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Saturday, September 17, 2011

A new horizon beckons for E&O

E&O’s Ariza Terraces development in its Sri Tanjung Pinang project.

Eastern & Oriental Bhd (E&O) is embarking on a new chapter with the entry of Sime Darby Bhd as the single largest shareholder of the company. What will happen next and how will the momentum that has led to the growth of E&O be following a big change in ownership? E&O deputy managing director Eric Chan Kok Leong replies to StarBizWeek's ANGIE NG on the growth direction for the company following Sime Darby's acquisition of a 30% stake in E&O.

Chan: ‘We intend to push the boundary further by making E&O a regional and international brand.’

With Sime Darby's recent purchase of a 30% stake in E&O, what will be the game plan for the company going forward?

E&O has successfully built a strong portfolio and visible premier niche brand in the property development, hospitality and lifestyle segment in Malaysia. Having established ourselves locally, we intend to push the boundary further by making E&O an aspirational brand that is recognised locally, regionally and eventually internationally.

In our various joint ventures and partnerships, E&O seeks to align itself with leaders and giants within respective industries, whether it is in terms of award-winning architects for our developments, in launching new products with CIMB-Mapletree, or the most recent marketing collaboration with Japan's largest zaibatsu, Mitsui Fudosan.

That ideology extends to the development of a wellness township in Medini Iskandar via a joint-venture (JV) with Pulau Indah Ventures Sdn Bhd. Pulau Indah Ventures is a 50:50 JV between Teluk Rubiah Ventures Sdn Bhd, a wholly-owned subsidiary of Khazanah Nasional Bhd, and Aneto Investments Pte Ltd, an indirect wholly-owned subsidiary of Temasek Holdings Pte Ltd.

Sime Darby's entry into E&O, is therefore consistent with this strategy, given that we now have as our new cornerstone shareholder, Malaysia's oldest and largest conglomerate. Sime Darby is recognised worldwide for their financial strength, considerable landbank and extensive network.

With such a prominent investor on board, the horizons for E&O expands at an accelerated pace which otherwise would not have taken place had the status quo remained.

What are some of the immediate and medium term plans Datuk Terry Tham has for himself and for the company?

Does he intend to stay beyond the third year, and what are his longer term plans as a property developer?

Datuk Terry Tham's position has only changed in that he has reduced his personal shareholding in the company. Datuk Terry has helmed the company from the outset and remains fully hands-on in E&O's operations as its managing director, continuing to set its vision as well as monitoring and guiding ongoing projects across the group's three core business divisions, which are property development, property investment and, hospitality and lifestyle.

Now with Sime Darby as E&O's new cornerstone investor, his long-held aspirations to grow E&O into an internationally recognised brand, has given him greater impetus and motivation.

E&O has built up a strong brand name as a niche developer in the Klang Valley and Penang. How can it progress further from here?

In early 2000, after a deliberate survey of the property market, it was decided to position E&O in the premium niche market segment, as opposed to township development where others had already established themselves. This strategy has augured well for E&O, evidenced by the healthy take-up rates of our properties and our ability to benchmark prices at each prevailing time of launch.

The E&O brand is now synonymous with premier developments, and we have been complimented that E&O adds the distinct style' ingredient into lifestyle'. Again, we came to secure this reputation by no accident it was a conscious strategy that we worked hard towards.

Today, the E&O Group is supported by an eight-pronged lifestyle portfolio, which includes our namesake heritage Eastern & Oriental Hotel (listed as one of the must-visit destinations in the New York Times bestseller 1,000 Places To Visit Before Your Die by Patricia Schultz), the newly refurbished Lone Pine Hotel (picked by travel portal TripAdvisor as one of “the top 10 boutique hotels in the world” in its category), the retail mall, marina operations, performing arts centre and convention centre at Straits Quay, serviced residences that bear the hallmark of E&O hospitality, merchandising as well as food and beverage via the Delicious Group.

These are pillars that truly differentiate E&O as a unique brand and substantiate our claim as a truly holistic premier lifestyle developer.

What are some of the synergistic benefits that the two companies can leverage on, and what should be their areas of focus - in terms of product types, market presence and business forte?

There are numerous possibilities for us to work together. For instance, we could enhance our market presence in locations where each party has no presence, tapping on marketing channels, service providers, market intelligence in products or even JVs to develop land in new locations. There is also the opportunity to deepen and broaden the technical capabilities of both parties in innovation and product design and to create new property products and sale opportunities.

