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Saturday, August 7, 2010

Malls, more malls everywhere

With the opening of 20 malls in the Klang Valley with a total net floor area of 4.4 million sq ft this year, the retail property market is likely to face an oversupply situation with pressure on rental rates, property consultants say.

Many shopping mall projects that were put on hold are back on track, and shoppers can expect to see a plethora of new retail centres on the horizon, especially within the Klang Valley area, comprising Kuala Lumpur, Selangor and Putrajaya.

According to statistics by the National Property Information Centre, as at March 2010, there were currently 49.98 million sq ft of existing retail space within the Klang Valley. Another 7.18 million sq ft is under development and 7.5 million sq ft of new space under planning.

Henry Butcher Retail managing director Tan Hai Hsin believes the new malls that are coming on stream will create an oversupply situation in the market.

“With the completion of at least 20 retail centres this year, the retail property market share will be squeezed,” Tan says, adding that the negative impact will be focused on certain locations with multiple malls.

“For example, the retail market in Cheras will be even more competitive when at least five new retail centres enter the market this year. In Subang, existing shopping centres are facing more challenges with four new players.”

He says newly-completed shopping centres will face pressure on rental rates.

“There are indeed too many malls within the Klang Valley. Newly-opened shopping centres in the last few years have been facing problems in securing sufficient tenants and shoppers. Many of their problems are due to market saturation, not the financial crisis.”

However, not all new malls will be casualties, even when there are already other existing, established shopping centres within the vicinity, says Malaysian Association for Shopping & Highrise Complex Management member Richard Chan.

“The Wangsa Walk Mall was opened in August last year in Wangsa Maju. Despite several prominent shopping centres (Jusco, Giant and Carrefour) already established within the area, retail space for the new mall (Wangsa Walk) has been fully taken-up,” he says.

A new mall can always be successful if it can meet the needs and wants of customers that were not met by existing shopping centres, he says, adding: “Malls are taken up because of a retail gap that cannot be met by the other malls. If you can fill up this gap, to the point of attracting the crowd from far away areas and meet the demands of the people, it will be a success.”

Chan cites KB Mall in Kota Baru, Kelantan, which is attracting customers from as far as Thailand.

“People from Thailand are going to the mall to get things that they cannot get in their own areas,” he says.

Elvin Fernandez feels mall developers should conduct a study and understand the market before constructing.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez believes that the success of potential new shopping centres is dependent on two key factors – their management and locations.

“Mall developers should conduct a study and understand the market before constructing.

Sometimes, they (the developers) will own part of the mall, say 50%, and divest the rest to different parties to manage. When that happens, you lose control,” he says.

Chan concurs that the number one criteria for the success of a shopping mall is management, rather than location. He says the next most important requirement is “accessibility.”

“The Mid Valley Megamall in Kuala Lumpur is strategically located but would it be successful if it didn’t have all those roads surrounding it? Your shopping centre might be in a good location but it would be pointless if it can’t draw the crowds,” he adds.

Fernandez says rental rates of downtown shopping centres (namely Suria KLCC and Pavilion in Kuala Lumpur) and suburban shopping centres (like Mid Valley in Kuala Lumpur, One Utama and Sunway Pyramid in Selangor) have been holding steady for a while.

Even during the global economic crisis, rates remained fairly steady and we expect them to remain steady for the remainder of 2010, he says, adding that he does not expect a “shoot-up” in rates.

According to Fernandez, rent for average prime space at downtown and suburban shopping centres are currently averaging RM50-RM60 per sq ft and RM30-RM35 per sq ft respectively.

“(Healthy) consumer spending and (good) tourism levels have managed to help keep the (retail) rates up,” he says.

With the improved economic conditions, the outlook for the retail sub-sector in Malaysia seems positive, regardless of the multiple malls, Chan says. “There are more festive holidays in the second half of the year and shopping malls also tend to have sales (in conjunction with the holidays) and year-end sales that will help boost business for the (retail) segment.”

Tan believes that the local retail industry will grow by 5% this year, with total sales turnover expected at RM74.6bil.

