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Saturday, May 12, 2012

WCT focuses on value creation

Opening soon: The Paradigm Mall in Kelana Jaya is near completion and is set for opening on May 23. Among its tenants are Tesco, Golden Screen Cinemas, Padini Concept Store, Marks & Spencer, Zara, Elle, G2000, Harvey Norman, Toys R’ Us and Popular Bookstore.

WCT Bhd is keen to expand its presence in the local property market and is actively seeking out new land to replenish its landbank in the Klang Valley and other parts of the country.

Executive director Choe Kai Keong says although WCT's forte is in engineering and construction which contributes 64% of the group's operating profit, it is building up its presence in property development, investment and management.

“By 2016, contribution from construction and engineering is expected to reach a more equitable level of 45%, while that from property development will increase to 30% from 21% now, and investment and management to 25% from 15%,” he tells StarBizWeek.

The group has more than 2,000 acres that are in various stages of development, and has recently acquired two parcels of 468 acres and 57 acres in the Klang Valley.

Choe: ‘Besides the Klang Valley, we are also on the look out for land in Iskandar Malaysia, Penang, Kota Kinabalu, Vietnam and China.’

Choe says the land costing RM450mil has potential gross development value (GDV) of RM5.2bil.

The 468 acres in Rawang, Selangor, would be developed into an integrated township comprising mainly medium to medium-high priced properties. The development worth an estimated GDV of RM1.2bil is set for launch in 2014 and is slated for completion in 10 years.

The 57-acre in Overseas Union Garden in Kuala Lumpur is planned for a mixed development of residential and commercial project worth RM4bil.

The target launch is 2014 for completion in eight years.

WCT's healthy balance sheet provides a war chest of RM800mil which can be used for land acquisition. Its net gearing ratio at 0.4 times allows room for the group to expand its landbank.

“Besides the Klang Valley, we are also on the look out for land in Iskandar Malaysia, Penang, Kota Kinabalu, Vietnam and China. This is in line with our strategies of branching out into a more balanced and broader range of property offerings including high-rise residences, luxurious homes, service apartments, offices, shopping malls and hotels,“ Choe adds.

He says despite concerns of a market slowdown amid the prevailing economic uncertainties, demand for good quality properties, especially landed houses, in good locations with accessibility and amenities, is still strong.

WCT has lined up some RM1bil worth of project launches this year. They comprise RM320mil worth of high-rise condominiums in 1Medini in Iskandar Malaysia; RM400mil of landed housing units in Bandar Parklands, Bukit Tinggi Klang; RM120mil apartments in Bukit Jelutong; and RM150mil luxury homes in Klang.

For the financial year ending Dec 31, 2012 (FY12), WCT is expecting sales to jump to RM700mil from RM450mil recorded in FY11. In the first quarter ended March 31, it chalked up sales of RM200mil.

Flagship projects

“In widening our market presence, we will be leveraging on our expertise and track record in the development of WCT's flagship township Bandar Bukit Tinggi in Klang and the recently completed d'Banyan luxury homes in Kota Kinabalu,” Choe says.

WCT's 1,336 acre parcel in Bandar Bukit Tinggi, Klang, is in advanced stage of development into an integrated township; with another 350 acres to be developed.

The project will have a GDV of RM4.8bil, of which some RM3.3bil worth of properties have been completed in the past 15 years. The balance of another 350 acres with GDV of RM1.5bil is expected to take five more years.

WCT has a 56-acre parcel in Klang that has been earmarked for a luxurious housing project worth some RM450mil. The project is slated for launch in the fourth quarter of this year.

A 2.26-acre commercial parcel in Bukit Jelutong will be developed into 280 units high-rise apartments. The RM120mil project is also planned for a fourth quarter launch.

In Johor, WCT owns 21 acres in Iskandar Malaysia. The first parcel of 11 acres is earmarked for 1Medini high-rise residential units with GDV of RM700mil. Launched in January, it will take five years to be fully-developed.

The second parcel of 10 acres across the road from 1Medini will be developed into the Medini Business District comprising mixed commercial properties worth some RM800mil.

WCT's maiden project in Kota Kinabalu, the d'Banyan is a 22-acre high-end residential project comprising bungalow villas, semi detached homes and super link villas worth a GDV of RM269mil.

However, the group's 33 acres in Ho Chi Minh City, Vietnam, will not be taking off anytime soon pending the conclusion of the land resettlement process.

