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Wednesday, October 21, 2009

Budget incentives for property sector

This is the last in a series of articles by PricewaterhouseCoopers which appear on Mondays and Wednesdays leading up to Budget 2010

Abolishment of the real property gains tax, reduction in stamp duty for properties in a certain price range, and the construction and property sector gaining most from the stimulus packages announced – these are clear indications of the Government’s focus on this sector to help accelerate economic growth.

The positive multiplier effect from an improved performance in the construction and property sector is tremendous, with the stakeholder chain including the manufacture and supply of building materials; the service industry of contractors, architects, engineers, etc; the developers and even the financial institutions.

This industry is not just about residential and commercial development but also the tourism and industrial economy. It is a holistic economic driver.

Take the tourism industry for example. When tourist arrivals are up, there will also be a boost to hotel and retail consumer demand. With tourism being one of the Government’s top priority growth sectors, there has been a focus on encouraging the development of affordable three-star hotels to attract mass tourists.

However, with the country shifting towards a modern developed economy, we must turn our attention to attracting investments into upmarket, boutique and innovative hotel property development to bring the industry to the next level; tourist arrivals must increase together with the increase in value spending.

Hotel owners should be given additional incentives to bring the investment yield return earlier. It may be worthy to relook at the existing investment tax allowance incentive as well as the availability of duty exemption for materials in hotel property development.

Closely linked to the tourism industry is the availability of retail attractions to complement hotels of similar class, with retail development popularly linked to commercial office space development to provide the consistent retail traffic. Commercial space also remains the top three property interest of Malaysian and foreign investors.

Currently, there are no incentives for the retail sector. Consideration should be given to developing incentives holistically and linking it with initiatives to drive tourism, thus providing further push to the sector. Perhaps tax incentives such as income exemption based on retail investment turnover value or spending on green technology can be given to retail outlets or “green” commercial buildings.

When it comes to landed or high-rise residential properties, crisis or not, there seems to be no lack of demand, with some of these properties being snapped up on launch.

This show of investor confidence bodes well for the real estate sector which has attracted much foreign investment and known to offer a reasonable investment yield.

Hence, we must continue to attract foreign investment into the high-end property development market and leverage our “preferred location” status in this part of the world.

Here, the attraction for foreign investors would not be tax incentives but rather, high quality development with full facilities and in a prime location – the formula to high investment yield. Hence, the Government should continue to deliver on its policies to facilitate a speedy investment process for foreigners.

A final analysis on the property sector is for the Government to consider how it can support the wish of most Malaysians to own their own home. Malaysia has a large middle-income population who strive to own a home and it is this dream which can keep the demand for residential property healthy.

With pockets of initiatives sporadically introduced such as the reduction in interest rates, subsidies given to developers for low-cost housing and even financial institutions’ willingness to reschedule loan repayments, we must ask if more can be done.

Relative to our salary standards, it is becoming more difficult for the middle-income group/family to sustain a home, let alone own one. Suggestions previously put forward such as first home subsidy and deduction for interest expense on loans for home purchases should be reviewed.

Some other thoughts are tax rebates for a certain period of the loan term depending on the value of property purchased, different stamp duty rates for different property prices, unprecedented tax breaks for developers undertaking certain types of projects or development type.

The challenge will be in ensuring that the savings given to developers is passed on.

The property sector plays a crucial role in sustaining and spurring economic growth. There is a compelling need to review and introduce policies that are holistic and integrated, with incentives provided to each player in the property chain and across the portfolio of properties.

● Ng Say Guat is executive director at PricewaterhouseCoopers Taxation Services Sdn Bhd.

By The Star (by Ng Say Guat)

TA Global aims to beef up hotel portfolio

TA Global wants to build at least two hotels in Kuala Lumpur and make acquisitions in overseas markets from London to Canada

TA GLOBAL Bhd, set to become Malaysia's fifth biggest listed property group, plans to double the number of hotels it owns in five years, adding to a portfolio that includes the Radisson Plaza in Sydney and the Westin Melbourne.

It wants to build at least two hotels in Kuala Lumpur and make acquisitions in overseas markets from London to Canada, said Datin Alicia Tiah, managing director and co-founder of parent company TA Enterprise Bhd.

"Definitely, we want more. We want to develop our own chain. I want to buy hotels in gateway cities like London," she said in an interview in Kuala Lumpur.