By The Star (by Eugene Mahalingam)

Bolton in talks to buy land with RM500m GDV

Property developer Bolton Bhd is in talks to buy land with potential gross development value (GDV) of RM500 million this financial year, says its top executive.

"We target to acquire strategic landbank for our future development in Penang and the Klang Valley," said chairman Datuk Mohamed Azman Yahya.

Bolton plans to use about a third of the RM195 million loan it got in May this year for the purchase.

"With a low net gearing of 0.1 times and having raised additional banking lines, we now have the opportunity to gear up and embark on a landbank acquisition exercise to fuel our growth phase," he told pressmen after the company's annual general meeting in Shah Alam, Selangor, yesterday.
The group would focus on developing high-end residential properties.

Bolton now has 2.4ha to 2.8ha of land and this is expected to keep the company profitable for the next three to four years.

Its plan also includes the launch of four major projects this year, which can bring in RM500 million in sales.

The projects are the recently-launched RM155 million Arata condominiums in Bukit Tunku, the RM202 million "SixCeylon" condominiums and the RM220 million "51 Gurney" niche apartments, all located in Kuala Lumpur.

And later this month, Bolton will unveil The Wharf, a commercial development within Taman Tasik Prima township in Puchong with a GDV of RM650 million.

The group may raise more debt from loans or bond sales or it can also sell new shares to raise funds.

Meanwhile, executive director Chan Wing Kwong said Bolton may venture abroad in two years if the right opportunity arises.

By Business Times

Bolton to launch Puchong property this month

SHAH ALAM: Bolton Bhd will unveil a new commercial development in Puchong, known as The Wharf, later this month, said executive director Chan Wing Kwong.

The development, with a gross development value (GDV) of RM650mil, is a mixed offering of boutique shop offices, service apartments and a retail shopping mall.

The Wharf would highlight green features that would capture the imagination of an ever-demanding market, Chan said after the company AGM yesterday.

Projects in the pipeline include a 33-storey condominium development, known as “Sixceylon” at Bukit Ceylon, Kuala Lumpur, with a GDV of about RM180mil.

Meanwhile, its “51 Gurney” comprises 71 super luxury condominium with a GDV of about RM150mil.

On expansion plans, Chan said Bolton would continue building on its strength in the Malaysian property market and consider venturing overseas in the next one to two years. “We will look within the region,” he added.

For the financial year ended March 31, Bolton posted a pre-tax profit of RM50.7mil on revenue of RM257.5mil against RM38.11mil and RM292.04mil respectively in the previous year.

By Bernama

Magna Prima eyes good, small plots of land in Klang Valley

MAGNA Prima Bhd, a property developer, said there are still many pockets of land available in the Klang Valley that fits its strategy.

"If you are talking about those 500-acre lands, then it will be difficult to find. But if you look closely, there are many good, small plots of land in the Klang Valley that are suitable for smaller property projects like townhouses and apartments, which is what we are focussing on.

"As long as you are not in a hurry, know the prices and market well, you will be able get good value from the land," said chief executive officer Yoong Nim Chee after the company's extraordinary general meeting in Petaling Jaya, Selangor, yesterday.

Yoong said the local property market, especially in the middle to higher income segment, has improved this year and expects the company to benefit from it.
But it is also seeing demand from first time buyers who are only willing to pay between RM200,000 to RM300,000 per unit.

He expects the company to perform better than last year, when it registered a net profit of RM6.67 million, a decline of more than 70 per cent against 2008 net profit of RM27 million.

For the rest of the year, the company will launch several residential properties, including D'Sierra in Selayang, One Villa at Shah Alam, One Jalil at Bukit Jalil, Magna City off Jalan Kuching, Kuala Lumpur, as well a commercial property in Shah Alam, which will be rented out.

The D'Sierra project, a 3-storey townhouse development, is expected to have a gross development value of about RM70 million. The project is expected to be launched within two months. The EGM held yesterday was to secure shareholders' approval to buy the land for the D'Sierra development.

