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Saturday, April 16, 2011

BRDB sets benchmark

6 CapSquare’s strategic location offers commanding views of the KL city skyline including the Petronas Twin Towers and the KL Tower.

In recent years, the emphasis on the property market in and around the Klang Valley has been more than just about having a roof over one's head. The magic word is lifestyle and developers have been overzealously throwing in features which include the elements of luxury into their projects.

Bandar Raya Developments Bhd (BRDB) is one of them. Says chief marketing officer K.C. Chong: “BRDB will not enter a location to fit into the (prevailing) standard of that location. Instead, we will carry our own standard that fits with our image.”

Chong says he is working towards all its projects having an international standard. He does not equate international standards with lifestyle offerings. It is just that best international practices include certain elements of functionality and luxury.

Before the year is over, BRDB will unveil its condominium development in Dutamas, Kuala Lumpur near the Jalan Duta area. The company is set to create a new benchmark in that location in terms of design, quality and pricing. He is quick to add that the new project by BRDB will not have the Dutamas pricing. Properties in the Dutamas area is about half that of Mont' Kiara properties on a per-sq-ft basis. The Dutamas pricing is RM300-RM350 per sq ft today, while adjacent Mont' Kiara-Solaris is about RM550 per sq ft, according to a realtor. Newer projects there cost about RM600-RM630 per sq ft.

Yet to be named, the North Kiara Phase 1 development will have a gross development value of about RM400mil with 298 units. That project will have two phases with a total of 698 units with average build-up of about 1,400 sq ft. Show units will be built in Menerung, Bangsar where it first offered for sale One Menerung, says Chong. It will be put on sale by the middle of this year, says Chong.

The company's second high-end project is in Taman Duta, Kuala Lumpur. Still in its planning and design stage, this low-rise condominium project on about 12 acres of sheer greenery and forestry will be unveiled next year.

Chong declined to reveal more other than to emphasise the point that both these developments will feature the brand image of the company, as with its most luxurious development to date, The Troika, located in the vicinity of KLCC city centre.

Chong says BRDB is investing in a series of enhancements for The Troika, a project by world renowned architect Sir Norman Forster who built London's Millennium Bridge, besides other projects around the world. An outdoor bar and a larger area for children are in the works. The lobby will also be given a new image and the minimalist ambience done away with.

“It will be different after this series of investments,” says Chong.

The KLCC location, he says, will always remain iconic. “The Petronas Twin Towers is very recognisable. It is just unfortunate that along with other locations, it suffered during the last financial crisis,” he says, adding that although there is a perception that prices are high there, to a great extent, prices have stabilised over the last year.

“That location is revered, like New York's Central Park and London's Hyde Park,” he says.

Once the period of enhancement is over, Chong promises that The Troika, which comes with retail on lower floors, will be a very attractive proposition. The details of that enhancement programme is currently being planned and scrutinised. Currently, there are a lot of vacant units in that location with rental rates of about RM4 per sq ft. The huge supply is a legacy of the euphoria of 2006/2007 when developers jumped on the KLCC bandwagon and added their footprint there.

While The Troika will add glitter and glam to its image as a developer, in time to come, and if the design and enhancement of that location is on the cards in line with the government's economic transformation programme to make Kuala Lumpur more liveable its real jewel may actually be CapSquare, located just a few minutes drive away from KLCC. That triangle-shaped 15.2-acre development is bordered by Jalan Munshi Abdullah, Jalan Dang Wangi and Jalan Ampang. The Klang River parallels Jalan Ampang.

There's a great deal of history and old Kuala Lumpur that CapSquare could leverage on. “It's building the new based on the foundation of the past. From CapSquare, one can easily discover the neighbourhood of Masjid India an enclave of Indian shops reminiscent of a bazaar with some of the best Indian food in town or the antiquated Malay houses of Kampung Baru with their well-tended gardens.

“Colourful Chinatown, a well-known bargain hunter's paradise is only a few subway stops away. But KL is not short of the 21st century either. Here post-modern architecture may sit beside gorgeous colonial buildings and it is on this plane that the development of CapSquare fits into this puzzle of the old and new.”

Consider the following: Across Jalan Ampang is the Bukit Nenas forest reserve. Across from Jalan Munshi Abdullah is the old shopping district of Jalan Tunku Abdul Rahman that goes back decades which leads to the old Masjid Jamek Mosque and upon which the city of Kuala Lumpur took shape in the 19th century. A lot of history there.

Then there is the Klang River which may come under the Government's river of life project, a beautification programme to clean up the river in order to enhance real estate value on both sides of it. Then, there is Jalan Ampang, another piece of history there.

“There are certainly a lot of linkages that CapSquare can leverage on. The thing is to integrate all these with CapSquare and its cobblestone street,” he says.