Although it has been issued with the investment certificate by the Vietnamese authorities in 2008 for the first 23 acres and in 2011 for the balance 10 acres, the project's launch had been delayed due to weak consumer sentiment caused by the unstable dong and high interest rates.

“Although the dong is stabilising and inflation is under control, we are still waiting for consumer confidence in Vietnam to return before launching our project there. In the past two months, bank interest rates have dropped by 2% and things should continue to get better,” he adds.

Widening income streams

Next year, WCT can look forward to higher contribution from its investment and management activities with the coming on-stream of its two latest retail assets - Paradigm Mall and KLIA-2 Integrated Complex.

Choe says WCT will own 2.1 million sq ft in net lettable area (NLA) of retail space in the country by the second quarter of 2013.

The group's investment and management projects comprise its maiden retail project, AEON Bukit Tinggi Shopping Centre and Premire Hotel in Klang, and two toll highway concessions in West Bengal, India.

The duration of the highway concessions, awarded by the National Highway Authority of India, is from 2004 to 2020 and contribute to RM10mil to RM15mil in annual earnings to the group.

WCT's maiden retail project, AEON Bukit Tinggi Shopping Centre with NLA of 1.1 million sq ft, was opened in Klang in 2007.

Construction of Paradigm Mall in Kelana Jaya is near completion and the mall with NLA of 700,000 sq ft is set for opening on May 23.

The mall is already 91% occupied with average base rental of RM6 per sq ft. WCT will operate and manage the Paradigm Mall.

Among its anchor tenants are Tesco, Golden Screen Cinemas, Padini Concept Store, Marks & Spencer, Zara, Elle, G2000, Harvey Norman, Toys R' Us, Popular Bookstore, TGI Friday's, Starbucks, and Chili's.

Its next retail project, the KLIA-2 Integrated Complex with 350,000 sq ft of retail space at the departure and arrival levels, is due to open in the second quarter of 2013.

The project is a 25 + 10-year build-operate-transfer concession which is 70% owned by WCT and 30% by Malaysia Airport Holdings Bhd.

“Each of the mall is expected to provide an annual internal rate of return of 6% to 8%. This translates to some RM10mil in revenue from Bukit Tinggi Shopping Centre, about RM10mil to RM15mil from Paradigm Mall, and RM15mil to RM20mil from KLIA-2,” Choe adds.

He says WCT's investment and management division is also looking to expand into the hospitality sector and planned to open its second Premire Hotel in 2014.

The new Premire Hotel to be located beside the Paradigm Mall in Kelana Jaya will have 350 rooms.

WCT's maiden hotel, the 250-room 4-star business class Premire Hotel in Klang, was launched in 2010.

“We plan to expand our portfolio of retail and hotel assets to widen our earnings streams and it will be done in tandem with our expansion into new growth markets,” Choe says.

Trailblazer in GCC

In engineering and construction, Choe says WCT has build up a strong presence in the Gulf Cooperation Council (GCC) region with 10 projects to its name in the past decade.

The Yas Marina F1 Circuit in Abu Dhabi, UAE, built at a cost of RM4.2bil is the most expensive F1 circuit in the world.

The most high profile projects are the two F1 circuits in the region - Bahrain F1 Circuit and Yas Marina F1 Circuit in Abu Dhabi, UAE.

WCT's first entry project in the GCC is the Bahrain circuit which was completed in 2004.

Built at a cost of RM600mil, it holds the record as the first F1 circuit ever to be built in a desert.

The highly acclaimed circuit soon landed WCT another project - the Yas Marina F1 Circuit - which at a cost of RM4.2bil is the most expensive F1 circuit in the world.

The project, a 50:50 joint venture between WCT and its Bahraini partner, Cebarco, was completed in 2009.

The WCT management is understandably excited that the group is blazing the trail for Malaysia in the GCC construction and infrastructure business, and hopes to make further inroads in the region.

Despite the global financial meltdown and prevailing economic uncertainties in many parts of the world, the group believes there are still much untapped opportunities in the GCC countries.

“We currently have two projects in Qatar - the Government Administrative Office worth a contract value of RM1.3bil, and the New Doha International Airport contract worth RM3.2bil which is a 49:51 joint venture between WCT and Gamuda.”