Magna Prima is also planning to launch a high-end property project near the KL City Centre area in the near future. The project will be the company's second project within the KLCC vicinity, since the Avare development which was done a few years ago.

By Business Times

REIT vs direct real estate investment

Investing in real estate can be tricky.

For a start, those who intend to make a quick buck by “flipping” property within a few months will find that it is risky, especially in a property market less buoyant than in Hong Kong or Singapore.

The alternative is hard work, that is, managing residential properties (and absorbing all the hidden costs that come along with it) as long term investments, receiving rent and selling them off for a capital gain or profit.

Another factor that may deter investors from real estate is the difficulty in raising enough capital to purchase a particular property.

So, should you consider putting your money in a real estate investment trust (REIT) instead?

Granted, a REIT does not comprise residential property, but if it is profit you are interested in, it may be an option.

REITs originated in the United States in the 1960s, but it wasn’t until 2005 that Axis REIT became the first property trust to be listed on Bursa Malaysia.

In Malaysia, there are now 14 REITs to choose from on the Main Market, offering investors a choice to own stakes in commercial, industrial, plantation and office real estate.

Aside from being more liquid than investing in real estate, one of the reasons why REITs are more appealing than investing in actual real estate is because of its high yield.

Gross dividend yield in the FTSE Bursa Malaysia index is about 2.9%, while the average yield for a REIT in Malaysia is about 8%.

REITs yield higher returns because commercial real estate generates a huge amount of cash flow from rentals.

If one invests in real estate though, it may be hard to charge the most preferred rental rate, even if the property had been purchased for a hefty price, simply due to market forces.

As for REIT prices on the stock market, they generally tend to be “low risk” because their prices are sustained by the yield factor, hence the volatility element is reduced.

Even so, REITs are not immune to economic difficulties.

REITs such as AmFirst, Hektar, UOA and Axis hit their lowest point in the middle of the financial crisis in 2008 but have since recovered to their pre-crisis prices, if not better.

Part of their recovery, says an analyst, is due to good management, good investor relations and a proven track record when it comes to acquisitions.

Still, one critic of REITs says it is probably more worthwhile to purchase stocks of established companies if they want to play safe.

Advocates of the property trust point to the fact that REITs are a different investment class altogether, choosing to view them as an investment that bridges the gap between a fixed deposit and the stock market.

One drawback of REITs is their inability to benefit from capital gain, unlike real estate.

But with REITs, returns may be secured with less risk which make them a nice way to take advantage of the big booms in the real estate market.

Investors can do without taking on the risk of mortgage payments, unscrupulous tenants and rising tax rates.

However, less risk obviously comes with less reward.

Good capital appreciation is still the main factor driving demand for landed residential properties.

Since 2008, there has been an annual compounded growth rate of 10% for capital appreciation in residential hotspots such as Petaling Jaya, Taman Tun Dr. Ismail and Mont Kiara.

A home can go up in value ten-fold given the right market conditions, which would give one a hefty sum of money right into his or her pocket - this won’t happen with any REIT.

Ultimately, for someone who wants to have more control of their assets and is willing to improve their value, investing in residential real estate can be a good choice.

For someone looking for passive real estate investment, with the added benefits of portfolio diversification and liquidity, a REIT is a good option to consider.

Think of them as allowing investors to be exposed to the real estate market without having to fork out as much capital.

Alternatively, REITs could be purchased as part of a balanced portfolio, until one has enough capital to enter the real estate market.

By The Star

GuocoLand unit ups stake in Tower REIT

PETALING JAYA: GuocoLand Malaysia Bhd’s wholly-owned HLP Equities Sdn Bhd has acquired 4.55 million units, or 1.62%, in Tower REIT for RM5.1mil including transaction costs via a direct transaction.

The acquisition raised GuocoLand’s interest in Tower REIT to 21.66% from 20.04% previously, it told Bursa Malaysia yesterday.

Tower REIT is a real estate investment trust that owns three office buildings – Menara HLA, Menara ING and HP Towers.

By The Star