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Saturday, November 29, 2008

How resilient is Malaysia’s property sector?

In recent weeks, a series of telling full-page advertisements have appeared in the local papers on the sale of luxurious condominiums. The location: Mont’ Kiara and KLCC. Is somebody unloading?

The question begging to be asked is this: How resilient is Malaysia’s property sector in the current financial meltdown?

There seems to be two broad versions right now. The first is that the current crisis will not affect the property sector as much as it did in the 1997/98 financial crisis.

The rationale given by property consultants is that in the late 1990s crisis, interest rates went up from less than 10% to 15%. Now interest rates are around 7% and getting lower for residential properties.

The second rationale is that banks were withholding credit in the late 1990s. The third rationale is that property buffs (which include buyers, sellers and observers) have learned from that crisis and are not so highly leveraged.

We shall call this first group the “bulls”, following the stock market jargon for investors who have dared to invest and who saw the silver lining behind a dark cloud.

Then there are the “bears” with a more cautious stand. Their rationale: The world is going through what could be the worst financial crisis since WWII and there is no such thing as decoupling from the US market because every country is affected. The question is to what degree will we be affected, and how developers and property buffs will weather the crisis.

As Glomac Bhd group managing director F.D. Iskandar Mohamed Mansor puts it: “To those who say Malaysia will be insulated, let me say that when our trading partners – the US, Europe, Japan, India and China – are affected, we will be affected. We have to face that,” he says.

Iskandar is also Real Estate and Housing Developers’ Association Selangor branch chairman.

But there are those who are positive. According to a report by research house ECM Libra, which recently hosted a property talk for about 100 fund managers, the current property downcycle will not be as bad as the 1997/98 Asian financial crisis.

“The indications are that the market is fairly resilient. With the exception of luxury condominiums, correction of capital values and rental of properties should be moderate,” the report says.

Rehda president Datuk Ng Seing Liong is positive. “We know there is a slowdown, not a crash. On average, it will only be a 5% drop in property prices, maybe in some locations and segments, 10%. We are well insulated and there is nothing to fear. We will not be like Singapore, where there will definitely be a crash.

“Of course, there will be a slowdown as buyers take a wait-and-see attitude. But everything is under control and we have asked for a 50-basis-point reduction in interest rates. We have a 25 basis points cut, so in the next few months, we hope there will be another,” says Ng.

Some property consultants and a valuer say they are not seeing any fire-sale and that their customers are still holding on to their prices from six months ago.

PA International Property Consultants (KL) Sdn Bhd managing director I (agency and corporate services) Jerome Hong says: “I don’t think it will be as bad as before but we will only know by the first half of next year.”

Hong says his concerns are with high-rise condominiums the prices of which have come down by about 10%.

“We have multiple-unit buyers who are now letting go. But those in good locations and with good views may be fine. We will see more in January and February next year,” he says.

And now, views from the “bears”: Savills Rahim & Co managing drector Robert Ang says the property sector is not as resilient as many would like to think.

“Six months ago, I told a group it will weaken, that our cycle is almost coming to an end, that it will taper off by 2009 or early 2010. It came earlier as a result of what is happening in the outside world.”

Ang says the last few months have attracted a lot of foreign interest and many of these foreigners, together with Malaysians, have been affected.

Ang, who at one time was an all-out promoter of the KLCC area, believes that KLCC is over-built and that the other troubled area is Mont’ Kiara.

“The condo market has been weak for the last couple of years. The office market will have a lot of supply. The landed houses will be much more resilient,” he says.

Another property consultant, who declined to be named, says he sees two troubled spots – the KLCC and Mont’ Kiara.

“KLCC is in a better position than Mont’ Kiara. Depending on the project, its developer and the view from the top, prices may drop 15% to 20% next year. In Mont’ Kiara, it may be 20% to 25%.

“At the same time, there are units going for RM2,500 per sq ft or more. The winners will be those who bought into that area at RM500 to RM600 per sq ft. For example, Dua in Jalan Tun Razak.