We could also expand internationally, either together or through strategic alliances with other global property companies to increase their brand value and presence. We can also develop new growth engines from existing and new markets.

Beyond property development, we could also explore the possibility of leveraging on each other's hospitality capabilities. These are just some areas for possible collaboration.

We will have a better picture when the two parties eventually sit down to carve out specific projects for collaboration.

How will the Sime Darby-E&O deal impact or benefit the respective companies in terms of its staff strength and its project plans - will there be any changes in the pipeline?

Let me share with you E&O's Key Performance Indicators (KPIs) that map out our direction going forward:
  • Achieve regional and international exposure of the E&O brand;

  • Secure strategic alliances and collaboration with well renowned international institutions;

  • Develop new growth engines;

  • Deliver significant bottom line growth and sustainable profits; and

  • Attract, retain and motivate talent across the group.
As you can see, our KPIs touch on the intangibles to the tangibles in value creation for E&O, from continued efforts in brand building to employee engagement, while never losing focus on the bottom line and balance sheet.

As for staff strength across the E&O Group, our numbers already surpass 1,000 and are increasing in response to new projects such as Medini Iskandar, the expansion of Delicious outlets (which will make its debut in Singapore Scotts Square this November), which go toward bringing new opportunities and careers to the employment market.

By The Star

Glut dampens market value and rental of condos

Since the high-end condominium market took a beating following the global financial crisis in 2008, their values have been left pretty much battered even today. Investors who got into the market around the peak must still be quite disheartened by the market's lethargy.

The big supply coming onstream has also been a dampener on property values and the rental market of these residences.

There are now many condominiums in need of tenants and the net rental yields are in the range of 3% to 5%, depending on the location.

But despite this, the speculative fervour in the upper-medium to high-end landed residential sector has not abated. There are signs that it is spilling onto the latest craze small sized, and more affordable, commercial cum residential accommodation known as SoHo's, and service apartments.

It is time to exercise caution on property matters to ensure the market's sustainability and avoid unnecessary losses.

The fact that even analysts are concerned and have downgraded the property sector pretty much indicates the party is coming to an end and it is time to be cautious.

UOB Kay Hian Research has downgraded its grading for the property sector to “market weight” from “overweight” citing that the property valuation cycle has peaked.

A global double-dip recession, coupled with the European debt problems, would certainly have spillover effects on the domestic economy, including the property sector. If the world economy is hit by a recession, the property market will not be spared either.

The recent market volatility and sell-off has affected investor confidence and the market is taking a breather now.

Although the market seems to be holding out quite well for now, there is no telling how it will react if sentiment is badly eroded by the gloomy external outlook.

As such, developers should also be cautious and build more affordable property units priced below RM350,000 that still has strong demand.

As shown by the havoc caused by the oversized property bubble and sub-prime loan crisis in the United States which literally brought down the world economy to its knees, we have witnessed how significant a role property has on the health of the economy and financial system of countries. The world would have been spared the agony of the global financial crisis and the continuing state of volatility and uncertainty had the United States been vigilant on its crumbling market fundamentals that inflicted such gargantuan damages felt till this day.

For the sake of a sustainable property market in the long term, it is important to have policy measures that will ensure the market is closely tied to market fundamentals, and to curb any artificial inflation in property value.

The more that is known of the fundamentals, the better and this calls for greater transparency.

To ensure financial and social stability, it pays for the Government, through its policy measures, to keep the property market closely tied to fundamentals.

The hot property market and sharp rise in property prices in residential markets in the Klang Valley and Penang continue to be of concern among property buyers and the authorities.

Bank Negara is said to be considering further tightening measures to cool the market and rein in speculative buying and further price hikes.

Some of the possible measures that are at the disposal to tighten the market include hikes in bank interest rates to fight inflation, and the further tweaking of the loan to value ratio (LVR) to dampen the excessive property demand.

The central bank is also said to be keeping a close watch on the mortgage loan market to see whether a capping of the LVR (at 70% of the property price) on second mortgages is necessary.

The critical sectors are the upper medium to high-end landed residential sector and non-owner occupied houses. Purchasers who have multiple properties and who already have a mortgage loan will be subject to the new loan limit if it is implemented.

