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Monday, July 6, 2009

More REITs seen with easing of guidelines

Malaysia can expect to see more institutional property funds and real estate investment trusts (REITs) coming into the market in the next few quarters following the liberalisation of Foreign Investment Committee (FIC) guidelines for property purchases by foreigners and removal of the bumiputra equity condition in public-listed companies.

According to Axis REIT Managers Bhd chief executive officer-cum-executive director Stewart LaBrooy, the removal of the 30% bumiputra condition on listed companies, which hopefully would also apply to REIT management companies, would spur a more level playing field for industry players.

“The bumiputra equity condition was an impediment to existing REIT managers in forming alliances with strong overseas operators through the sale of equity without diluting the major shareholders’ interest. It (the removal) will attract more players through the new alliances which will result in more capital inflows,” LaBrooy told StarBiz.

He said the deregulation of the FIC would provide the catalyst for renewed interest in foreign investment in Malaysia’s real estate.

Prior to this, any foreign buyer of Malaysian real estate had to go through complicated structures to own and list their Malaysian assets.

“With Malaysia’s REITs market becoming more well established and the Securities Commission introducing very business-friendly guidelines for both conventional and Islamic REITs, foreign investors will have good reasons to re-enter the market.

“The move will encourage private equity funds to relook at our market. They primarily look to purchase our real estate directly with a view to securitise them later through REITs once the buildings are fully tenanted,” LaBrooy added. He said it would be timely for these funds to enhance their property portfolio, as the next two to three quarters would be a good window for new REITs to be launched.

“With 11 listed REITs and two property trusts in the country now, there is room for more of these trust funds,” he said.

The two new REITs that are expected to seek listing on Bursa Malaysia in the next few quarters are the Sunway City Bhd’s (SunCity) REIT and CapitaLand Ltd of Singapore’s REIT.

Backed by RM3.7bil worth of assets, the proposed SunCity REIT will possibly be the largest REIT in the country.

CapitaLand’s REIT, with an initial asset size of RM2bil, was targeted to be the country’s first foreign-sponsored REIT on Bursa. The company had intended to inject its three shopping malls in Malaysia - Gurney Plaza in Penang, the Mines Shopping Fair in Seri Kembangan, Selangor, and Sungei Wang Plaza in Kuala Lumpur - into the REIT.

The proposed listing of the two REITs was initially planned for this year but had to be deferred due to the weak stock market conditions following the global financial crisis.

It is understood from management that the timing for its proposed listings would be subject to market conditions going forward.

A CapitaLand spokesman said the company was encouraged by the liberalised measures and would be studying the details from the relevant authorities.

“The lifting of the bumiputra equity rule in stocks as well as allowing 100% foreign ownership in fund managers seeking to operate in Malaysia are positive moves that would place Malaysia in a favourable position to attract foreign investors,” he added.

LaBrooy said as it was now much easier for foreign real estate ownership by either individuals or property funds, investment grade properties should be able to perform well.

“A lot of new ventures, be they commercial or residential, should be able to take off as there will be a need for more quality and REIT-able property projects going forward. At the end of the day, these investors will need an exit plan and REIT will be a good option for them,” he said.

To provide a lift to the market, he said there was a need to promote greater retail interest in REIT investment.

“There is a need to raise greater awareness of REIT investment among the local investment community. We will be holding some roadshows in the various states starting with Penang over the weekend.

“By investing in REITs, investors will have direct interest in a wide portfolio of property and they provide regular dividend payout that only attract a withholding tax of 10% for individual unitholders. Annual yields paid out by the various REITs in the country so far are between 8% and 13%,” he said.

LaBrooy said as the global financial crisis had yet to bottom out and foreign players would not be coming in immediately, the more liberalised environment was a good groundwork to attract them when the economy turned for the better.

Overseas property companies and funds that are looking for good value investment in the region may be lured to invest in Malaysia for capital appreciation.

CapitaLand, which is eyeing a bigger stake in Malaysia’s real estate market, is one of the potential big players.

