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Saturday, August 13, 2011

Oversupply of new launches?

An artist’s impression of the Southbay City development in Batu Maung by Mah Sing Group.

There are concerns that Penang island cannot absorb the high number of projects

The planned development of RM29.6bil worth of properties on Penang island in the next 10 to 15 years has raised concerns over the capacity of the market to absorb them.

The properties are planned for 1,121.56 acres which include reclaimed land and strategic locations on the island.

Eastern & Oriental Bhd is reclaiming 740 acres for the second phase of the Seri Tanjung Pinang project in Tanjung Tokong to develop two islands for mixed development projects, which will have an estimated gross development value (GDV) of RM12bil.

E&O is expected to reclaim the land in 2012 and the group has until 2019 to complete reclamation before the concession expired.

“It should take two years from the start of the land reclamation before the first project launch can be embarked upon.

“Phase two will be a mixed integrated development comprising two islands of approximately 740 acres.

Chan: ‘E&O is expected to fully develop the land for Seri Tanjung Pinang in 10 to 15 years.’

“At three times the size of phase one, phase two is expected to generate RM12bil in gross development value,” E&O deputy managing director Eric Chan said in a report.

Chan said upon completion of the reclamation for Seri Tanjung Pinang Phase Two, it would take at least 10 to 15 more years to fully develop the land.

“Within that time, with Penang continuing on its present growth path, the demand for better residential properties and lifestyle amenities is expected to be generated.

“E&O will be poised to fulfil this demand with the realisation of Seri Tanjung Pinang Phase Two,” Chan said.

Ivory Properties Bhd is reclaiming 35 acres to add to its recent acquisition of the 67.56 acres of Bayan Mutiara land in Bayan Baru for a mixed development scheme, which will have an approximate GDV of RM10bil, according to a recent AmBank report.

IJM Land Bhd is reclaiming 103 acres for the development of an RM5bil mixed development project, which will be completed in 2021.

IJM Land is expected to complete the reclamation of the 103 acre site next year-end.

Mah Sing Group Bhd is developing properties on various prime locations on about 95 acres on the island, with an estimated GDV of RM1.6bil.

From 2012 to 2017, Sunway City Bhd will be launching the Sunway Hill Residence on an 81-acre site in Sungai Ara around 600 units of landed properties and condominiums with RM1bil in GDV.

There are also other smaller projects with combined multi-billion ringgit GDV such as the reclamation of a 100-acre site in front of Queensbay Mall by Boustead Holdings Bhd; new residential projects on the island planned by the other developers from Kuala Lumpur and Penang, and the proposed project by Penang Turf Club (PTC) on 50 acres on the PTC site.

It is estimated that about 70% of the RM29.6bil in new developments will comprise residential properties.

Last year, the purchase of new residential properties on the island was estimated to value around RM1.8bil to RM2bil, which was among the highest in recent years.

If the purchases of new properties on the island were to be maintained at the 2010 level of around RM1.8bil to RM2bil, industry observers said it would take 10 to 11 years to complete the take-up of the properties.

Jerry Chan: ‘A RM21bil GDV is a lot for the market to absorb even if the uptake were to be extended to 15 years.’

Real Estate & Housing Developers' Association (Rehda) Penang chairman Datuk Jerry Chan Fook Sing said even if the uptake was consistently estimated at RM2bil per annum, the 10 to 11 years period would still be a long time.

“This is assuming that the Penang property market can consistently absorb around RM2bil worth of properties per annum.

“A RM21bil GDV is a lot for the market to absorb even if the period of uptake were to be extended to 15 years.

“The planning and the launch of the projects must be timed to suit demand, although the demand of properties would be higher in certain areas of the island.

“But of course if the economy continues to be good and there is consistent or increasing demand, there should be no problem for the new launches to be absorbed in a shorter period of time.

“If Penang can continue to re-invent itself in the economic sphere, then it can draw people from other states to Penang to work.

“This migration could serve as the source of demand for the future property launches and create a higher population as opposed to normal birth rates,” Fook Sing said.

Lim: ‘When the holding power is gone, the speculators will have to release the properties into the market.’

Registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun said there could be downward pressure on property prices on the island due to the oversupply of new launches.

“As it is, the bulk of properties purchased over the past five years were for speculation purposes.

“When the holding power is gone, the speculators will have to release the properties into the market. Add that to the supply of new launches, there will be an oversupply situation.

“Developers must identify where their markets are coming from carefully and release the new launches according to demand,” Lim said.

Lim said for the past five years, the return on investment (ROI) for properties on the island had dropped by 50%, while the value had increased by about 100%.

“This is something that had gone unnoticed.

“The ROI is worsened by the fact that Penang properties generate very low rentals.

“If the ROI keeps decreasing, as property values increases correspondingly, then no one would buy property in Penang for investment purposes.

“The property market in Penang would then become purely speculative in nature,” Lim said.

Lim added that there was also the affordability factor.

“To purchase a high-rise property priced above RM300,000 on the island, the buyer's monthly household income would need to be between RM8,000 and RM10,000.

“The bulk of wage earners in Penang do not fall into this income bracket.

“Where would the demand for future property launches come from?” he said.

Sunway City general manager Tan Hun Beng said the volume of properties planned for launch raised the question whether developers had done enough research and analysis on market demand.

“I think developers should make the necessary studies before making their launch projections: is the present positive response to the property market a good sign or is it an early signal of an approaching storm?” Tan said.

Chartered valuer and property consultant Azmi & Co (Penang) Sdn Bhd managing director Chandra Mohan Krishnan said the RM21bil GDV of residential properties was a lot to absorb over a 10 to 15 years period.