To address speculative activity in the property market, there is also a likelihood that the Government may reinstate the real property gains tax (RPGT) to a higher quantum from the current 5% for all property sold within the first five years of purchase.

The Government has tweaked the RPGT on various occasions depending on market conditions.

From April 2007 until it was reintroduced in January last year, all gains from property transactions have been exempted from the tax.

Under Budget 2010, the RPGT was brought back in January, albeit at 5% for all property sold within the first five years of purchase.

If the Government decides to reintroduce the RPGT in its entirety, property speculators will get the brunt of the “axe” as gains from property sales within the first five years of purchase will be subjected to a tax of 5% to 30%.

The maximum 30% is for disposal within the first two years; 20% within the third year; 15% within the fourth year and 5% within the fifth year. Profits earned from disposal in the sixth year and beyond will not be taxed.

As for bank borrowings, directives may also be given to banks to lend based on net income and not on gross income as the practice now.

With the world's antenna tuned in to unfolding news on the US and eurozone's debt crises, such prudent measures will help to ensure the market's sustainability.

Deputy news editor Angie Ng believes going back to basic fundamentals and prudence is the way to go in times like this.

By The Star (by Angie Ng)

Real estate investing – attraction across the Causeway

SINGAPORE has always been a favourite destination for Malaysians whether we are looking to shop or going for a short holiday.

It is, after all, our closest neighbour and, especially for those of us living in Sabah or Sarawak, flying time to Singapore is even shorter than to Kuala Lumpur.

It therefore comes as no surprise that Singapore is also a favourite place for Malaysians looking to invest, especially when it comes to property.

Going by available data, Malaysians used to account for the largest portion of foreign investors in Singapore properties until early this year, when we were eased into second place by the Chinese.

Word from DTZ Research, a global real estate advisory services group, is that Malaysia, Indonesia, China and India together accounted for 75% of all property transactions in Singapore by foreigners and permanent residents in the first quarter of 2011.

Buyers from China made up 24% of all foreign buyers in the quarter, surpassing Malaysians who had held the top position since second quarter of 2008. In the first three months of 2011, Malaysians accounted for 21% of buyers, down from 24% in the previous quarter.

According to the Urban Redevelopment Authority (URA) of Singapore, the demand for private housing remained strong in 2011, with 4,200 new private residential units being sold in the first quarter of the year.

The URA, which is the island republic's land use planning and conservation authority, said in its website that a total of 43 sites had been made available under its Government Land Sales (GLS) Programme for the second half of 2011 in order to ensure an adequate supply of private residential, commercial and hotel sites to meet the demand.

It said that as developers continued to acquire land for residential development, 17 private residential sites had been injected into the GLS Programme Confirmed List for the second half of 2011 to meet this demand. These new sites should yield about 8,100 new residential units.

Going by the statistics, Malaysians will account for a substantial number of the potential buyers.

What are the factors that attract Malaysians to invest in property across the Causeway?

One of the main factors, I believe, is the close proximity of Singapore to Malaysia. For most investors, it is preferable to purchase a property that is close to home.

Given the choice, most of us would rather buy a house in a place where we can visit quickly and at short notice, rather than a place that is too far away. It is reassuring to know that you can always go and look at the property that you have invested in easily and quickly.

Singapore and Malaysia also share a long history and we even belonged as one nation not too long ago. As a result, cross border ties are strong. Many of us have relatives and families living across the Causeway, so for some it is only natural that they would also purchase property in the neighbouring country. Many Malaysians are therefore inclined to invest in property in Singapore because of these ties, just as many Singaporeans have invested in property in Malaysia for the same reason.

These personal and sentimental factors aside, Malaysians have a slew of other reasons to park their money in properties down south.

We see Singapore as the financial hub of not only South-East Asia, but potentially for the Asian region as well. The country now offers a wide range of financial services such as banking, insurance, investment banking and treasury services, and it serves not only its domestic economy but the Asia-Pacific region as a whole.

It is also one of the more well-established capital markets in Asia-Pacific and the Singapore Exchange (SGX) has become the preferred location to list for nearly 800 global companies. The decision by the owners of the Manchester United Football Club to seek a listing on SGX, as reported recently, is a case in point. Singapore has also become the largest real estate investment trust (REITs) market in Asia outside Japan.

These, coupled with a policy to attract foreign talent to the island nation, have helped to make the property market an attractive investment option.