WCT has an outstanding construction order book of RM3.3bil, with half of the amount comprising projects in Malaysia and the balance in the GCC.

It is also bidding for some RM5bil worth of new contracts.

By The Star

SP Setia expands footprint in Penang

Property developer SP Setia Bhd is on the lookout to acquire more strategic pieces of land in Penang in a bid to extend its footprint in the state.

Presently, it is looking to buy three parcels of land on the island by the middle of the year.

The company, which currently boasts an undeveloped landbank totalling close to 40 hectares in the state, is in the final stages of negotiation to acquire land in Tanjung Bungah
and Jelutong.

SP Setia Property (North) general manager Datuk S.Rajoo told Business Times the company is eyeing two parcels of land in Tanjung Bungah totalling 10.2ha while the parcel of land in Jelutong measures 3.6ha.

“We are hoping to conclude the land acquisition deals by the middle of June and are planning mixed residential housing projects on the plots,” he said in an interview.

Present was the company’s deputy general manager for the northern region’s property division Khoo Teck Chong.

SP Setia made its entry in the state more than five years ago via the Setia Pearl Island development which is sprawled over a 45ha site and carries a development value of RM1.2 billion.

The project comprises three-storey terraced homes, semi-detached units and commercial lots, and is located between 4km and 5km from the proposed site of the second Penang bridge at Batu Maung and 20km from George Town.

“We would like to extend our presence to other parts of the island and have been doing so through our projects in George Town.

“We have acquired two pieces of land in Balik Pulau totalling 12ha for purposes of landed residential units,” Rajoo added, saying that the launching date of the project has yet to be determined.

Khoo said the last piece of undeveloped land at the Setia Pearl Island site is expected to be launched by the third quarter of 2013.

Carrying a development value of RM350 million and sprawled over 7.6ha of land, he said the project, called The Breeze, will
comprise low-rise and high-rise dwellings respectively.

"Our new launches," Khoo said, "will include exclusive high-rise condominiums at Teluk Kumbar which we hope to launch by the second half of 2013."

The QBees project, comprising 98 condominium units, will be sited on a 1.2ha plot and carries a gross development value of RM50 million.

Other planned launches include Penang's first Green Building Index residential project, which will be sited in the second phase of its Setia Greens development at Cangkat Sungai Ara.

"We are looking at launching more eco-housing via this project, which will comprise landed houses and one condominium block on a 5.6ha site," Khoo said.

By Business Times

Applying the brakes – made for the short term – can be dangerous

Does the anti-lock braking system (ABS) really make driving safer? I thought so until I came across an interesting finding recently.

In his book What the Dog Saw, Malcolm Gladwell shared the result of a famous experiment conducted years ago in Germany. The experiment equipped part of a fleet of taxis in Munich with ABS. The rest of the fleet was left alone, and the two groups of drivers were placed under secret observation for three years.

Most people would expect that with the installation of the ABS in a vehicle, driving would be safer. The outcome of the experiment proved otherwise. For some drivers, ABS did not reduce their accident rates. It turned them into inferior drivers instead. They drove faster, made sharper turns, showed poorer discipline and braked harder.

The author explained this phenomenon with the theory of Risk Homeostasis which states that under certain circumstances, changes that appear to make a system or an organisation safer in fact do not. Human beings have the fundamental tendency to compensate lower risks in one area by taking greater risks in another. In that particular experiment, the drivers used the additional safety elements to drive faster and more recklessly.


To a large extent, this theory can be applied to many aspects of our life. While one can take the additional precautionary methods, the fundamental problems should also be addressed to achieve the desired results.

Recently there has been a proposal to raise the floor price of properties for foreigners from RM500,000 to RM1mil to curb or control the prices of houses from increasing too fast. This proposal is on top of the other “cooling off” measures such as the 70% housing loan policy for purchase of a third property, the increase of real property gains tax from 5% to 10% imposed on properties sold within two years of the sale and purchase agreement, and the new ruling on housing loan limits based on net income rather than gross.

There is no doubt that the introduced “cooling off” measures have reduced the buying spree of properties. However, the intended objective of these measures to control the price of properties has yet to be seen. Introducing measures without critically identifying the root cause of the increasing property prices may instead create situations that would not be beneficial to the industry as explained by the theory of Risk Homeostasis.

So, what determines rising prices?