“Dua went up to about RM1,000 per sq ft, so with a 20% drop, even at RM700 per sq ft, these buyers are still okay. It is those who went into that area at RM900 or RM1,000 who will face difficulty,” he says.

Says a source from a foreign bank, who monitors the property scene: “I would hold cash. Realistically, Malaysia has not yet felt the whole effect of the global meltdown. The next six months will provide more clarity.”

By The Star (by Thean Lee Cheng)

MK Land reveals turnaround plan

DEVELOPER MK Land Holdings Bhd yesterday revealed its turnaround plan, which included the appointment of two chief operating officers and the sale of non-core assets.

Chief executive officer Tan Sri Mustapha Kamal Abu Bakar said the plan, called the Renaissance, will be done in three phases over three years.

MUSTAPHA KAMAL: MK LAND will look into exporting its expertise

MK Land made losses in 2007 and 2008, prompting Mustapha Kamal to assume the top post in June after relinquishing the position more than a year ago.

The company posted a RM4.9 million net profit in its first quarter to September 30 2008. Revenue more than doubled to RM77 million.

"We are bullish of achieving a good performance in the current financial year with a target sales worth more than RM350 million," Mustapha Kamal said.
The turnaround plan will turn the group into a more structured and focused entity managed by skilled and experienced professional team.

"The new management line-up comprises both new and old faces that we believe could steer MK Land into greater heights," he told reporters at a briefing in Petaling Jaya, Selangor, yesterday.

Under Phase 1, it will reorganise the company's structure into two operating regions, namely central and northern region whilst setting up a strategy and planning think tank at the head office.

There are COOs for both regions.

It also plans to sell non-core assets, vacant land and reduce stockpile of completed units.

MK Land will develop premium products in Phase 2. It will expand abroad in the third phase.

"We will also be looking at exporting our core expertise to less developed countries looking for quality housing in the lower to medium category," Mustapha Kamal said.

By Business Times (by Azlan Abu Bakar)

An orchard in the backyard

HIJAUAN Heights Sdn Bhd is transforming 1,000 acres of land in Pedas, Negri Sembilan into a lifestyle property development that includes bungalows with orchards, outdoor activities and a clubhouse as well as round the clock security.

It is for this reason that its director, Nor Azmi Talib believes the unique lifestyle project called “Hijauan Heights” will be a hit.

Nor Azmi: The location is a plus point

The development of Hijauan Heights started about three years ago on a plot of land that belonged to Telekom Malaysia Bhd (TM).

Through a subsidiary, TM Facilities, the company did a joint-land development agreement with a landscape company, IDH-IndahHijau (M) Sdn Bhd.

TM provided the development land while Hijauan Heights, a subsidiary of IndahHijau was responsible for the development, sales and marketing of the project.

Hijauan Heights plans to complete the first phase of the development by May next year.

According to Nor Azmi, the gross development value of the first phase is about RM79mil.

“TM will develop the structure for telecommunication that would include 3G connectivity. We have already divided the project into four phases scheduled for full completion by 2013. The 1,000 acres have already been subdivided to a minimum of one acre each to be offered to buyers,” says Nor Azmi, adding that in total about 591 lots have already been divided while the rest would be used for other developments such as building roads, a clubhouse and water tank.

“Here at Hijauan Heights, we offer you not just the orchard and clubhouse but also outdoor activities such as paragliding, fishing, boating and camping site to name a few. Plus, all the bungalows that we built are fully-furnished,” he says.

The location, Nor Azmi says, is another plus point as it is only 20 minutes to Seremban and an hour’s drive from Kuala Lumpur.

He is confident that despite the softening property market, the project with its unique features will be able to attract buyers.

“Our concept is very different from other developers. We are not doing mass development where thousands of houses are built. We are offering buyers a lifestyle concept whereby you can live in a green surrounding, do outdoor activities and also enjoy all the fruits from the orchard.

“Plus, you don’t have to worry about safety as it’s gated,” he says.

Nor Azmi says Hijauan Heights offers six types of four bedroom bungalows with an average built-up of 2,000 sq ft. It also provides three years of free maintenance for the orchard.