“If there is no demand, there may be downward pressure on property prices. However, the value of landed properties on the island should be able to hold on, as they are becoming scarce,” he said.

IJM Land (north) general manager Toh Chin Leong said it was important for developers to build a balance mix of residential and commercial properties.

“Commercial projects are important to attract the movement of labour to Penang, which will provide demand for housing.

“This is why a large portion of our second phase on 103 acres comprises commercial projects such as hotels, corporate offices, and retail outlets.”

Penang Master Builders and Building Material Dealers Association immediate past president Datuk Finn Choong said the reclamation works would generate demand for workers and jobs for local contractors.

“We can see positive benefits for Penang even before the launch of the new properties.

“The reclamation activities would bring in foreign labour to Penang which would generate economic spill-over effects for the state, as the workers would have to spend money on rentals and food. On paper the number of new projects seems a lot.

“However, if the Penang government can continue inspiring confidence in investors and manages well the expectation of Penangites, the state can draw migration from different income groups into the state that can support the new properties planned,” Choong said.

Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat said Malaysia's population stood at 28.3 million with an average annual growth rate of 2%.

“Being a young population, 67% are between 15 and 64. Nearly everyone will be making decisions about where to live, work, shop and play, with real estate as the major key component for the next 20 years.

“It is important to know a great deal about where they reside, educational backgrounds, family composition, incomes, and whether or not they work.

“Consequently future real estate needs can be anticipated,” Teoh said.

On the infrastructure supporting future development, Penang Chief Minister Lim Guan Eng said international contractors from several countries have indicated that they are interested to build four major road projects in Penang.

Lim said the contractors were from China, Singapore, Hong Kong, Japan and South Korea.

He said the state government would invite those interested to bid for the projects via request for proposals (RFP) by the end of the year.

“The RFP will be out at the end of the year. It will take another six months before the contracts can be awarded to the successful bidders,” Lim said in an interview recently.

The proposed projects are the 4.2km Gurney Drive-Lebuhraya Tun Dr Lim Chong Eu bypass, the 4.6km Lebuhraya Tun Dr Lim Chong Eu-Bandar Baru Air Itam bypass, the 6.5km Penang-Butterworth Tunnel, and a 12km proposed road connecting Tanjung Bungah and Teluk Bahang.

By The Star

No immediate impact seen

High end property: The view from the promenade of the marina enclave at the Straits Quay in Tanjung Tokong in Penang.

Property players have mixed views on effects of US and European crises.

LOCAL real estate valuers, property consultants and the Real Estate Housing & Developers' Association (Rehda) have mixed views over the impact of the economic crises in the United States and Europe on the local property market.

Property consultant PPC International Sdn Bhd managing director Mark Saw says the softening of the equity market due to the economic crisis in the United States and Europe will impact on property prices in Penang.

“Property prices in Penang cannot continue on an upward trend forever. The weakened condition of the equity market will influence the capacity of investors to inject funds into the property market,” he says.

Chartered valuer and property consultant Azmi & Co (Penang) Sdn Bhd managing director Chandra Mohan Krishnan says there will be some minor corrections in local property prices due to the crisis in the United States and its impact on the local equity market.

Tan: ‘If the crisis is resolved within six months, then the impact will be minimal’.

“But I believe that the impact would be short-term. The longer-term impact on local property prices would be political events such as the next general election,” he says.

Sunway City general manager Tan Hun Beng says should the crises in the United States and Europe last for more than six months, there will be an impact on the local property market.

“If the crisis is resolved within six months, then the impact will be minimal,” he says

However, registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun says the weakening of the equity market may prompt buyers to invest in property as a hedge against inflation.

“The conditions are ripe for another round of investment to move into properties.

“But whether the investments actually come into the local property market will depend on the political stability of the country,” Lim says.

Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat concurs that the softened equity market will generate positive sentiments and interests in the local property market, as it had proven to be a reliable hedge against inflation.

“I don't think the US crisis will have a big impact on property prices here. Property prices in Penang, in particular the landed houses, will perform better than the high-rise properties,” he says.

Rehda Penang chairman Datuk Jerry Chan Fook Sing says the crisis will not likely lead to distress selling in the local property market.

“There was no distress selling in 2008 when the country was impacted by the sub-prime crisis in the United States. We don't think there will be one now either. It all depends on how well the developers can hold on to their projects,” he says.

By The Star

SP Setia buys 409ha plot for RM330m

SP SETIA Bhd, Malaysia's most valuable property company, has bought over 409ha of freehold land in Beranang, Ulu Langat, in Selangor for over RM330.1 million cash or RM7.50 per sq ft from Ban Guan Hin Realty Sdn Bhd.

In a statement yesterday, SP Setia said it intends to develop a mixed residential township development project on the land with an estimated gross deve-lopment value of RM3.5 billion.

"The proposed acquisition offers SP Setia a good opportunity to tap into strong demand for attractively priced homes by first time owners and other home buyers in the Semenyih-Kajang corridor," it said.

It also allows the group to further reinforce and expand its core business by replicating its proven township development model in an emerging growth corridor that is not presently served by its more matured projects in the Klang Valley.

SP Setia said it is currently too preliminary to ascertain the exact product mix, total development cost, expected completion date or expected profits to be derived.

However, its management is confident the proposed development will be well received and is expected to contribute positively to the future earnings and cash flow of SP Setia.

The land deal is expected to be completed during the first half of financial year ending October 2012.

Ban Guan Hin Realty's principal activities involve the working of an estate, as well as producing and selling of rubber and oil palm fresh fruit bunches.

The terrain of the land is generally undulating and is zoned for mixed housing development, and is situated midway between the towns of Semenyih, Bangi Old Town and Beranang.

By Business Times