We need to find the root cause of the issue in order to identify a long term solution. The basis for rising property prices now is largely due to the direct and indirect impacts of quantitative easing programmes i.e. the increase of money supply, carried out by governments around the world since the start of the global financial crisis. Value slump

When there is too much money chasing too few goods, prices will increase but not necessarily value. In reality, we are facing a situation where there is too much money in the system, causing a decrease in the real value of money and pushing up prices of goods and services including construction materials.

For example, in early to mid 2000, a condominium in Mont'Kiara which was sold around RM500,000 would now cost us about RM800,000, equal to a 60% increase. But measured in a different “currency”, that condominium would have cost us 8kg to 10kg of gold in early to mid 2000 and today, only worth about 5kg of gold. This is a sharp decline of 38% to 50% and is an illustration of how prices are going up due to the drop of currency value because of worldwide inflation and pump-priming policies.

However, if the property prices are not allowed to rise, it is not possible for developers to build below costs when the construction costs are constantly rising. This will cause a shortage of supply which will further push up prices in five to 10 years time.

Balancing act

Let us examine specifically the future supply and demand of properties in the Klang Valley.

On the demand side, the government aims to grow the population in Greater KL from the existing six million to 10 million by year 2020. Hence, an additional one million housing units (assuming four family members per home) is needed in the next eight years. It would mean that property developers need to supply 125,000 new housing units in Greater KL every year to meet the expected increase in population.

According to the statistics published by National Property Information Centre, the primary market only managed to launch 49,290 new housing units nationwide in 2011, with only 12,705 housing units in KL and Selangor. This indicates there is a demand exceeding supply scenario that can result in future severe consequences.

If the government continues to introduce more “cooling off” measures to curb or control house prices and to stifle temporarily the buying appetite of home buyers, it will slow down the rate of production of new houses by developers. The unintended consequences of stifling supply will create a massive housing bubble five to ten years later in Greater KL because of the extreme demand and supply imbalance.

The ABS experiment mentioned at the beginning taught us a valuable lesson. Understanding any long-term-unintended consequence is paramount before taking any actions. Putting measures in place that do not resolve the root cause may instead backfire on us. With that in mind, perhaps we shouldn't apply the brakes on housing need and instead look at the bigger picture to find longer-term solutions to our housing industry.

FIABCI Asia Pacific chairman, Datuk Alan Tong has over 50 years of experience in property development. He was FIABCI World president 2005/06 and was named FIABCI Property Man of the Year 2010. He is also the group chairman of Bukit Kiara Properties.

By The Star

Tambun Indah seeks JV partners for Klang Valley projects

PROPERTY developer Tambun Indah Land Bhd is looking for joint-venture (JV) partners to spread its wings out of Penang where its flagship project is based.

“We would like to expand into the Klang Valley, but our focus will be more on the outskirts like Kajang and Rawang where there is still plenty of land,” managing director Teh Kiak Seng says.

The company is in “several discussions” with landowners for this purpose, he says but nothing has been firmed up.

“We prefer to do JVs with landowners, the overall returns may be lower but we will not have to come up with so much money to buy land, there's less risk then,” Teh tells StarBizWeek.

For now, Teh and his team are focusing on their flagship project, the Pearl City integrated township in Simpang Ampat, which will have a gross development value (GDV) of more than RM3bil when completed.

The mixed residential and commercial township sits on a 1,001-acre site which is expected to be fully developed by 2020, complete with a business park which will house schools, hotels and hypermarkets.

So far, 450 acres have already been developed into residential and shop units.

There are plans to launch two more projects within Pearl City this year.

“We are enjoying a spillover of buyers from the island where property prices have skyrocketed since 2010,” Teh says.

For example, a terrace house on Penang island now costs around RM800,000. On the mainland, the same type of house would cost some RM300,000, he says.

“We see the gap (in price) eventually closing,“ Teh says, attributing it to new infrastructure coming onstream such as the Second Penang Bridge and the Double Track Commuter Train which will enhance connectivity between the island and mainland.

The proximity of the Pearl City development to more than 10 industrial parks, which are capable of generating thousands of job opportunities, will also play a part in ensuring that its properties enjoy a steady price trend as workers buy up units to live in, according to Teh.

He says that apart from the two residential projects within Pearl City that Tambun Indah will launch this year, there are three more, namely the RM39.3mil BM Residence in Bukit Mertajam, RM41mil Carissa Villas in Bagan Lallang, and the RM180mil Straits Garden in Jelutong on the island.

