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Tuesday, November 3, 2009

Sunrise looking to develop land in 3 Asian countries

Sunrise Bhd, the country's fourth biggest developer in terms of revenue, is exploring proposals to develop land in Vietnam, China and India.

Its only venture abroad is in Vancouver, Canada, where it is planning a RM1 billion mixed development.

"We receive proposals from all over, just like any others, but we can't tie up with the economics and regulatory environment," executive chairman Tong Kooi Ong said.

Sunrise is re-engineering its project in Richmond, Vancouver, to reduce construction costs.

"We have budgeted for low selling price, which has forced us to budget for lower construction costs. If all goes well, we will launch the project in mid-2010," Tong said at a briefing to analysts in Kuala Lumpur yesterday.

On the home front, Sunrise is trying to find a niche in Iskandar Malaysia, Johor, as well as Penang, he added.

"We must have economies of scale and brand value. We can't hit and run."

According to Tong, Sunrise will still be busy with developments in Mont'Kiara for the next eight years. It has some 30ha to develop.

On whether Sunrise could surpass its 2008 earnings, Tong said he was confident that it would do well in the current year.

Last year, Sunrise made RM156.2 million net profit on RM803.9 million revenue.

It is expecting unbilled sales of RM864 million and two new strata developments in Kuala Lumpur, worth RM1.5 billion, to underpin earnings until 2011.

Most of the unbilled sales, or sales that have yet to be booked into its accounts, were from higher-margin products in the prestigious Mont'Kiara enclave.

By Business Times (by Sharen Kaur)

Sunrise bullish about Klang Valley projects

KUALA LUMPUR: Developer Sunrise Bhd will continue to focus on property development in the Klang Valley, especially in the inner city area and places like Mont’Kiara.

Sunrise Berhad Executive chairman, Tong Kooi Ong

Executive chairman Tong Kooi Ong said the company remained bullish on the sector, especially in the Klang Valley.

“It’s a myth to say there is insufficient development land in the Klang Valley,” he told a media briefing on the company’s ongoing projects yesterday.

He said Sunrise had about RM1.5bil worth of property projects to launch in the near- to mid-term.

“We will complete our MK28 project, comprising 460 condominiums in Mont’Kiara, in three years, and Solaris Towers, located off Jalan Sultan Ismail, in about four years.”

Tong said Sunrise still had 80 acres of prime land to develop, of which 50% was in Mont’Kiara and the rest in the city area.

“Our current land bank is sufficient to last us eight more years. However, we will continue to search for good parcels of land in strategic locations, especially in the Klang Valley.’’

On the company’s performance going forward, he said the financial year ending June 30, 2010 (FY10) could be slightly better that FY09. “We have total unbilled sales of about RM860mil which are expected to be realised in the next two years and we aim to lower our gearing, which currently stands at RM400mil,” he said.

On its overseas venture, Tong said the company was involved in a residential property development in Vancouver, Canada, about five years ago as he was familiar with the territory.

On the Government’s proposal to impose 5% real property gains tax from Jan 1, he said it might not have been a well-thought after plan by the authorities.

“If the tax was imposed to derive higher revenue, the amount collected may not be too significant,” he said, adding that it might dampen property investors’ sentiment and curb some level of speculative buying.

Tong said it was still too early to gauge its impact on the industry.

By The Star (by Danny Yap)

Can real property gains tax be minimised?

It may be possible by transferring properties to a company, but there are many pitfalls to consider

At the recently concluded budget seminar of our firm, a major focus of the 650 attendees was the proposed real property gains tax (RPGT) of 5% to be imposed on disposals of property after Jan 1.

Resigned to the inevitability of the tax and the futility of objections, the ingenious ones posed the question to us on the possibility of tax minimisation by transferring their current properties to a company before Jan 1.

The plan calls for properties which were acquired many years ago at a cheap price (say RM1mil) to be transferred to a company controlled by them at the prevailing market price (say RM3mil).

The transfer will be effected before Jan 1, thus attracting no RPGT on the disposal.