While it is possible to take a walk from CapSquare to the KLCC, the heat and humidity may be a drawback today. What is needed, says Chong, is for the outer peripheral and within CapSquare itself is to have pockets or clusters of greenery to provide a green canopy to make it a pleasant walk into the old parts of Kuala Lumpur. That would be ideal and runs with what botanist Dr Francis Ng says about Kuala Lumpur's liveability.

Says botanist Dr Francis Ng during an interview on how to make the city more liveable: “Plant clusters of three to five trees, of different species, here and there within Kuala Lumpur and its various developments and before you know it, you have a series of connecting corridors of green.” Ng is the former deputy director-general of the Forest Research Institute of Malaysia .

This will mean more investments but it will bring the diversity that the tropics offers into CapSquare, which today, is pretty much concrete.

Says Chong: “Green canopies will integrate CapSquare with our surrounding areas and beyond, right up to the KLCC vicinity.”

At the moment, Chong is focusing on what is within CapSquare. 6CapSquare, with a GDV of RM241mil, is the second residential development there; the first is CapSquare Residences. Prices for this second development start from RM950 per sq ft. Sizes range from 1,000 sq ft to 4,400 sq ft.

Beyond Kuala Lumpur, BRDB also has a presence in Johor Baru. This year, it started selling The Straits View Residences a landed, gated and guarded development in the south-east sector of Bandar Baru Permas Jaya, Johor Baru. With a gross development value of RM230mil, this project involves a 35-acre freehold strata land parcel within Permas Jaya.

The semi-detached units are priced from RM1.3mil while the bungalows start at RM2.4mil. Phases 1 and 2 enjoyed brisk sales and based on that, Phase 3 is now open for sale. Chong says this is Johor Baru's first strata-titled project.

By The Star

To buy a home or wait

FIRST time home buyers who are daunted by soaring prices of residential properties in the Klang Valley should not wait in the hope of a softening in the property market.

Prospective new home buyers may want to take note of rising construction costs that are driving up property prices, as well as possible further interest rate hikes in view of the consumer price inflation hitting a 22-month high of 2.9% in February.

On Wednesday, SP Setia Bhd president and chief executive officer Tan Sri Liew Kee Sin said he expected home prices to rise by at least 10% this year, depending on location, to reflect higher construction costs.

“Property prices will not drop as the costs do not allow this anymore,” said Liew during the Invest Malaysia 2011 conference in Kuala Lumpur.

Meanwhile, a recent report from Hwang DBS Vickers Research says that as a proven inflation hedge, property should remain in demand even with potential interest rate hikes.

The report says while it is believed that the 70% loan-to-value cap managed to cap speculative activities to a certain extent, strong underlying demand from first-second home owners and upgraders has continued to support recent property sales, even at new benchmark prices.

The 70% loan-to-value ratio satisfies Bank Negara's ruling (announced last November) which requires buyers of third and subsequent residential properties to fork out 30% downpayment.

Also, a recent survey by the Malaysian Institute of Economic Research (Mier) on residential property in the country says an astounding 61% of housing developers who responded to the survey had adjusted their prices of their residential properties upwards in the first quarter of this year the highest proportion garnered since the third quarter of 2008.

None of the respondents in the survey had lowered their prices.

However, the Mier survey report concludes that pressure exerted by high costs of raw raw materials, fears of rising oil prices, and the interest rate factor could all combine and impact negatively on the sector in the coming months.

“This is likely to impinge on the future growth of outlying areas, and may also dampen the revival process of developments

that are currently suffering from low take-up rates, low population inflow and an overhang problem,” said the report.

Short-term outlook

The Mier report pointed out that “the short-term outlook for the residential property sector looks calm generally”.

Financial coaches and planners contacted by StarBizWeek also say that first time home buyers should not sit on the sidelines.

“There is no certainty that if you wait, you can get a cheaper residential unit. A property loan is long term. Even half a percentage point rise in interest rate will have a major effect for the home buyer,” said CTLA Financial Planners Sdn Bhd managing director Mike Lee.

Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui shares a similar opinion.

However, Yap cautions, “Waiting for a few months before making a buying decision may not make much difference in the purchasing costs, depending on the location and type of property the buyer is looking at.”

Carol Yip, chief executive officer of Abacus Advisory Sdn Bhd, also advises home buyers not to be too hasty.

“They must always look at their own financial positions and the affordability factor,” said Yip.

By The Star

Australian developer The King comes to town

KUALA LUMPUR: Australian developer The King Property Group has set up a base in Malaysia to sell its properties to local investors.

Its director Edwen Yew said the group is venturing into Asia to build its brand and raise its profile to prepare for an initial public offering (IPO) in Hong Kong in three years.

The King Group is looking at raising more than US$1 billion (RM3.02 billion) from the IPO to carry out property development projects in Australia.