Singapore has among the world's highest ratio of foreigners in its population. In fact expatriates and permanent residents together make up 42% of the island nation's population.

The large number of foreign residents has been a boost for the rental market. Property owners can be assured that their newly acquired apartment or home can be rented out within a month or so after they advertise its availability. Compare that to Malaysia where it could take up to six months to find a suitable tenant.

Yields from rental vary depending on the location of the property. In or near the central business district, where initial investments are already quite high, rental yields are in the region of 2% to 3%. On the other hand, yields from locations such as Geylang, can be as high as 6%.

More than rental yields, capital gains are what investors look for. Records show that properties purchased about five years ago are selling at double their original prices today. A 100% gain in just five years!

The keen interest in Singapore among property investors from South-East Asia and other parts of Asia is also driven by many initiatives taken by the Singapore government, among which are the opening of two casinos and the introduction of the Formula One night racing.

It is also being promoted as a medical hub and a centre for higher education, apart from being touted as a tourist destination and shopping haven.

The island nation will always be an attractive option for Malaysian investors even as the exchange rate is now approaching RM2.50 to a Singapore dollar. Given that an average apartment in Singapore now costs in the region of S$1 million, a Malaysian investor will have to fork out close to RM2.5mil for an apartment of less than 1,000 sq ft there. That amount of money could probably buy him a detached house of at least 4,000 sq ft plus an additional 2,500 sq ft of garden not far from Kuala Lumpur.

This fervour to invest in Singapore, despite the high prices, is certainly good news for developers who are looking to venture across the Causeway.

Teh Lip Kim is the MD of SDB Properties Sdn Bhd, a lifestyle property company. Bouquets and brickbats are welcomed. Please email

By The Star (by Teh Lip Kim)

Book early, rooms in Penang are going fast

Prospects for the year are looking rosy with 2011 expected to close at a 67 per cent occupancy and a record high hotel room rate of RM240.

Penang: Hotels in Penang are projecting a record year in 2011 as more rooms are filled and more money is made each night. And the outlook for 2012 is expected to be even better.

In the first seven months of this year, occupancy hit 65.7 per cent with an average room rate (ARR) of RM231. This compares to the first seven months of 2010 when average occupancy was at 59.3 per cent and an ARR at RM229.

"July 2011 posted the highest ever single month occupancy in the past five years, at 82 per cent," president for the Malaysian Association of Hotel (MAH) Penang Chapter Marco G. Battistotti said.

Accordingly, prospects for the year are looking rosy with 2011 expected to close at a 67 per cent occupancy and a record high room rate of RM240. This is despite additional room inventory this year.

As at end of last year, MAH member hotels had a total of 7,706 rooms, while up to July 2011, the rooms available touched 7,803.

These, Battistotti said, are the best numbers since the association started tabulating the statistics.

While occupancy is in fact similar to that achieved in 2006, ARR at that time was only at RM178.

MAH members in Penang represent 80 per cent of the available hotels in the state.

"This positive trend could continue in 2012," Battistotti told Business Times.

Battistotti, who said hotels on the mainland tend to have better rates as there are fewer players, divides Penang island into two sectors.

Hotels located within Gurney Drive to Bayan Lepas are considered city hotels and those located within the Tanjung Bunga and Burau Bay as beach hotels.

City hotels tend to generally have 65 per cent corporate crowd and 35 per cent leisure, while beach hotels tend to have the opposite composition.

The city hotel enjoying the highest ARR is E&O Hotel at around RM540, while the highest rate garnered by a beach hotel is Shangri-La Rasa Sayang Resort & Spa.

The better performance, especially by city hotels, is attributed to support from multinational corporations and manufacturing facilities located within the Free Industrial Zone. Some 70 companies here provided 100,000 room nights last year.

The Arab market has also improved this year. They provided 89,000 room nights in the first seven months compared with 81,000 last year.

Apart from a strong corporate market and a leisure market, Penang also gets a good number of arrivals for medical tourism.

George Town's status as a Unesco World Heritage City has spurred arrivals as it has helped increase Penang's popularity.

"For the European market, heritage is a strong selling point," Battistotti said.

Indonesians and Singaporeans remain Penang's largest foreign arrivals.

A good mix of leisure, backpackers, corporate and meeting, incentive, convention and exhibition is expected to augur well for the island over the next three to four years, Battistotti said.

By Business Times