In the future when the property is disposed off by the company, the company will only be taxed on the capital gain over and above the new cost of RM3mil.

If the disposal price by the company is RM4mil, the company will only pay tax on the capital gain of RM1mil (RM4mil less RM3mil) at the rate of 5%, thus resulting in RPGT of RM50,000.

A very ingenious idea indeed. The comparison of taxes payable shows a tax saving of RM100,000 calculated as seen in the table.

Before anyone embarks on such a potentially lucrative move, one has to bear in mind many of the pitfalls, some of which are discussed below.

Date of disposal

For the purpose of this discussion, the term “chargeable assets” is used to refer to properties and other assets that can be caught under RPGT.

Chargeable assets include shares in real property companies which are companies that predominantly hold assets in the form of properties or shares in other real property companies. Only chargeable assets disposed on Jan 1 or after will be assessed to RPGT. Those disposed of from April 1, 2007 to Dec 31, 2009 will not. A day is literally night and day for tax purposes!

But the term “disposal date” has a technical definition and it is not the date when the sales price is paid over as we usually consider a sale to be. In sales circles, as they say, a sale is not a sale until the money is collected!

However, for RPGT purposes, a sale is a sale on the day a written agreement is entered into.

Hence, the date that a sale and purchase agreement is entered into for the sale of a property is usually the date of disposal for RPGT purposes. But what if there is no written agreement?

The law provides that the date of disposal is the earlier of two dates – the date that the sales price is fully received or the date that the ownership is transferred. Disposals of this nature may have disposal dates being deferred to a later date, which may fall in the 5% taxable period!

Likewise, disposal dates may be deferred even much later if the sale is dependent on securing approvals from the “Government or an authority, or committee appointed by the Government” – for example, the state government, the Securities Commission (SC) or Foreign Investment Committee.

For these “conditional contracts” which are covered by Para 16 of Schedule 2 of the RPGT Act, the disposal date is when the last of the approvals is obtained.

If a sale and purchase agreement is signed in December 2009 that is subject to SC approval which is obtained in February 2010, the disposal will be treated as having taken place in 2010 and thus subject to the 5% RPGT!

Stamp duty on the transfer

Stamp duty is imposed on the documents for the transfer of title; for example, the memorandum of transfer for transfer of property.

The rates applicable are fairly steep for properties which range from 1% to 3% with the highest rate of 3% being applicable for transfer prices which exceed RM500,000.

Transfers of shares attract duty at the rate of RM3 for every RM1,000 of the transfer price or 0.3%.

However, to avoid stamp duty, one may wish to transfer the property without the transfer of title; for example, the owner holds the property in trust for the company.

What if no transfer of title is effected as in these circumstances? Will the issue of tax avoidance then arise? Perhaps.

Anti-tax avoidance in the RPGT Act

Section 25 of the RPGT Act contains the general anti-avoidance provisions which allow the tax authorities to disregard transactions, vary transactions or impose taxes that should have been imposed.

The law specifies that this right is available if the transactions had the effect of “altering the incidence of tax”, “relieving a person from tax liability” or “evading or avoiding any liability which would otherwise have been imposed”.

Besides these general anti-tax avoidance measures which are also found in the Income Tax Act to discourage income tax avoidance, Section 25 of the RPGT Act also provides for persons who provide loans to related parties; for example, Mr A providing loans to Company A which is owned by him.

The law provides that if Company A sells a property and the property was financed by a loan provided by Mr A, the disposal may be regarded as a disposal by Mr A and not by Company A.

However, the cost of acquisition to Mr A is the market value of the property when Company A acquired the property from Mr A. If Company A had acquired the property from Mr A at the true market value, this anti-tax avoidance provision of the RPGT Act should not pose any problem.

Previous rules by Ministry of Finance (MOF)

A few years ago, the Government had granted a similar tax free period from June 1, 2003 to May 31, 2004.

During that period, the MOF had issued some guidelines to curb the avoidance of RPGT by mandating that any disposal of property must be evidenced by a sales and purchase agreement which must be duly signed and stamped within the exemption period.

