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Saturday, November 12, 2011

Mixed feelings over mixed-development projects

At a glance: The launch of the KL Metropolis provides attendees with a first-hand view of how the mixed-development project is going to take shape.

Concerns rising over the possibility of an oversupply of office and retail space

As a new line of mixed large-scale property developments go on stream to spur economic growth, market observers and those involved in the property sector are cautious. Their main concern: an oversupply of officespace.

Reports and data coming from think tanks suggest there are concerns about the situation, despite some assurances that the Government has already done proper studies and planning.

Among the projects are the KL Metropolis by Naza TTDI Sdn Bhd that will add millions of square feet space of office, retail and residential space, in addition to the ongoing KL Sentral project and the recent launch of the KL International Financial District (KLIFD).

Property consultant Rahim & Co, through an e-mail, tells StarBizWeek that as for the first quarter, occupancy rates of prime offices in Kuala Lumpur and Petaling Jaya range between 60% and 97% and a healthier 75% and 98% respectively.

“We are in the opinion that the oversupply cannot be solely attributed to these mega-projects but also other stand alone purpose-built offices in the city centre,” the statement says.

Excluding the upcoming mega-projects, a total of 6.69 million sq ft of new office space will be completed in Kuala Lumpur by 2015. Based on an average annual take up of 1.8 million sq ft of office space in Kuala Lumpur, Rahim & Co estimates the occupancy rate of prime office building to be between 82% and 85%.

However, with the effort and incentives put forward by the Government, it believes more multi-national companies will be operating in Kuala Lumpur, and will subsequently occupy the available office space.

“We expect rental rates to stabilise in the next few years, especially with the completion of new office buildings by 2015 in Kuala Lumpur. Average rental rates of prime office buildings in Kuala Lumpur is expected to moderate around RM7 per sq ft by 2015 compared with current rates averaging at RM6 per sq ft,” it says.

Rahim & Co adds that due to locational factors, for example, integration with rail network and image branding, the mega-projects will be able to command higher rental rates; potentially 5% to 10% more than the average rate.

To date, it says the total net lettable area of prime office space in Kuala Lumpur stood at 40.88 million sq ft. By the end of 2011 and 2015, an estimated 6.69 million sq ft of new office space will be completed in Kuala Lumpur (excluding KL Metropolis and KLIFD) and most of these projects are currently under construction; contributed largely by stand-alone purpose built office towers and a few form part of a mixed development project. 50% of the new supply will be located in the Golden Triangle Area and are purely driven by private initiatives.

“Meanwhile, KL Metropolis, KLIFD and KL Sentral are Government initiatives, with strong synergies with the private sector, to propel Kuala Lumpur towards world class status. Prime components will be office space supported by retail, serviced apartments, hotels and a convention centre,” it says.

With total gross development value of RM15bil, KL Metropolis covers a total land area of 75.5 acres located near Matrade Jalan Duta. The key development component (apart from ratail, hotels and apartments) is the 1.07 million sq ft convention centre which aims to strengthen Kuala Lumpur as the preferred meeting, incentive, convention and exhibition destination over its regional competitors that include Singapore and Guangzhou.

“KLIFD is another national mega-project located near Imbi area fronting Jalan Tun Razak. This 75 acres integrated mixed development project aims to establish Kuala Lumpur as the regional financial centre.

KL Sentral, on the other hand, is a world class transportation hub valued at RM8bil and has been divided into 14 land parcels, each representing a different function. Some of these lots have been fully developed and are already in use, while others remain under construction or are still waiting for work to commence,” it says.

Upon completion, KL Sentral will comprise Stesen Sentral, corporate office towers and business suites, five-star international hotels, luxury condominiums, a retail mall, services apartments and, an international entertainment and exhibition centre.

The opening of The Hilton and Le Meridien hotels in September and October 2004 respectively has added a new dimension to KL, providing a myriad of prestigious lifestyle amenities at an international level.

By 2015, a total of approximately 6.3 million sq ft of office space will be available within KL Sentral. “In general, we are in the opinion that these mega-projects will act as a development catalyst which will then help to spur growth in the immediate locality. For instance, Brickfields enjoys a spill over effect from KL Sentral,” it says.