Through its US$30.5mil real estate private equity fund, Mezzo Capital, CapitaLand has invested in a number of high-end residential projects in the country.

CapitaLand also owns a 30% stake in the 50-storey Menara Citibank in Kuala Lumpur’s Golden Triangle.

By The Star (by Angie Ng)

Penang urged to adopt Italian model in preserving heritage properties

GEORGE TOWN: Initiatives to conserve Penang’s heritage properties could assume the Italian model which involves the collaboration between the private and public sectors, according to the Penang chapter of the Malaysian Association of Hotels (MAH).

There are more than 750 heritage sites in Italy, which is testimony to the success of the Italian model, said Marco Battistotti, the chairman of MAH Penang chapter.

He was commenting on the Penang Municipal Council’s (MPPP) directive in May to the developers of the four controversial hotel projects in inner George Town to comply with the 18-metre height or five-storey ruling for the hotels.

The hotels affected are the Eastern & Oriental Hotel’s extension project known as Annexe at Lebuh Farquahar, the Boustead Group’s RM130mil Royale Bintang Hotel, the Asian Global Business Group’s (AGB) Rice Miller Hotel in Weld Quay and the Low Yat Group’s proposed 23-storey hotel project at Jalan Sultan Ahmad Shah.

“The state government could use the Malayan Railway Building (now known as Wisma Kastam) clock tower, which measures about 40m, as the benchmark height for the four hotel projects.

“After all, the clock tower is a heritage landmark, as it was constructed in 1907.

“At least with a 40m height, the hotels would have a reasonable amount of commercial space viable to be developed.

“In return, the developers could refurbish the heritage buildings in the surrounding area, turning the inner city of George Town into a lively tourist site.

“There is no point in conserving a dead heritage zone,” Battistotti said.

He said George Town was the only place in Asia where there were over 4,500 heritage buildings concentrated in one area and “the state government should take advantage of its unique heritage’s positioning and breathe life into it.”

Furthermore, Penang needs at least 200 to 300 new hotel rooms a year even if its economic growth stays below 5% per annum as a result of the global recession, according to Battistotti.

The Eastern & Oriental Group obtained building plan approvals from the MPPP in 1996 for its 28-storey Annexe. However, it was scaled down to 15 storeys in 2008 when the 18m height restriction was imposed.

The Boustead and the AGB Group received endorsement from the MPPP for their projects in 2007 while the Low Yat Group’s proposed project received the go-ahead in late June 2008, less than two weeks before George Town was declared a World Heritage Site in July.

Recently in a letter to the World Heritage Committee, Penang Chief Minister Lim Guan Eng revealed that the Eastern & Oriental project and the Low Yat hotel project had been allowed to maintain their respective 15-storey and 23-storey height, as they are located in the buffer zone.

But Low Yat is required to amend the design of the overall facade so that it blends with the surrounding existing heritage buildings.

Unesco has also recently reaffirmed the status of George Town as World Heritage Site despite the initial controversy over the approval given for the four hotels.

Meanwhile, registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun said so long as the local authorities had not officially adopted the 18m height guideline, the ruling could only serve as a state policy decision, which could be overturned by legal recourse.

In other words, the 18m height guideline had yet to be gazetted into law, Lim added.

“Buildings are governed by plot ratios and density controls, subject to infrastructural, social, and civic limitations.

“For example, the plot ratio for commercial development in Penang varies from 3.5 to 5 times, meaning that for every sq ft, the total development allowed will be 3.5 to 5 times.

“The developers submitted plans for a 3.5 times plot ratio development, but now they are told that they are getting substantially less plot ratio for development.

“Will they be compensated?

“If their projects become commercially inviable, leading to abandonment of the projects, then Penang would also lose out economically.

“The developers can seek legal recourse should they decide to defend their right to develop based on existing development policies,” he said.

Lim noted that the state government could conserve heritage properties by requiring the developers to construct and design the properties to blend with the heritage surroundings.

“Conservation need not be in the form of height control, which would render the projects inviable.