Sale of property to a company in exchange for shares

Care should be taken if the property owner transfers a property to a company controlled by him in exchange for shares, or at least 75% in the form of shares. If the transfer is done this way, the shares may be considered to be chargeable assets.

In the future when these shares are sold, the gains will be subject to the RPGT of 5%. The cost of shares for RPGT purposes is not the par value of the shares but the price paid by the property owner for the property plus incidental expenses incurred by him on the acquisition; for example, legal fees.

As such, if Mr B transfers a piece of property acquired for RM1mil to his company (Company B) at market price of RM3mil in exchange for 3 million RM1 shares, and the shares are subsequently sold for RM4mil, the gains on disposal are calculated at RM3mil which is RM4mil sales price less the acquisition price to Mr B of RM1mil.

Indirectly therefore, Mr B is taxed on his full capital gains and not merely on the gains made by Company B owned by him.

RPGT or income tax?

Another aspect which has deep implications is whether the disposer had held the property as stock-in-trade or as a long term investment.

If held as stock-in-trade, the gains on disposal will attract income tax whereas if held as a long term investment, the gains will attract RPGT.

Some property investments which are disposed as part of a quick sale, or as a single isolated transaction in circumstances which give it a cloak of “adventure in the nature of trade”, could be caught under income tax.

Due to space constraints, we are unable to elaborate on this issue. If these disposals are caught under income tax, what then is the advantage of disposing the properties before Jan 1 if the disposer has to pay income tax at 25% on the gains upfront?

The obstacles can be quite challenging as seen above and careful navigation of the tax law is necessary. But I am sure good tax advisers will find a way out of the conundrum!

Poon Yew Hoe is a partner of Horwath.

By The Star (by Poon Yew Hoe)

Report: Mortgages first hit if lending rates rise

PETALING JAYA: Average lending rates are on an uptick with banks possibly positioning themselves for a gradual increase in the rates for their long-term loans.

The monthly statistical bulletin released by Bank Negara for September showed that average lending rate (ALR) was 4.91% compared with 4.9% in August and 4.96% in July. The average base lending rate (BLR) remained unchanged at 5.51% as at Oct 15.

According to UOB Kay Hian Research’s latest update, one of the first loan segments to be impacted would be mortgages. The report said that financing for the purchase of residential properties, which comprise 27% of total loans in the banking system, would likely slow down due to the re-introduction of real property gains tax as part of the measures under Budget 2010.

Mortgage growth would also take a temporary adjustment due to a rise in effective lending rates as banks lowered their mortgage spreads, the research house added.

“Our market survey shows that mortgage spread has been reduced from the previous BLR minus 2%-2.3% to BLR minus 1.6%-1.9%,” the report said.

The rate increase was expected to mitigate the slower loans volume growth, the research house added.

“In this scenario, Public Bank would benefit the most from its strong loans growth supported by its strong branding and lower cost of funding,” the report said.

An analyst with another brokerage said he had heard reports of the rise in effective rates recently but declined to comment further. Banks, when contacted, declined comment on this matter.

Banking data for September continued to show strong credit demand from the household sector, leading to total loans growth of 7.2%.

Loan applications in the household sector amounted to RM23.2bil in September, compared with monthly average of RM22.8bil in the preceding eight months to August.

UOB Kay Hian Research noted that robust approvals in the six months to Sept 30 would sustain strong loans growth in the fourth quarter of this year and the first quarter of 2010.

“However, potential slower property sales and credit card demand due to the new budget measures would likely lead to slower loans growth in the second half of 2010,” the report said.

The research house, however, maintains its “overweight” call for the banks as slower growth would be mitigated by the increase in effective lending rate.

By The Star (by Laalitha Hunt)

'Maybank mortgage lending rises 7 pc'

Abdul Wahid Omar, chief executive of Malayan Banking Bhd, comments on mortgage lending as Malaysia seeks to recover from its first recession in a decade.