Over the last eight years, the profile of Brickfields has slowly morphed and there has been hardly any new land in Brickfields for further development over the last several years. Property prices there have shot up after KL Sentral opened in 2001 and have been going up steadily over the years. A 4-storey shoplot, with good frontage and in good condition, that was sold for RM1.7mil in 2002 can now command around RM2.8mil. The rent of a ground-floor space can go up to RM10,000 a month while the upper floors can command RM1,500 to RM2,000 a month.

“We believe KLIFD will eventually change the landscape of its surroundings. The prime challenge will be to establish the anchor tenant of the office tower. For instance, the establishment of Petronas in KLCC has raised the demand for office space surrounding KLCC which is mainly generated by oil and gas related companies. Similarly, KLIFD will need to identify the anchor tenant that will help to augur growth in its surrounding areas. In general, with more office space, more office population will be attracted. With higher influx of professionals, both local and international, demand for other components such as serviced apartments and retail will increase accordingly,” says the property consultant.

Connectivity to a rail network is also pertinent in ensuring the success of these mega-projects. It is learnt that KL Sentral and KLIFD will be connected to the proposed MRT line.

“This transit-oriented development will eventually create a new development corridor along the rail line similar to the Rossyln-Ballston Corridor in Arlington, Virginia served by Washington Metro Line and Burnaby, Vancouver served by Sky Train line. Upon completion of KLIFD, the surrounding areas which are currently occupied primarily by old retail businesses and offices will be transformed into a more modern, vibrant and liveable area,” says Rahim & Co.

Meanwhile, the development of KL Metropolis will help to disperse the concentration of office space to the outskirts of the Kuala Lumpur city centre.

Generally, it will be similar to Mid Valley City as being a self contained integrated commercial centre outside the city centre. While Mid Valley City is acting as the southern Kuala Lumpur commercial hub serving areas such as Bangsar, Seputeh, and Petaling Jaya, KL Metropolis will function as the northern Kuala Lumpur commercial hub with prime coverage areas including Mont Kiara, Damansara Heights and Sentul. The availability of a major convention centre will position the locality as an international trade and exhibition district in Kuala Lumpur.

“Notwithstanding the fact that these mega-projects will bring a positive impact to the nation's economy, we still need to be cautiously optimistic on its success. As these projects are highly dependent on private investments, both local and international, the uncertainty in the global economy may pose investment worries,” it says.

In addition, there has been a trend developing. Companies are shifting their operations outside the city centredue to bad traffic and higher operating costs in the city. Companies are also drawn to the larger and modern office space on offer in buildings outside the city area .Petaling Jaya is currently the focal point of new supply of office space and has gradually seen a higher influx of multi-national companies.

Property consultancy CB Richard Ellis (M) Sdn Bhd says the Klang Valley will face an oversupply of office and retail space within the next two to three years while capital values for residential units would see some increases in 2012, but at slower rates compared with the past 18 months.

Its executive chairman Christopher Boyd, in a recent briefing, says that while 2011 is a strong year in terms of demand for office space in the Klang Valley, rental values might succumb to the oversupply within the next 18 months.

The total office space supply in the Klang Valley stands at 80.8 million sq ft at the end of the first half of 2011 (compared with 80 million sq ft at the end of 2010).

However, Boyd says it is estimated that an additional 25 million sq ft of office space will come on stream in the Klang Valley by 2015 (excluding mega projects such as the Naza group's KL Metropolis development and the KLIFD).

He says that vacancy rates in Kuala Lumpur are under 13% and though this is not an alarming number, the vacancy rates are expected to increase in tandem with supply.

A report by CB Richard Ellis notes that prime gross asking rentals were flat at RM7 per sq ft with only a handful of buildings above this level.

Since rising steadily from 2002 to 2008, rentals at top city centre buildings have remained mostly flat for the past two years.

Boyd says recent average transaction prices of Grade A office space generally ranges between RM800 and RM900 per sq ft. However, there are higher prices than these being achieved in the market like the RM1,100 per sq ft or more in KL Sentral and SP Setia Bhd's KL Eco City.