“In total, there would be about 129 units of four bedroom bungalows in this first phase plus the clubhouse. Since the soft launch on Aug 2, about 51 units had been sold,” says Nor Azmi.

He adds that the company is very selective about the choice of trees to be planted so that the buyers could taste all the fruits without waiting for the fruit season to come.

“About 40 fruit trees such as guava, rambutans, mango and longan have already been planted on each acre. For that, you don’t need to wait until the fruit season to savour the fruits as it will be a continuing fruiting season,” he says.

General manager Ungku Amir Ungku Sulaiman says the achievement of the company to subdivide the whole land into one acre individual title lots was something to be proud of.

“It’s not easy to subdivide this massive land into individual lots. It took us about two to three years just to do that,” he says.

He adds that this was an opportunity for future investments for buyers as the one acre land could be divided into more plots if they decide to split the land for their children.

The 1,000-acre freehold land at Hijauan Heights offers a minimum of one acre with six types of fully furnished bungalows to choose from with 40 type of trees planted. The prices start from RM750,000 to RM900,000 depending on the size of the land acquired.

By The Star (by Edy Sarif)

Menara Citibank back on sale

Menara Citibank is back up for sale now that IOI Corp Bhd has called off its purchase for RM586.73 million, said agent Regroup Associates Sdn Bhd.

"Interested parties with a strong financial background can make an offer as the seller is still willing to consider a good offer," Regroup Associates executive director Paul Khong told Business Times yesterday.

However, Khong said it would not be possible to complete the sale of the building by the end of this year as deals of such nature take a few months to complete.

"The timeframe depends on how quickly the parties come to an agreement on the terms of the deal and sign the SPA (sale and purchase agreement), which will then be subject to the FIC approval," he said, adding that this could take up to six months.
While Khong was unable to comment on which parties have expressed interests, he said there were many enquiries on the building as it was still an attractive income-yielding asset.

"Menara Citibank is a Grade A office building with good tenants, who will not look to move out in a slowing economy," he said, adding that the exclusive agent for the deal was CB Richard Ellis Singapore.

IOI backed out of the deal on Thursday, forfeiting its RM73.36 million deposit paid to Inverfin Sdn Bhd, citing concerns over the economy.

Inverfin is 50 per cent owned by Menara Citi Holding Co Sdn Bhd, a unit of US bank Citigroup. Singapore's CapitaLand Ltd holds another 30 per cent, while Amsteel Corp Bhd owns the rest.

In August, Business Times reported that IOI Corp Bhd, a private equity fund and a Korean fund were short-listed as bidders for the building.

Menara Citibank has a net lettable area of 733,626 sq ft and a 99 per cent occupancy rate.

The net book value of the building as of December 31 last year was RM458 million and the gross rental revenue was RM43.3 million (excluding the revenue from the car-park of RM3.3 million).

By Business Times (by Jeeva Arulampalam)

Putera Capital bidding for RM9b local jobs

Despite its status as a financially-troubled group, Putera Capital Bhd has bid for construction jobs worth about RM9 billion in Malaysia.

The group, which had its first restructuring proposal rejected by the authorities, is awaiting response to its second revamp plan.

"If all goes well, than we can embark on these projects with our strategic partners," chief executive officer Wan Azman Wan Salleh said after the group's annual general meeting in Kuala Lumpur yesterday.

However, he declined to comment further on the revamp plan.
The group has not made money in seven years and it faces the threat of having its shares taken off the stock exchange.

For the financial period ended May 31 2008, the group posted a loss of RM9.2 million on revenue of RM1.5 million.

Putera Capital has closed its loss-making textile division and it wants to focus on the construction and infrastructure business.

It holds a 20 per cent stake in the West Coast Expressway, a multi-billion-ringgit project that has yet to take off.

On its partnership with Melewar Industrial Group Bhd to build a proposed RM2.2 billion monorail system in George Town Penang, Wan Azman said the group remains hopeful of the project.

They are still waiting for a response from the state government, he added.

By Business Times (by Zurinna Raja Adam)