Malayan Banking, or Maybank, is the country’s biggest lender. It recently raised its average mortgage rate 2.0 percentage points below the bank’s base lending rate.

On mortgage sales: “If we look at our own mortgage performance last year, we had a decline in our housing loans. In this current financial year, with all the aggressive marketing which we have already taken, we have seen a seven percent growth in our mortgages.”

On mortgage lending rates: “Currently, Malaysia has one of the lowest rates in and around the region. We can’t speak for other banks, but from our own perspective there was a time when we were looking at base minus 2.2 percentage points. We adjust based on competition. If we are able to get sufficient number of mortgages at a slightly higher pricing, obviously that’s something which we look at.”

On other lending rates: “We increased mortgage rates slightly, but we are bringing down our SME and corporate loan rates, for example. So you have to look at it from that perspective. As we are able to get more and more loans and as we reach an optimal level, so we will adjust our pricing accordingly.”

By Bloomberg

Penang's RM300m mall to open in 3Q2010

GEORGE TOWN: 1st Avenue, Penang's latest RM300 million shopping mall modelled after Singapore's Raffles City, Marina Square and Suntech City, is set to open its doors in the third quarter of 2010.

The city centre retail mall, located in the heart of George Town on Magazine Road is jointly developed by three property and retail heavyweight groups Asian Retail Mall II Ltd (ARML II), Belleview Group and Lion Group.

ARML II is the Asian real estate arm for Pramerica, which is the real estate investment management subsidiary of Prudential Financial Inc.

Asiamalls Management (SEA) Pte Ltd employer's representative and CEO Michael Leong said that the mall would house 280 shops on 400,000 sq ft of retail space with seven levels of zoned shopping.

Leong said the upmarket mall was modelled to target mainly the young and chic shoppers.

"Eighty percent to 90% of the shops will be the popular brandnames.

"We want to raise the standard of retail malls in Penang via 1st Avenue as tenants would also include Singapore retailers and the mall has also been carefully modelled after other successful malls in Singapore," he added.

The official launch of 1st Avenue and signing of its anchor tenant, Parkson Departmental Store, was witnessed by Penang Chief Minister Lim Guan Eng.

Also present were 1st Avenue Mall Sdn Bhd director Datuk Sonny Ho, Pramerica CEO Victoria Shigehira Sharpe and Parkson Corp Sdn Bhd COO Toh Peng Khoon.

Parkson is taking up 92,000 sq ft of retail space across four levels and the location will be Parkson's 36th.

Sharpe said that the collective expertise of Pramerica, Lion Group and Belleview Group will bring a new wave of shopping experience to Penang.

"Malaysia's sound economic fundamentals and strong growth capacity is evident from the Asian Public Real Estate's Association's recent REIT report, which states that Malaysia's market capitalisation of US$1.4 billion (RM4.9 billion) is behind markets like Japan, which leads, followed by Singapore, Hong Kong, Taiwan and Thailand.

"We are encouraged by these statistics, which point to a robust growth potential," she added.

As of June 30, Pramerica Asia managed US$6.4 billion of gross assets throughout Asia via ARMF-managed shopping malls in Singapore, namely Tiong Bahru Plaza, Century Square, Hougang Mall, White Sands, Liang Court and Tampines 1.

By The EDGE Malaysia (by Regina William)

CapitaMalls, Longfor IPOs to test demand for Asia property

HONG KONG: CapitaLand Ltd, Southeast Asia’s largest developer, and China’s Longfor Properties Co may raise a combined US$3 billion (RM10.3 billion) in share sales that will test demand for Asian property stocks.

CapitaLand wants to raise up to S$2.8 billion (RM6.8 billion) from the listing of its CapitaMalls Asia Ltd unit in what could be Singapore’s largest initial public offering (IPO) since 1993. Chongqing-based Longfor, the biggest developer in China’s most populous municipality, may get as much as HK$7.1 billion (RM3.2 billion) in a Hong Kong sale.