By The Star

Ivory and Dijaya to develop RM10bil mixed project in Penang

Penang Development Corp general manager Datuk Rosli Jaafar (left) exchanging documents with Datuk Low Eng Hock. With them are Lim Guan Eng and State Economic Planning Unit deputy director Hafidzah Hassan.

GEORGE TOWN: Tropicana Ivory Sdn Bhd (TISB) is investing RM10bil in a mixed residential and commercial property project on a 102.56 acre site in Bayan Mutiara, Penang.

TISB is a 51:49 joint venture between Ivory Properties Group Bhd and Dijaya Corp Bhd.

Ivory Properties chairman and chief executive Datuk Low Eng Hock said the development covered 102.56 acres, of which 67.56 acres comprised existing land and 35 acres were to be reclaimed.

“The plan for Penang World City is to develop a mix of residential units, shopping mall, office suites, office tower, hotel, retail spaces and open mall with boulevard.

“The development will be completed in eight years and work on the first phase is scheduled to begin next year,” he said.

The land is strategically located within Bayan Mutiara, a new development hub in the eastern part of the Tun Dr Lim Chong Eu Expressway and in the vicinity of Sungai Nibong.

Low said this at the signing of the purchase and development agreement between Chief Minister of Penang (Inc), Penang Development Corp and Ivory Properties. Penang Chief Minister Lim Guan Eng witnessed the ceremony.

Ivory Properties is proposing a renounceable rights issue of 186,000,000 new ordinary shares of 50 sen each together with 186,000,000 new free detachable warrants to pay for the land and the development of the project.

Ivory Properties has to pay 10% as downpayment of the RM1.07bil sale price for the land. It has paid 2%, with the remaining 8% to be paid within 90 days after the signing of the purchase and development agreement.

On the development concept, Ivory Properties operation director Murly Manokharan said the emphasis of the project would be on green buildings, green township and a healthy lifestyle within its community.

“We have proposed for pedestrian network and bicycle tracks connecting to almost each and every building to reduce carbon emission within the township,” he said.

Murly added that there was a proposal for a museum, a landscaped outdoor amphitheatre and educational interactive facilities, providing state-of-the-art entertainment for all, he said.

By The Star

Dijaya, Ivory team up

Dijaya Corp Bhd and Ivory Properties Group Bhd will jointly develop a land in Penang that could generate RM10 billion in gross development value.

The project in Bayan Mutiara, Penang, will be undertaken by a joint-venture company called Tropicana Ivory Sdn Bhd (TISB).

Dijaya will hold 49 per cent of TISB, while Ivory Properties will have the remaining 51 per cent.

The development covers 41ha of land, of which 27ha is existing land. Another 5.6ha will be reclaimed.

The land is being bought for RM1.07 billion. It will be converted into a mix of residential, shopping mall, hotel, office suites, office towers, retail spaces and open mall with boulevard.

It will also include construction of Grade A offices and a specialist medical centre if needed.

The development will be completed over the next eight years and work on the first phase is scheduled to begin next year.

Under the deal signed yesterday, Dijaya will extend financial assistance to TISB in the form of shareholders advances, guarantee, indemnity or collateral of up to RM525.4 million or 49 per cent of the total consideration of the development land.

Ivory Properties may also provide financial assistance of RM482.5 million for the same purpose.

The first tranche of the RM1.07 billion land purchase will be funded through internally generated funds by Ivory and Dijaya.

Subsequent payments will be funded through a mix of internally generated funds and/or bank borrowings.

By Business Times

Pavilion REIT eyes RM710m IPO

KUALA LUMPUR Pavilion Real Estate Investment Trust (REIT) aims to raise up to RM710 million in an initial public offering (IPO), which would be the fourth largest listing in the country this year.

The company will offer 790 million shares at an indicative price of 88-90 sen per share, according to the IPO term sheet obtained by Reuters.

Last month, Reuters reported that the IPO would raise about RM700 million, making it the fourth largest in Malaysia this year after Bumi Armada Bhd, MSM Malaysia Holdings Bhd and UOA Development Bhd.

The proceeds would be used for working capital and for partial payment of acquisitions, according to the information sheet. CIMB, Credit Suisse and Maybank are the joint global bookrunners for the deal.