The group, which has been in business for over 20 years, is a builder of landed and high-rise residential and commercial properties in Melbourne and Sydney.

It has 10 ongoing residential projects in Melbourne, worth up to A$400 million (RM1.27 billion) each, which it intends to sell here through its Malaysian arm, OZ Property Group Sdn Bhd.

Each property is priced between A$430,000 (RM1.37 million) and A$650,000 (RM2.07 million) each.

OZ Property will assist Malaysians to buy the properties and secure up to 80 per cent loan. The company has tied up with 79 real estate agencies in Malaysia to sell the properties, starting this month, Yew said.

Yew, who is also the chief executive officer for OZ Property, said he is upbeat on Malaysia.

"We have a lot of cash-rich Malaysian investors who come to us in Australia to buy our properties. Now, they don't have to travel far to make their purchases," he said at the soft opening of OZ Property in Sri Hartamas here yesterday.

By Business Times

South Beach acquisition to boost IOI’s reputation

NEWS that IOI Corp Bhd was acquiring a 49.9% stake in Singapore's South Beach project didn't come as a surprise to the market, particularly since the group had previously mentioned its intentions to further expand into Singapore's property market.

This acquisition will add to IOI Corp's property portfolio in Singapore which now includes its joint venture with Singapore's Ho Bee Group for two condominium developments in Sentosa Cove and the development of a condo project in Balestier Road.

Most analysts are generally neutral on this move, more so from the earnings perspective. They, however, see synergies for IOI Corp to further entrench its reputation as a sound property developer in Singapore.

Analysts see IOI Corp gaining valuable experience through its joint venture with its other 51.1% shareholder, City Developments Ltd, which is a reputable property developer in Singapore.

The deal

Over the week, IOI Corp announced that it has acquired a 49.9% interest in the South Beach project in Singapore through a restructuring exercise. The 51.1% shareholder of South Beach is City Developments.

IOI Corp had bought a 33.3% stake in the project from Elad Group Singapore Pte Ltd for S$173.8mil (RM417mil).

Subsequently, IOI Corp had injected the 33.3% stake into Scottsdale Properties Pte Ltd. Scottsdale Properties now wholly owns South Beach.

IOI Corp then paid S$115mil (RM276mil) for a 49.9% stake in Scottsdale and will advance S$28mil in the form of a shareholder's loan.

IOI Corp paid around S$316.3mil (RM759.1mil) for the stake (including Elad Group's 33.33% stake in South Beach Consortium) and expects to contribute further equity of around S$500mil in Scottsdale.

“IOI and City Developments may be required to further contribute equity of S$500mil each to redeem existing mezzanine notes of the project, working capital and part-finance the construction of South Beach,” says AmResearch analyst Gan Huey Ling.

The group indicated that in total, it will invest up to S$816.8mil (RM1.96bil) in the project. In total, analysts estimate that IOI paid S$317mil (RM761mil) for a 49.9% stake in the South Beach project.

The group's net gearing stood at 11.2% as at end Dec 2010. Net debt was RM1.28bil while its cash position was RM3.6bil.

While AmResearch's Gan is neutral over IOI's investment in South Beach, she says that risk of the project is mitigated by the group's partner, which has an established track record in the property development sector in Singapore.

“The good location of the project should encourage demand. South Beach is located between Raffles Hotel and Suntec City and next to the mass rapid transit station,” says Gan.

She points out that based on an operating margin of 20% and assuming that the project's total earnings is recognised over six years, the project could increase IOI's bottomline by 3%-5%. Gan continues to like IOI for its low-cost plantation operations.

Iconic development

“We also believe that there is potential for the group to restructure. A listing of the manufacturing or property division would transform the group into a pure plantation company,” she adds.

CIMB Research analyst Ivy Ng says that the acquisition represents an opportunity for IOI Corp to be involved in an iconic development in downtown Singapore with sizeable office, hotel, residential and retail components.

“The substantial size and location of the development, which is in close proximity to landmarks such as the Suntec City Convention Centre and Raffles Hotel, will make this development one of the most popular and prominent mixed-use developments in downtown Singapore,” says Ng.

Ng says IOI Corp will gain in stature as a player in the Singapore property market and could see earnings enhancement given the relatively attractive acquisition cost. This is however partially offset by concerns over the group's increasing exposure to the property sector, which may dilute the price earnings rating accorded to the group.

Despite the strategic location and the fact that South Beach is likely the last major iconic site in the Civic District, Hong Leong Research remains neutral on the latest development, given the huge investment cost involved.

“The Singaporean government's measure to cool its property sector may in turn affect demand and hence the pricing of this development,” it added.

Subdued view

Other analysts are somewhat concerned over the subdued view of the Singapore property market and the group's mixed track record in Singapore property investment.