The amount sought would almost double the US$3.2 billion raised by 10 real estate-related initial public offerings (IPOs) in Asia-Pacific so far this year. The two companies will be competing for investor funds against five Chinese developers that started marketing Hong Kong offerings last month.

“People have been waiting a long time to tap the markets for cash,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd in Hong Kong. “With the markets trading around year-to-date highs, they are keen to lock in the money in case the bubble bursts.”

The 168-member Bloomberg Asia Pacific Real Estate Index has jumped 59% this year, double the benchmark MSCI Asia Pacific Index’s 29% rise.

CapitaMalls and Longfor are taking advantage of a rebound in Asian economic growth, led by a four trillion yuan (RM2.1 trillion) stimulus package in China, the world’s third-largest economy. Singapore raised its 2009 economic forecast last month after gross domestic product expanded for a second consecutive quarter in the three months through September.

CapitaLand is offering about 1.165 billion shares in CapitaMalls at S$1.98 to S$2.39 apiece, according to emails sent to investors by sale arrangers Credit Suisse Group AG and Deutsche Bank AG.

The share sale will allow CapitaMall Asia to undertake expansion plans, including the acquisition of land for new developments and the purchase of completed malls, it said last month when it announced the IPO.

The listing of CapitaMalls Asia will give investors access to a company that manages 86 retail properties across Asia, including China. The company’s net asset value is estimated at about S$5.3 billion as of Sept 30, according to a prospectus filed with Singapore’s central bank yesterday.

If it’s priced at the top end of the range, the share sale may be the largest IPO in the city-state since Singapore Telecommunications Ltd’s initial offering in 1993, which raised more than S$4 billion, a record for the island.

CapitaLand’s CapitaLand Retail unit reported a six-fold gain in profit last month as revenue from its China and Malaysia malls increased.

Longfor, backed by Temasek Holdings Pte and Ping An Insurance (Group) Co, plans to sell one billion new shares, or a 20% stake, at HK$6.06 to HK$7.10 each, said the document emailed to fund managers yesterday. The sale values the company at HK$35.5 billion, or 14 times 2010 earnings, as estimated by banks involved in the sale.

Longfor is pushing ahead with the IPO after a flurry of similar share sales by Chinese developers were shelved or downsized as the stock market declined and more property companies offered shares.

“In terms of fundamentals, Longfor is quite privileged, given its landbank covers major cities in northern and western China,” said Wang Ren, a Hong Kong-based analyst at CCB International Co, by telephone yesterday. “They are in a strong market position, they’re quite niche as they focus on the luxury segment. There are too many choices now, so investors have to be very selective. Some of the IPOs are very low-quality.”

Longfor was the largest developer in terms of the gross floor area of residential projects sold in the three years to 2008 in southwestern Chongqing, according to a draft share sale prospectus. Since then it has expanded to other Chinese cities, including Chengdu, Xian, Beijing and Shanghai.

Five institutions, including the Government of Singapore Investment Corp and Temasek, the city-state’s two state-owned investment companies, will buy a combined US$197.5 million worth of Longfor’s IPO shares as “cornerstone investors”, said the share sale document.

Companies use cornerstone investors, who are guaranteed shares in an IPO by agreeing not to sell their investments for a few months, to attract other buyers to their offerings.

Yuzhou Properties Co, a Xiamen, southern China-based property developer, declined as much as 10% on its debut in Hong Kong yesterday. The benchmark Hang Seng Index fell 2%.

Excellence Real Estate Group Ltd, the largest developer in Shenzhen’s central business district, last month delayed a Hong Kong IPO that could have raised as much as US$1 billion, according to a company statement.

Mingfa Group (International) Co, a developer in the southern Chinese provinces of Fujian and Jiangsu, last week decided to restart its IPO at a later date and cut the top end of an offering range by 24%, it said in a statement.

Citigroup Inc, Morgan Stanley and UBS AG are managing the Longfor sale, which is scheduled to be priced Nov 12. The stock will start trading Nov 19.

By Bloomberg (by Bei Hu & Shiyin Chen)