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Thursday, December 15, 2011

Land acquisition hurdles highlight new challenges in property sector

PETALING JAYA: The recent snag that hit the projects of two property developer giants, Mah Sing Group Bhd and SP Setia Bhd highlights a new risk faced the sector in terms of landbanking activities.

On Tuesday, both SP Setia and Mah Sing separately announced that they might not successful in acquiring the targeted land parcels.

RHB Research believes that this could be due to the deals getting unattractive to the landowners who expected land value to further appreciate going forward.

“In SP Setia case, Guan Hin Realty, the vendor of a 1,010.5-acre in Beranang, has not agreed to an extension of the period for the fulfillment of the conditions precedent (CP) which include the requirement for the approval of the Estate Land Board for the sale and transfer of the land to the developer. SP Setia, as a result, is currently seeking legal advice,” it said in a report yesterday.

The land was purchased at RM330mil or RM7.50 per sq ft in August.

The development of the land, which will be named Setia Emas, is estimated to yield a gross development value of RM3.5bil.

“While we will not know the outcome of the tussle' yet, we highlight that if SP Setia is unable to win the case, our RNAV (revised net asset value)/share estimate will be eroded by 9.1 sen from the current RM4.15, after excluding the contribution of Setia Emas,” said the research house.

RHB Research said a second parcel in Beranang was acquired from Spektrum Megah, an unrelated party of Guan Hin Realty.

“Given that the acquisition price was higher at RM13 per sq ft, we think SP Setia should not have the same problem in completing the acquisition,” it said.

In the case of Mah Sing, it has encountered a snag in their 60:40 joint-venture (JV) agreement with Asie Sdn Bhd and Usaha Nusantara Sdn Bhd over the 4.08-acre acquisition at Pekeliling.

The vendors have taken the position that the JV agreement had lapsed on Dec 2 given that certain CP in it were not met.

Mah Sing, however, maintained that the agreement had not lapsed, given that they had waived certain CP.

Under the JV agreement, Mah Sing is to undertake a RM900mil mixed development on the Pekeliling land.

Hong Leong Investment Bank said while details were sketchy at this juncture, it believed the hiccup could be legal in nature than commercial.

“Timeline is also an uncertainty given that their JV agreement with the vendor has previously been delayed.

“However, even if the JV were to be called off, we believe impact would be minimal, given their diligent landbanking activities, it said.

Moreover, Mah Sing had enjoyed a record-setting year in sales, having hit RM2bil sales in October,” it said in a report.

By The Star

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