Meanwhile, the S$173.8mil price tag for the 33.33% stake in South Beach Consortium is attractive as it represents a 23.5% discount to South Beach Consortium's net asset value of S$681.8mil as at 31 Dec 2010.

“Although the price is 12% higher than what CityDev paid for a similar 33.3% stake bought from another party, we believe that the acquisition price is fair,” says Ng.

According to management, its effective land cost for this project is quite close to the initial bid price of S$1,069psf for potential gross floor area in 2007 due to the accumulated interests on the loan.

Hong Leong Research also believes that IOI would not have issue funding the acquisition, given its healthy balance sheet.

The South Beach project is a mixed use development on Singapore's Beach Road. The land is strategically located between Raffles Hotel and Suntec City and is next to the Esplanade MRT station. The total land area is 376,295 sq ft and has a leasehold tenure of 99 years.

Based on reports, the South Beach development will have 171 apartments, 560 hotel rooms, 632,164 sq ft of office space and 158,014 sq ft of retail space.

In Singapore, City Development has an impressive track record, having built more than 22,000 luxurious and quality homes. As one of the biggest landlords in Singapore, it owns over 6mil sq ft of lettable office, industrial, retail and residential space.

It also boasts one of the largest landbanks among property developers, with over 3.5mil sq ft that has the potential of being developed into over 7mil sq. ft of gross floor area.

By The Star

Don’t circumvent Bank Negara’s ruling

LAST November, Bank Negara introduced a macroprudential measure to curb speculation in the property market. Buyers of third and subsequent properties were required to pay a minimum downpayment of 30% of the purchase price.

Four months into that ruling, Bank Negara's monthly statistical bulletin showed that for four consecutive months since November, the number of loan applications for residential property has reduced. Observers and analysts say a minimum of six months are needed to conclude if this anti-speculation measure is working.

Nevertheless, there is reason to believe that there are property buyers who are trying to negotiate around this ruling with the help of bank officers and agents because they want to pay a downpayment of only 10%.

How widespread this is today is just a matter of conjecture. Bank officers are not likely to confirm this. Banks will also want to lend out as much as possible. Agents will want to protect their own interest as they want to sell as many properties as possible. The same goes for the developers.

There are different ways to circumvent this ruling. The saying, where there's a will, there's a way certainly seems to ring true.

On the part of the buyer, it is learned that some are topping up the difference with a personal or a business loan. Another way to do it is to buy the property with a sibling or to use the name of children who are working. The combination of two salaries results in a larger loan when only one person may be actually paying for the mortgage. The risk, therefore, falls on the borrower who will be responsible for the mortgage.

Group chief economist at RAM Holdings Bhd Dr Yeah Kim Leng says it is possible for bank officers to “structure” loans such as topping up with personal loans to circumvent the 70:30 ruling particularly when they are convinced about the customers' credit profile and repayment ability.

He says such overlending risk is likely to be isolated given that it is detectable through the centralised credit information system used by all banks. Obviously, if the circumvention becomes prevalent, it will dent the effectiveness of Bank Negara's macroprudential measure to curb excessive speculation in the property market. Nevertheless, the banking institutions and the regulators have to be alert against such practices as isolated problems tend to become system-wide when there is excess liquidity and intensifying competition in the loans market, he says.

On the part of the developer, there are also developers who are trying to negotiate around this ruling. Buoyant though the property may be, there are developers of certain segments of the property market who may find it a bit challenging to sell, coupled with the pricing they are asking as well as the location of their projects.

Because their revenue is dependent on sales and because they want to “catch” the market as quickly as possible before the situation turns, they offer a rebate as an enticement. By offering a 20% rebate on the property price, they effectively enable the purchaser to make a downpayment of 10% and have the rest in the form of a 70% loan, which meets Bank Negara's criteria.

In this case, the developer absorbs the loss while the buyer “gains” a 20% discount of the selling price. From the consumer standpoint, this is a better way rather than topping up with a personal or a business loan.

Whichever route a buyer takes, there is some element of risk involved, as with any investment. Globally, we are not out of the woods and on a national that Sarawak election is something to watch. We won't have to wait long, though. On a regional basis, inflation is running high, although Malaysia's inflation rate of 2.9% as of February is considered among the lowest in the region.

A statement by Bank Negara says the 30% downpayment requirement was put in place to curb speculative activity in the property market and to promote the continued affordability of homes for the general public.

The provision of additional financing facilities (such as personal/company loans) together with housing loans as a means to circumvent the loan-to-value ratio limit would be inconsistent with the intended objectives of the measure and is not a practice that the Central Bank considers acceptable.

Bank Negara will continue to monitor the practices of banks closely, and will act against institutions found to be facilitating or encouraging the circumvention of the measure, the statement says.

Assistant news editor Thean Lee Cheng thinks what's yours is yours. No point losing sleep trying to scheme and plan.

By The Star (by Thean Lee Cheng)