and employment opportunities across various industries before, during and after the project is completed.

"Financial institutions are very positive on the potential of the HSR and are confident it will attract foreign investors," said Nor Azam M Taib, senior vice-president of corporate business at Malaysia Building Society Bhd.

The HSR, he added, will benefit both Kuala Lumpur and Singapore, allowing more movement and activity between the two financial hubs when it is completed around 2020.

Impact of HSR

He anticipates a spillover into the tourism, hospitality, education, retail, transport and construction sectors. If there are stations in Singapore's Changi Airport and Kuala Lumpur International Airport, the region may eventually emerge as the main tourism hub for Asia- Pacific, he added.

However, Nor Azam said the 90-minute travel time between the two capital cities via the HSR may affect the air travel business and cause a drop in the number of flights between Singapore and Malaysia.

It has been reported that stations may be located in Seremban in Negri Sembilan, Batu Pahat, Muar and Iskandar Malaysia in Johor and Air Keroh in Melaka.

But wherever the stations eventually come up, enhanced connectivity and accessibility will fuel demand for properties in the vicinity. "These areas would see new townships and business centres grow and develop," said Nor Azam.

He believes that supported by domestic demand and the anticipated inflow of foreign investment, the economic benefits generated by the HSR project will outweigh the price inflation caused by the further opening of the Johor market.

Through a banker’s eyes

Nor Azam also listed some of the factors that financial institutions will consider when it comes to mortgages. Chief among them is the location of the property.

"If the location is not favourable to bankers, the terms and conditions of the financing will vary," he said.

He added that landed homes will continue to be favoured by bankers for financing, although condominiums in good locations will be just as attractive.

Terraced houses are the most popular property type among homebuyers, followed by condos, serviced apartments and semi-detached houses.

For investment properties, said Nor Azam, bankers will scrutinise the borrower's fixed income and consider the potential rental that a particular property can earn before approving a loan. The market environment, age of the property, infrastructure and neighbourhood are also factors financial institutions look at as these can be indicators of a property's potential price growth.

Nor Azam said the recent cooling measures implemented by the government have created a healthier market. These include an increase in the real property gains tax, introduction of the government service tax, tighter lending guidelines and a 70% cap on loan-to-value (LTV) for the third property purchased and above.

"The demand for property is still there. Transaction figures are good and the market is still active," he said. Although there was a slight slowdown in transactions initially, "transaction levels will be back to normal this year. We expect to see genuine demand for properties going forward."

Nor Azam revealed that in the past, it was not uncommon to see loan applications from investors who had more than 20 properties. Despite the cooling measures, some investors are willing to pay a higher downpayment as a result of the 70% LTV.

To a question from the audience about financing for land purchases, Nor Azam said buying land without specific planning or a development concept will not be favoured by most financial institutions.

Branded developers that are well prepared and have the plans for a particular parcel ready should not face any financing problems, he said.

As for individuals purchasing land, again, it all depends on what they want to do with it, he said.

"Banks have no issue financing individuals who buy a plot for their own use. The location of the plot is a very important factor for those buying for investment purposes," Nor Azam explained.

To a question on the investment potential of Cyberjaya, he replied that based on historical transactions, the area will continue to see good demand from developers and homebuyers. Furthermore, the government supports the growth and development of Cyberjaya.

This story first appeared in The Edge weekly edition of May 20-26, 2013.

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