The Employees Provident Fund and Kumpulan Wang Persaraan and insurance companies Great Eastern Life and American International Assurance Bhd are among those roped in as cornerstone investors for the IPO.

By Business Times

Iskandar draws RM600mil investment for Medini township

PETALING JAYA: Iskandar Investment Bhd's flagship development Medini in Iskandar Malaysia has attracted property developer Darul Tinggi Sdn Bhd to invest in a project with a gross development value of RM600mil.

This project is secured one week after Medini secured investments from Beijing-based property developer Zhuoda Group.

With the signing of a shareholders and subscription agreement and a development and lease purchase agreement between Iskandar's wholly owned unit Medini Land Sdn Bhd and Darul Tinggi, both parties had agreed to set up a joint-venture company for the development of a high-rise mid-premium condominium in Medini, said Iskandar in a statement.

The joint-venture company. Distinctive Resources Sdn Bhd, will be 80% owned by Darul Tinggi and 20% by Medini Land.

Iskandar said the residential enclave was designed to be a contemporary lifestyle development and would be implemented in two phases.

Construction work for Phase 1 involving 351 condominium units is scheduled to take place in May, 2012.

The second phase comprising the remaining 334 condominium units is expected to take place 20 months upon completion of the first phase.

By The Star

SP Setia Australian venture pays off

Last Monday, Franklin Street in Melbourne was abuzz as kompang players and lion dancers readied themselves at the entrance to SP Setia Bhd’s new sales gallery.

Malaysia’s biggest property developer launched its Fulton Lane property that morning, which is presently just an empty parking lot across the street, but by 2014 will be home to two high-rise apartments.

If the turnout was any indication, buyer interest is intact. Corporate-types and well-heeled guests packed the gallery showcasing SP Setia’s maiden venture into Australia.

With this property, the developer is hoping to attract those who seek proximity to Melbourne’s many amenities; Queen Victoria market, RMIT and La Trobe University are some of the places in walking distance to it.

Sandwiched between two streets, the one-acre, A$470mil gross development value project will comprise a 29-storey tower facing Franklin Street with 291 apartment units, and a 45-storey tower facing A’Beckett Street with 409 units. Connecting the two blocks is a retail podium that rises to nine levels. SP Setia president and CEO Tan Sri Liew Kee Sin says the first tower has sold about 80% of its lots and the second tower, the taller of the two, about 30%.

The first tower was bought by mostly Malaysians – at its preview sale a few months ago, 70% was snapped up within three days. The second tower is targeted at local Australian buyers as well as those from Indonesia, Singapore, Brunei, and Hong Kong. In a few weeks, SP Setia will head to China to market it there. Buyers for the first tower are investors and owner-occupiers while the second tower will primarily be owner-occupiers.

The project is expected to fetch a margin of 20%, comparable to developments in other major cities in emerging markets.

Fulton Lane’s apartments, which come with one, two and three-bedrooms, start from A$365,000. Facilities include a garden terrace, gymnasium, indoor heated lap pool, a lounge cum reading room, two areas for barbecue, and a theatrette.

The “lane” in its name is not accidental – SP Setia plans to create a lane between Franklin and A’Beckett Street to mimic Melbourne’s “laneway culture”.

And no wonder - the city’s lanes and alleys are its claim to fame, where tourists and locals flock to savour Melbourne’s coffee and cuisine.

SP Setia’s venture into Australia has also enabled it to pick up on that market’s best practices, Liew says. For one, environmental sustainability is a prime concern there, and being a developed country, Australia also operates more transparently.

This, Liew points out, is something SP Setia can learn from.

But even as Australia prospers from a mining boom, there is relentless talk of oversupply in the housing market.

The Australian Bureau of Statistics recently released data showing that new construction of apartments in Victoria for the March quarter this year hit 5,168, the second highest on record. Similarly, a report out last week from the Housing Industry Association found that new home sales were down 14% in the third quarter, and suggested the drop in house prices may accelerate.

CB Richard Ellis (M) Sdn Bhd executive director Paul Khong says Melbourne’s property market is currently “toppish” due to the supply from various new projects.

“It has been a popular destination for foreign buyers investing in Australia especially for education purposes, but the prices have already moved up quite a bit over the last 24 months,” he tells StarBizWeek.

