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Saturday, December 17, 2011

Projects of two developers hit a snag

Two prominent developers are put in a tight spot after the owners of the land on which their development is to be carried out, abruptly end the agreements to sell the land.

Mah Sing Group Bhd and SP Setia Bhd see their potential projects in Pekeliling and Beranang respectively, disrupted but they are still keen to pursue them.

Earlier this week, the two companies separately announced that they might not be successful in acquiring the targeted parcels of land.

Analysts say the reason for the cancellation of the agreements could be because of dispute over the land price, which the owners claim is below the current market price.

According to an industry analyst, it would be a disappointment for Mah Sing to lose the project, but it would not be a major blow to the company as it has many other projects in the pipeline.

“Although Mah Sing would only develop four acres of the M Sentral project, it is also eyeing to be a partner for the rest of the Pekeliling concession land which spans 58 acres,” he says.

He says Mah Sing will fork out RM106.6mil for the four acres, which translates into RM600 per sq ft, while the average market value of land in Kuala Lumpur is between RM1,500 and RM2,000 per sq ft.

“I believe Mah Sing will re-negotiate with the landowners but it's too early to tell of the outcome,” he says.

On Tuesday, Mah Sing brushed aside its partners' claims that the joint venture agreement (JVA) for the proposed development on the four acres along Jalan Tun Razak has lapsed.

Mah Sing says Asie Sdn Bhd and Usaha Nusantara Sdn Bhd, through their solicitors, have taken the position that the JVA has lapsed and is of no effect from Dec 2.

Mah Sing, however, maintains that the JVA has not lapsed.According to an RHB Research report in August, Mah Sing has announced a 60:40 joint venture with Asie to develop the four acres of leasehold land along Jalan Tun Razak- Jalan Pahang into M Sentral - a mixed development with GDV of RM900mil.

The report says the site is formerly called the Tunku Abdul Rahman flats or commonly known as the Pekeliling flats, and that the land is ready for immediate development, given that demolition works and partial earthworks have been completed.

RHB Research says Mah Sing will pay RM106.6mil for the 4.08 acres, to be settled via 60% cash and a 40% stake of the JV company to Asie.

“Mah Sing may also be the potential JV partner for the rest of the Pekeliling concession land, which spans 58 acres which would be renamed the Riverside Garden City Mega Project with a potential GDV of RM9bil,” says RHB Research.

Meanwhile, Hong Leong Investment Bank says the financial impact of the Pekeliling project is uncertain, given that Mah Sing is busy with a number of projects including its flagship developments in Icon City and M City, and M Residence @ Rawang.

“Even if the JV is to be called off, we believe impact would be minimal, given Mah Sing's diligent land banking activities.

“Moreover, Mah Sing has enjoyed a record-setting year in sales, having hit RM2bil in October,” says Hong Leong Investment.

For SP Setia, another analyst says that it could be due to a disagreement in the quoted land price.

The vendor Ban Guan Hin Realty's 1,010.5 acre land in Beranang is purchased at RM330mil or RM7.50 per sq ft and SP Setia has bought a second parcel land in Beranang from Spektrum Megah at RM13 per sq ft.

“I believe SP Setia is ready to negotiate with Ban Guan Hin,” he says.

On Tuesday, SP Setia Bhd announced that its request for an extension to fulfill some conditions for its proposed acquisition of 1,010.5 acres in Ulu Langat, Selangor for RM330.1mil was not agreeable by Ban Guan Hin.

In filing with Bursa Malaysia, SP Setia said the conditions for the land buy included an approval from the Estate Land Board for the sale and transfer of the land.

It is currently seeking legal advice on its position under the sale and purchase agreement and will seek an appropriate relief from the court, if necessary.

SP Setia has planned a mixed development project and is committed to build starter homes priced from RM300,000.

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

A ramp has been planned to connect to the Lekas highway.

“While we will not know the outcome of the tussle', we highlight that in the event that SP Setia is unable to win the case, our RNAV/share estimate will be eroded by 9.1 sen from the current RM4.15, after excluding the contribution of Setia Emas.

“Thus far, SP Setia has only paid 10% deposit, and it is refundable since the fulfilment period has lapsed,” says RHB Research.

By The Star

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