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Monday, August 23, 2010

Can Penang ride its property boom wave?

The success of Penang's bid to woo new investors will hinge on how its government handles the needs of existing investors who are in mega property-related projects.

In the face of an anticipated property boom in Penang, with the prices in upmarket areas likely to cost more due to land scarcity and a hike in building materials and labour costs, the state government's move to request for proposals (RFP) for the development of selected pockets of land is timely.

The good times, which the property players are looking forward to, is also expected to serve as a challenge for the state authorities over the next two years. This is inevitable as all eyes will be trained on the island state, where major reclamation projects by the private sector are due to pick up speed.

As the state government looks at unlocking the value of land that it owns in areas like Bayan Mutiara in the southwestern corner of the island, the manner in which it handles the needs of other property players who are also engaged in land-reclamation developments will be scrutinised over the next two to three years.

The Penang authorities have issued an RFP to develop over 40ha of land at Bayan Mutiara, where the Penang Development Corp's property arm - PDC Properties - has already built and sold high-end properties which make up the first and second phase of its D'Residence development.

In June 2007, PDC sold a 0.82ha plot of land at Bayan Mutiara to the Inland Revenue Board to build a 16-storey corporate tower there.

The Marine Police department had also reportedly invested in about 4ha of land within the development.

The RFP, which invites local and foreign parties to develop 24.8ha of Bayan Mutiara, which is located south of the Penang Bridge, with the potential of developing an additional 14ha via reclamation in future after the development of the initial 24.8ha.

A stone's throw from the Bayan Mutiara development is an iconic waterfront project taking shape, called "The Light" carried out by property giant IJM Corp Bhd.

IJM's subsidiary, Jelutong Development Sdn Bhd (JDSB), was awarded the privatised construction of the Jelutong Highway by the Penang state government in 1997. As part of the privatisation agreement for the construction of the expressway, JDSB was granted the right to reclaim 130ha of land for development. No deadline has been set on when the company will need to complete the entire reclamation.

On the other side of the island closer to the city centre of George Town, high-end property developer Eastern and Oriental Bhd (E&O) has embarked and completed many facets of the first phase of its masterplan waterfront development project, Seri Tanjung Pinang (STP).

The development project is set on reclaimed area at Tanjung Tokong, located to the immediate north of the seafront promenade Gurney Drive.

E&O has an exclusive right (via a concession agreement with the Penang state government) to reclaim, sell and develop 392ha in the area.

E&O has yet to embark on the second phase of STP's development, covering 296ha, which is expected to arise from the seabed, in the form of multi-linked islands just off the coast.

Unlike IJM, E&O has a deadline to meet in completing the entire reclamation exercise for its landmark project.

It is constrained by a 2017 dateline or when the reclamation concession expires, and since it takes an average of three to four years to complete reclamation in deep waters, reclamation ought to commence in about four to five years from now.

In the face of the state government's move to ask for proposals to develop landmark projects in Penang, it is interesting to watch how the authorities are going to manage this exercise in a competent, accountable and transparent manner.

The success of Penang's bid in wooing new investors to the state will hinge on how its government handles the needs of existing investors who are in mega property-related projects.

In the event that existing property players are given a tough time of obtaining the necessary approvals for their projects, it is left to be seen if Penang will truly be able to ride the wave of the anticipated property boom.

By Business Times

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