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Saturday, January 17, 2009

Slew of aborted deals

Over the past several months, there have been at least 10 aborted deals in some form or the other. Some of them were biggies like Menara Citibank in Jalan Ampang. Others may be considered just a scratch, but no less interesting, involving land and old buildings.

Among them is Bok House, built in the 1880s, in Jalan Ampang. At one time it was known as Le Coq Dor, where English tea and scones were served.

Will this be the way to go for the rest of the year?

Consultants are reluctant to say what’s coming simply because they don’t know. “We don’t even know what’s going to happen next week,” one of them says.

Instead, they prefer to wait until after Chinese New Year, and after that the transition period when Deputy Prime Minister Datuk Seri Najib Tun Razak takes over the premiership in March to see what sort of policies he will unveil.

What precipitated the slew of aborted deals? YY Lau, executive director of YY Property Solutions Sdn Bhd says business uncertainty became an issue overnight.

Lau: Some of them feel they are able to get better pricing if they wait a little.

“If you are buying for own occupation, the need to buy remains. Or they can wait and go for short-term tenancy. But if you are buying for yield, the question to ask is, will there be tenants? Will rentals be stable and attractive? If you are building, will cement and building materials cost go up or down?”

All of a sudden, the scene appears to have changed. The US sub-prime issue imploded in the first quarter of 2007. We in Asia took little notice, until the fall of Lehman Brothers and reality set in.

Lau says another reason why deals were called off was the hope for better pricing later on.

“Some of them feel they are able to get better pricing if they wait a little longer,” says Lau.

Consultants and developers say they have been getting calls from clients and friends, asking whether there are any “fire-sale”. The answer is no.

A third concern is financing. Although commercial banks say they have not unplugged this channel, consultants say the margin of financing has dropped. If banks were prepared to lend 80% for the project, now they are looking at 70%, they say.

The fourth reason has much to do with sentiment and confidence, or lack of it, as echoed by three consultants – Lau, Jerome Hong, managing director of PA International Property Consultants (KL) Sdn Bhd, and C H Williams Talhar & Wong Sdn Bhd (WTW) managing director Goh Tian Sui.

Goh: There are various issues to be handled at home.

Says Goh: “You have the external situation, with bad news coming hard and fast from the US and Britain. At home, there are various issues to be tackled.”

These, he says, have dampened sentiment.

A factor to note is the entry of foreigners, particularly from the Middle East, South Korea and Singapore, who have entered the local property market in a significant way in recent years, snapping up commercial properties and some others, as developers.

Assuming they have, thus far, merely forked out 10% or less, chances are they may choose to forfeit the sum rather than move ahead with the project if they feel that it is in jeopardy or may not be a sound investment any more.

When things turn sour back home, it is logical for them to liquidate here to move their money home, says Lau. And this may be what is happening in some of the projects in Ampang and U-Thant area where South Korean developers have gone into niche developments.

Some of the aborted deals involve condominium projects in the city centre. With so many condominiums in the market, developers are beginning to doubt the viability of adding to the swelling numbers, hence aborting the purchase to avoid holding costs. But generally, it is not a single factor but a combination of reasons that lead to the decision to scrap the transactions.

Says Lau: “Be they locals or foreigners, because of the scenario before us today, many of them are readjusting their real estate strategy. There may be losses elsewhere and they may now want to readjust that loss. There will be opportunities, in good or bad times. Some prefer to wait and see and this is what many are doing today. They are sitting out the situation.”

“The property market is not dead. Deals are being done. It is just slow due to the various festivities and December and January are generally slow months; but this time, it is slower than usual. And compared with the past crisis, there appears to be more aborted deals.

Hong: The property market is not dead. It is just slow.

“Companies and businessmen are reassessing their position with property not being the flavour of the month. Cash is. This first half will be crucial as everybody adjusts to the situation,” says Hong.

Some of the aborted deals

Vendor: E&O Bhd unit KCB Trading Sdn Bhd

Buyer: Magna Universe Sdn Bhd

The deal: Vendor terminated an agreement to dispose of a piece of freehold land in Jalan Yap Kwan Seng, Kuala Lumpur for RM84.3mil.

Reason: Magna’s failure to make payment. Magna paid KCB RM8.43mil in damages.

Vendor: Well-Built Holdings Sdn Bhd

Buyer: Axis Real Estate Investment Trust (REIT)

The deal: Axis REIT proposed to acquire two factories in Jalan Seelong in Senai, Johor for RM27mil.

Reason: Unfulfilled conditions precedent in the sale and purchase agreement as at the expiry of the conditional period.

Vendor: Fraser & Neave Holdings Bhd subsidiary Elsinburg Holdings Sdn Bhd

The deal: F&N accepted an offer to purchase a site for Ampang Hilir 233 Condo but the offer was terminated on Nov 3, 2008.

Reason: Land Office acquired an additional 24 sq m (0.4% of total net area) of the project site and the buyer exercised the right to rescind the transaction following the acquisition notice. F&N refunded the deposit.

Vendor: DutaLand Bhd subsidiaries

Case 1:

Purchaser: Stonehage Westcity Property Fund Ltd and SWX Malaysia Ltd

The deal: Buyer to take over 8.78 acres within Kenny Heights.

Reason: Certain conditions were not fulfilled within the agreed timeframe.

Case 2:

Another letter of intent for a joint venture between DutaLand subsidiary and Merrill Lynch (Asia Pacific) Ltd to develop 16.2 acres within Kenny Heights also lapsed.

These two terminated JVs constitute two of nine parcels under the 88-acre Kenny Heights development, scheduled for completion in 15 years with residential and commercial portions accounting for 30% and 70% of the total estimated built-up area of 23 million sq ft.

An official statement from developer DutaLand said the freehold Kenny Heights projects will continue with Phase 1 having been successfully launched through private events and roadshows in Kuala Lumpur, Singapore and Hong Kong since April and the official launch in November 2008.

Vendor: Inverfin Sdn Bhd

Buyer: IOI Corp Bhd

The deal: IOI to acquire Menara Citibank for RM586.73mil

Reason : IOI Corp forfeited its deposit of RM73.36mil when it decided not to proceed with the proposed acquisition “due to the recent sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments”.

Vendor: Sunrise Bhd unit KHP Sdn Bhd

Buyer: Malaysia Commercial Development Fund Pte Ltd (MCDF)

The deal: Sunrise to sell a commercial space (comprising retail, office and car parks) and unsold serviced apartments within the project known as Mont Kiara 20.

Reason: Both vendor and buyer decided to mutually terminate the put and call option agreement which involved RM767mil worth of properties, one of the largest deal to be aborted thus far.

Vendor: SYF Resources Bhd

Buyer: AM ARA REIT Managers Sdn Bhd

The deal: To sell and lease back a shoplot in Summit City USJ (36,361 sq ft) by the AM ARA REIT group for RM8mil.

Vendor: Warta Development Sdn Bhd and Yap Khay Cheong & Sons Realty Sdn Bhd

Buyer: IJM Land unit Serenity Ace Sdn Bhd (a subsidiary of RB Land Sdn Bhd and IJM Land)

The deal: To build Laman Duta condominium to enable RB Land to expand its presence in a prime Klang Valley location without having to fork out the initial capital outlay to acquire the land

Reason: The intended objective of the joint venture was unlikely to be achieved due to a change in the conceptual plan for the proposed development.

By The Star (by Thean Lee Cheng)

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