Tuesday, 26 August 2014

Can new malls 'regenerate' an old area?

Browsing through the PR write-up for Sunway Velocity, one of the points brought up was that the surrounding area of Jln Pudu and Jln Peel (Peel Road - I have fond memories as my mum used to teach at the Peel Road Convent and I used to hang out there, playing on the grounds while she finished up marking books before we went home) was a little 'run down' as it were and the developer said that the project would revitalise the whole area.

So that got me thinking - is that true?

First equivalent that comes to mind is the Kenanga Mall - sad to say, the surrounding area has not gentrified in any way or form. However, it must be said that the mall itself acts more like a wholesaler's mall - so the traffic there is made up of retailers going there to buy stock. It's purely business, so they are not going to hang around and spend on other stuff in the area.

Next, Ampang Point - the shop lots around the complex were built first, and the area was dead for a long time until the mall was completed. Slowly, traffic started to build up and now the place is a parking nightmare! LOL which is a good thing, of course.

Berjaya Times Square - the shops immediately behind did seem to spruce up a little bit.

Viva Home - once the old UE3 was refurbished and rebranded, the mall itself began to do rather decently. It is still fairly quiet but with the cinema and eateries, there is sufficient foot traffic coming in from across the road. However, I don't see the shops immediately behind it benefiting in any way. Still pretty grotty and sleazy, unfortunately.

Interestingly, in Melawati - the old shops near the upcoming office building are being gentrified. There is even an Espresso Lab outlet now and gradually, the older businesses are making way for hip bakeries and cafes. However, you DON'T see that happening to the shops next to the upcoming Melawati Mall.

The pattern emerges - the size of the mall itself and its tenant mix will determine if the surrounding areas will benefit.

A small-ish mall like Ampang Point complements the surround area, thus everybody benefits. Similar examples: the Atria in Damansara Jaya, Cheras Leisure Mall in Tmn Segar. They do not "overpower" the area but acts as an anchor and magnet without overshadowing their neighbours.

A larger mall like Viva doesn't benefit the surroundings at all because the foot traffic won't bother to step out of the building to check out the other shops! Berjaya did help a little but the area behind it was fairly popular with the local residents long before the mall came up anyway.

Office buildings obviously aid the surrounding shops - like Damansara Uptown and what we're seeing now in Melawati.

So back to the original question, will Sunway Velocity help revitalise the surrounding area? My guess is NO.

Because it is going to be huge in its own right and pretty much self-contained. The residents and visitors would not have any reason to walk out and cross the road to patronise any shops outside the mall. The regulars will continue to go to the old shops and eating places (can't really call them restaurants but they are indeed delicious!) but don't expect new influx of customers.

Hence, that was just a PR fluff piece to make buyers feel good But It Ain't Gonna Happen.

Thursday, 21 August 2014

Financial Rules of Thumb for Malaysians

I remember way back when I first started work and I asked my cousin sister as a guide, how much should one pay for a house or a car based on annual salary?

She said 10 times but you know, bless her, she's a bit of a bimbo when it comes to money since she's always had loads of it! Hahaha

Anyway, being a bit free the other day, I decided to do a bit of number crunching based on my ahem "insider banking" knowledge (kidding) to work out for myself what is an easy benchmark to decide how much you should pay for a house or a car.

The calculation model is very simple, using the maximum 33% of net salary as the repayment amount to determine the maximum eligible loan, then apply an assumed 90% loan to get to the house / car price amount.

I also imputed the tax depending on the income levels because for lower income, the difference between your gross and net pay is relatively low with the bulk being caused by EPF's 11% but for higher income folks, the effective tax rate is as high as 23% thus impacting on your take home pay because combined with EPF, off the bat, you're down 34% of gross versus a lower income earner whose net pay is only about 15% lower than gross.

Income per below refers to either household or individual income, depends on whether it is a joint or single loan. The multiplier stays the same.

So.. after all that palaver, the results are:

Gross Income is below 8K per month (96k per annum) -  Maximum house price should be 5 times annual income or 6 times net income

Gross Income above 100K per annum - Maximum house price is 4.4 times gross or 6 times net

The easy way: 6 X Annual Take Home = the maximum house price you can afford based on a 10% deposit.

If you have more cash in hand, then add on top of that for higher affordability.

Firstly, you should only take a 5 or 6 year tenure on your car.

Because of depreciation and possibility of having to change car within 5 or 6 years. Do not be saddled with a 9 year loan because if you find the car giving problems in year 6 or 7 and you want to change it, you have very little equity or negative equity because the resale price cannot cover your loan.

You have been warned.

However, I did compute for 9 years anyway so the results are:

5 year loan:
A car should cost 1 year's take home salary at maximum

7 year loan:
1.2 years or roughly 15 months take home salary

9 year loan:
1.44years or roughly 18 months take home salary

So if you want to be a nosey parker and want to figure out how much someone earns if they are driving a flashy car, then take the car price and divide by either 1 (if you think they are financially astute) or 1.44 (if you think they are the mesti-gaya type) and you will know their salary! hehehehe

I also did this as a check against what I have as commitments to see if I am within the normal boundaries - so it is ok, in fact I'm below because I'm rather frugal in that sense - especially for cars because I don't mind driving a car that is considered "below standard" for my corporate rank.

Thursday, 14 August 2014

Funny business in property sales

A few of the recent launches are using the "upfront discount" method again so that essentially, it is back to the old 'no money down' model where buyers pay a booking fee and supposedly 'paid' the 10% deposit but the developer gives you back the money via discount.

The bank then gives you a 90% loan but you actually did not fork out any equity.

Now many or almost everyone would say what's wrong with that? But the thing is, you are actually buying an overvalued property.

If this gets to a large scale and you try and offload the property once its built, your potential buyers will know that you bought it through this method and why would they want to pay the premium?

Anyway, I know no matter what I say, this will still go on because people have short memories and by the time the development is complete, who is going to remember? And the cycle goes on.

So the note to myself, in this case, is to stick with my plan to continue in the landed market, buying location location location!

Don't ever be taken in by fancy marketing.