“We expect residential prices in Melbourne to be flattish and do not see any drastic oversupply that may cause a major dip in capital values.

“We expect capital values to stabilise as we see good support on the tenancy side,” he says, adding that residential yield is about 4% to 5% and anticipated to stay at that level.

Nonetheless, Melbourne is widely acknowledged as Australia’s fastest growing city, its population boosted by students and emigrants.

The State Australian Cities report by an Australian ministry says the population in Melbourne grew by 605,000 to 4.077 million over the past 10 years and is projected to rise to five million by 2027 at the current growth rate.

SP Setia is probably hoping for that outcome as it is in the midst of planning for an upcoming project in South Yarra, also in Melbourne, which sits on 2.23 acres and may accommodate up to 329 apartments.

A property analyst thinks that Fulton Lane can count as SP Setia’s first successful foray overseas.

“Their project in Vietnam is not making money, the Singapore one has yet to take off, and they’ve given up on the China joint-venture. So it (Fulton Lane) is good news,” he says.

By The Star

TTDI the first township to gain from Safe City programme

GOING around Taman Tun Dr Ismail, one would notice the number of changes that has taken place over the past months.

The township is the first to enjoy the benefits of the Safe City programme under the National Key Results Area (NKRA).

Housing and Local Government Minister Datuk Seri Chor Chee Heung had set aside a budget of RM1.45mil for the scheme implemented in TTDI in October.

TTDI Residents Association chairman Mohd Hatim Abdullah said most of the features installed in the neighbourhood were requested by the residents.

Finer details: A worker repairing the damaged fencing along the playground.

Hatim said the residents wanted the Government to install railings along walkways, safety mirrors and closed circuit cameras.

He said they were happy that their area was chosen for the pilot project.

He added that there were about 30 crime cases a month in TTDI involving house burgalry, car break-ins and snatch thefts.

So far, Kuala Lumpur City Hall (DBKL) has installed seven safety mirrors at the commercial area in TTDI to help curb crime.

Safety mirrors can been at the backlanes of Jalan Aminuddin Baki and Jalan Burhanuddin Helmi especially for pedestrians to look out for suspicious characters in the alley.

Three emergency hotline notice boards were also put up in Jalan Burhanuddin Helmi, Jalan Tun Mohd Fuad and Jalan Dato’ Sulaiman.

Railings to enable pedestrians to walk along the pathway without fear have also been put up along Jalan Burhanuddin Helmi.

“We had also requested for a perimeter fence made of galvanised steel at the border of TTDI and Kampung Sungai Penchala, however, due to budget constraints a chain link fence is being erected,” added Hatim.

According to him, residents have been waiting for a fence for about 15 years as the roads heading into TTDI near Lorong Rahim Kajai 5 would be crowded during peak hours.

Some of the residents also proposed that the playgrounds in TTDI be lighted up to deter youngsters from hanging out and indulging in bad habits.

Protected: Railings are installed along Jalan Burhanuddin Helmi to enable pedestrians to walk along the pathway without fear of being robbed by motorcyclists. There is also a sign bearing emergency numbers.

So far the playgrounds in Lorong Rahim Kajai 4 and Lorong Burhanuddin 8 have been fitted with streetlights.

Several hotspots will have new streetlights with 250watts compared with the 100watts now.

Hatim said they were waiting for all their other requests to be fulfilled before the NKRA sent another feedback form to gather the residents’ opinion.

“We have informed all the residents that we are working closely with the Government and DBKL and are looking forward to getting the approval for a gated and guarded community,” he said.

TTDI has long since requested for a gated and guarded community, however, the Government needed 80% of residents’ consent to do so.

Hatim said they had the consent of 60% of the residents now.

Hatim said they would continue to work with the government until the residents feel that TTDI had become a safe township.

By The Star

Make city living enticing

The heavy traffic leading into Kuala Lumpur in the morning and out of the city in the evening may be acommon sight, but there are a number of lessons that can be learned from it.

I'm sure many of us would ask why people who work in the city can't just stay in the city as then there would not be such a massive flow of traffic.

This daily occurrence on roads leading into the city and those within the city congests the city in the day time, and by night the town becomes quiet again, and this is a telling sign that Klang Valley folks have not embraced the concept of city living.