"But some are not cheap; some too big, some too small. It takes time to get the right fit. I want people to show me what they have."
TA Enterprise, shares of which have more than doubled this year, folded all its property assets into TA Global, which will be listed on Bursa Malaysia on November 23 to tap a resurgent stock market.

The FTSE Bursa Malaysia KLCI Index has gained 46 per cent so far this year. TA Enterprise closed 0.7 per cent down at RM1.46 yesterday. Shares earlier gained as much as 1.4 per cent.

TA Global, which currently owns four hotels, is being spun off into a separate listing to realise its value and help it expand. The group spent about RM756 million from December last year to August to buy the Westin Melbourne hotel, the Swissotel Merchant Court hotel in Singapore and the Coast Whistler Hotel in Canada, taking advantage of depressed prices during the global recession.

The acquisitions will triple hotel revenue at TA Global next year, Tiah said, without giving the current figure.

"A lot of hotels were going for below their replacement costs," she said. "We managed to get great assets at a time when things were so gloomy."

TA Global will have a market value of RM2.4 billion when it is listed and will be ranked the fifth largest property group, HwangDBS Vickers Research Sdn Bhd said in a September 29 report.

"The timing is quite good to list," Tiah said. "We have accumulated great assets."

TA Global, which has total assets valued at RM2.4 billion, has lined up more than RM6 billion of property development projects from now till 2012, said Tiah.

The company also owns the 24-story Terasen Centre, an office building in Vancouver, Canada, and Menara TA One, a 34-storey office in Kuala Lumpur.

By listing the property unit, TA Enterprise will be "unlocking the hidden value" of its property assets, ECM Libra Capital Sdn Bhd said in a report yesterday.

TA Global will raise RM230 million from the share sale. It also owns offices in Kuala Lumpur and Canada. TA Enterprise will retain a 57 per cent stake after the listing, said Tiah.

"We have a good stream of income: good time, bad time, it will be there," she said, referring to the hotels.

"I love hospitality, you can up the rates", as opposed to office buildings where rates are fixed by contracts, she added.

By Bloomberg

L&G to build condo, residential units

Land and General Bhd (L&G), developer of the 1,200-acre Bandar Sri Damansara, aims to develop the remaining 45 acres of the township next year, its managing director Low Gay Teik said today.

He said the company hoped to get the authorities' approval by end of this year and planned to develop a new condominium and residential units.

Asked on its other landbanks in Johor and Sg.Petani, he said L&G had no plans to develop the land there for now.

"We believe it's not the time to develop yet. We will wait for the right time before developing the land," he told reporters at the company's ground-breaking ceremony for its 8trium mixed property development project in Petaling Jaya today.
L&G is consistently looking at acquiring new land and also at joint venture possibilities, Low said.

"Currently, we are in talks with several parties to acquire new landbanks for new mixed-commercial and residential development in the Klang Valley," he added.

On the 8trium project, he said the project is due for completion by 2012.

With a gross development value (GDV) of RM160 million, 8trium is a mixed commercial development project combining a two-storey retail podium and 260 units of office suites contained in two suite towers.

Since the launch in July, 90 per cent of the Tower 2 has been sold, while the Tower 1, launched 10 days ago has recorded almost 30 per cent sales.

"I believe, based on the current response, we should achieve 90 per cent sales for both towers by middle of next year," he added.
The project is expected to contribute positively to its financial year ending March 31, 2010.

By Bernama

European commercial property deals rise

LONDON: Investment in European commercial properties rose 34 per cent in the third quarter as more deals were completed in the UK and Germany, CB Richard Ellis Group Inc. said.

Investors bought ?17.3 billion euros (?1 = RM5.03) of shops, offices and warehouses in the third quarter, 44 per cent less than in the year-earlier period, according to a report released yesterday by the Los Angeles-based adviser.

European commercial property sales have fallen for more than two years after credit dried up and companies slashed spending on
offices. About ?295 billion of commercial real estate changed hands in 2006, with more than e80 billion spent in the fourth quarter alone, according to data compiled by Cushman and Wakefield.

“Many investors believe the European market is approaching the bottom of the cycle,” said Michael Haddock, head of capital markets research for the Europe, the Middle East and Africa at CB Richard Ellis.

By Bloomberg