“Unless the developer has a very large tract of land in George Town where he can increase density without resorting to increasing the height of the building, then there can be only small hotels of one- to two-star categories in the inner city.

“The criteria of control should be conformity and not height control. Does it mean that a building with less than five storeys has heritage value?

“Conformity to the general surrounding is more important than height control, as it requires the developer to pay close attention to the aesthetics of the development, ensuring that the design conserves the heritage aspects, is appealing and commercially successful,” Lim said.

By The Star

Penang council urged to reconsider hotel directive

GEORGE TOWN: The city’s old trades, culture and lifestyle of Penangites are some of the key reasons why George Town was awarded the World Heritage Site (WHS) status, not solely because it has heritage buildings that could be conserved, said Real Estate and Housing Developers Association (Rehda) (Penang) chairman Datuk Jerry Chan.

“The soul of old George Town is not about empty buildings. It is pointless to have an inner city with heritage claims but one which is without any life after office hours and on weekends.

“The proposed hotels would create spill-over effects for businesses and promote tourism-related activities,” he said, referring to the four controversial hotel projects in inner George Town to comply with the 18m height or five-storey ruling.

Chan said owners of heritage properties would hesitate to invest substantially to refurbish their properties if they were not convinced that the rental would justify the expenditure.

“The worry now is that the building owners would leave the buildings to the course of nature.

“If the proposed hotels are allowed to proceed according to the earlier approved plans, perhaps the project proponents could be persuaded to adopt conservation projects in the inner city. This will result in a win-win situation for all parties concerned, complementing their business by promoting tourism products and activities to keep the city vibrant.

“This would be a successful public-private partnership, allowing tourists to experience old George Town, which has a lot to offer in culture, community, cuisine and diversity.

“Tourists would rather spend more time in the city if there were more interesting sights and sounds,” he reckoned.

Chan said a key pre-requisite of the WHS listing was that there had to be a survey conducted to obtain feedback from the stakeholders in the heritage areas.

“The stakeholders include the property owners, businesses, and dwellers in the heritage zones.

“I don’t think this was adequately done,” he said.

Rehda wants the Penang Municipal Council (MPPP) to reconsider imposing the 18m height or five-storey restriction for the four hotel projects.

Rehda president Datuk Ng Seing Liong said in a recent statement that the restriction would only impede property developments in Penang, which was considered as a choice destination for property investment.

“We respect the state authorities’ decision to conserve George Town’s WHS status, but the restriction is unfair to the industry,” he said, adding that it was unfair for the state government to pre-empt Unesco’s decision on the status of the four projects, as the latter had yet to make a decision regarding the impact of the 18m-height restriction guideline on the proposed hotels.

“There should not be an assumption that George Town would lose the WHS status if the hotel projects are carried out,” he noted.

By The Star

Far East's hotel in Subang to sport contemporary look

TWELVE-year-old Sheraton Subang Hotels & Towers is undergoing a transformation as the owner of the hotel, Far East Consortium Ltd, prepares to take over the management from Starwood.

It is understood that the hotel may be re-branded as a luxury Dorsett brand once the handing-over takes place on October 1.

The renovation and refurbishment exercise, which started recently, will see the owners pumping in RM60 million. This will boost the number of rooms rooms to 500 from 352 currently.

The additional 125-odd rooms were never completed under the original owners. The hotel was previously owned by the Faber Group. Far East bought the property in 2006.

The president of Far East's hospitality arm, Dorsett International Sdn Bhd, Eddie Tang, said the hotel will sport a more contemporary look compared with a classical look now. The renovation will take about a year.

In 2008, the hotel enjoyed an average room rate (ARR) of RM260 and an occupancy of 70 per cent. This year, as a result of the renovation exercise, the hotel expects to sustain the ARR at RM260 and fill 60 per cent of its rooms.

Tang remains optimistic about the performance of the hotel even if it no longer carries the Starwood brand. He expects the hotel to raise the ARR to RM280 per night and enjoy an occupancy of between 70 per cent and 75 per cent next year.

By Business Times