It is worth finding out why the capital city is still not popular as a residential address.

Instead of opting for the convenience of living in the city and avoiding the hassle of having to brave those heavily congested roads on a daily basis, many have chosen to stay in the suburban areas.

Although many of them may be feeling quite overwhelmed by now, they have little choice but to put up with the daily “pilgrimage” on a daily basis just to get to their work place.

The way our cities and towns have been planned certainly has something to do with it, and it looks like we can do with some tweaking and re-planning to turn our cities around to become lesser of a dilemmaand more friendly to city folks and road users.

Our town planners should learn from the current inadequacies and shortcomings that are plaguing our cities, and it is still not too late to make amends and attend to those.

Identifying the prevailing shortcomings that have rendered city living unappealing for many Klang Valley folks will provide the necessary solutions.

One of the obvious reasons is a lack of affordable housing and community living projects in the inner city.

Many would not mind owning a house in the city if there are more residences that have an average built-up of 1,000 sq ft to 2,000 sq ft, and are priced between RM300,000 to RM500,000.

But sadly, most of the housing units are quite sizeable from 2,000 sq ft to more than 10,000 sq ft and of course these are tagged at nothing less than RM1mil a unit making them far from affordable.

For this reason, many of those working in the city centre have little choice but to brave the daily jams. There is also a large number among them who commute from as far as Bentong, Nilai and Seremban.

But for many, living in the suburbs also means they have the luxury of choosing from a wider range of housing options at lower prices, while city living usually equates to a higher cost of living.

To address the issue of cost, which developers usually attribute to the high cost of land and construction materials, the redevelopment plans for the Sungai Besi airport and other Government land (Jalan Cochrane and the 3,300 acre Rubber Research Institute in Sungei Buloh) should have a larger ratio of residential component versus commercial property.

There is still an over supply of commercial property, including office space, in the capital city, and priority should be given to increase the number of residential units in those projects to meet demand.

Developers should also look into adopting newer technology and construction methods and materials that have higher quality and durability at lower cost.

If we look around, there are many old buildings that are deplorable and have been vacant for many years, and it will be a great idea to restore these buildings and give them a new lease of life.

We can take a cue from Singapore's Urban Redevelopment Authority (URA) as it goes about redeveloping the city state's old buildings by offering them up for redevelopment through open tenders.

As a one-stop agency, the URA will invite developers to bid through open tenders and submit their plans for the redevelopment process.

The selection of the successful tender will be based on a set of pre-determined criteria, which besides costing, includes the ability of the project to add value to the people's living, working and recreational space.

Likewise, there are also many opportunities for the dilapidated parts of our city to be revived and for some of the older and idle commercial buildings and assets to be torn down and rebuilt into residences.

In the planning process, it is important to retain a healthy balance between the built and unbuilt by retaining some parts of the natural environment as green lungs and parks.

Open space is important for people to unwind and take a breather from the hustle and bustle of city life and to promote a happier and healthier populace.

Deputy news editor Angie Ng believes KL city folks deserve to have at least another two public parks (in the likes of London's Hyde Park) to walk about.

By The Star

No loss occurred over Talam takeover

The Selangor Government hopes to make RM1.2bil after taking over Talam Corporation two years ago.

Mentri Besar Tan Sri Khalid Ibrahim said the acquired plots of land were in Kuala Langat, Kuala Selangor and Hulu Selangor.

“They are from projects in Bukit Beruntung, Bestari Jaya and Canal City,’’ he said in reply to a question from Datuk Mohammad Bushro Mat Johor (BN-Paya Jaras).

Khalid said the state had also cashed out RM50mil earlier by taking over Talam.

He said the state had obtained bank loans as part of its efforts in paying off debts owed by Talam to some companies.

“We incurred a total cost of RM391mil from the takeover bid.

‘’We have been successful in taking back the plots of land that have been given to cronies.

“We have returned the land to the people of Selangor with the opportunity of making RM1.2bil from the land value alone,’’ he said.

Khalid said a book would be released on how the reconciliation exercise was done.

He also said there was an exhibition on the exercise at the state secretariat in Shah Alam recently.

By The Star