The funding of Tambun Indah's new projects will be through the issuance of 88.4 million shares through a rights issue which will raise RM44.2mil.

The two-for-five rights issue, which was approved at a recent shareholder meeting, is expected to be completed in June. It would also effectively increase Tambun Indah's share capital to RM154.7mil, comprising 309.4 million shares.

After these new projects are launched, Tambun Indah will have more than 600 acres of undeveloped land, mostly in Pearl City and some on the island.

The company currently has 10 ongoing projects, mainly residential that it launched over the past two years.

“These have had an average take-up rate of more than 80%,” Teh says.

Gross margins stand at about 30%, he adds.

Tambun Indah, which claims to be the first to introduce the concept of guarded and gated (landed property) in Seberang Prai, made a net profit of RM23.6mil for the financial year ended Dec 31, 2011 against a net profit of RM25.2mil a year earlier.

“I personally believe that prices on the island, the highest at about RM1,200 per sq ft now from about RM800 per sq ft in 2010, will not go up further due to increasing competition. We intend to benefit from that,” he says.

On average, Tambun Indah's Seberang Prai properties are selling at below RM300 per sq ft. More than 90% of its property development projects are located on the mainland.

By The Star

Proposal to sell Mid Valley, Gardens malls

PETALING JAYA: KrisAssets Holdings Bhd has proposed to sell Mid Valley Megamall, the Gardens Mall and their related assets to its parent IGB Corp Bhd for RM4.6bil.

It said in a filing with the stock exchange that the disposal would be satisfied via cash and the issuance of 3.4 billion units in IGB REIT, the retail real estate investment trust that the latter plans to list on the Main Market of Bursa Malaysia.

It also proposed an offer for sale of 670 million consideration units by Mid Valley City Gardens Sdn Bhd via the initial public offering (IPO) of IGB REIT. The company added that it wanted to distribute 2.73 billion consideration units, as well as the remaining cash proceeds from the sale of the two properties and the IPO to its entitled shareholders at a date to be determined and announced later.

In addition, it has proposed amendments to the memorandum and articles of association of KrisAssets to alter the par value of its ordinary shares from RM1 to two sen to facilitate the proposed capital reduction and repayment.

It was earlier reported that IGB Corp, the country's third largest property developer by market value, planned to raise some RM700mil through the REIT, which may be listed in the second half.

IGB has appointed CIMB Investment Bank Bhd, Credit Suisse Group AG and Hong Leong Investment Bank Bhd as joint global coordinators for the initial public offering.

KrisAssets has established a new subsidiary, IGB REIT Management Sdn Bhd, to act as the proposed management company for the REIT. Following the completion of the proposed disposal of its two malls, KrisAssets will be a company without any business or operations.

The board has no intention of maintaining KrisAssets' listing status.

By The Star

Security at what cost?

Communities have been proactive in promoting security but more police support is needed

WHAT does it take to build a city a simple, functional spot under the sun that draws people in and provides enough for them to build a home, find work and enjoy all that is within their resources to enjoy?

Let's forget about phrases like “world class city” or “state-of-the-art city”. These are just empty phrases that do not mean anything. There are many components that go towards building a city security, clean air and water, healthcare, education, a city employment opportunities, public transport and other services. The list can be a lenghthy one.

But let's just focus on security, which is likened to a roof over our heads. The roof keeps out the rain and other elements. There is no point in having a leaky roof.

Of late, we read constantly about crime being reduced. But while there are statistics that point to this, we feel no safer than before.

Last Thursday, the country rejoiced when 12-year-old Nayati Moodliar was reunited with his parents after going missing for a week. Many missing children either end up dead, or continue to be separated from their loved ones.

His abduction prompted the introduction of new measures like putting up closed-circuit television surveillance cameras (CCTVs) around school premises. Mont'Kiara, which comprises predominantly high density condominium products, is known for its layers of security features. That is one of the reasons why many live there, forgoing a landed property with a compound.

In high-rise residential projects, there are access cards programmed to allow entry to the floor one is staying in and to public areas like the swimming pool and gym. We also have gated and guarded communities. Some of the newer townships in Petaling Jaya employ their own security guards with the permission of the local authorities and put up bars and other security features like rows of drums to seal off escape routes in the event of a break-in. Other residential areas do not strictly go by the gated and guarded definition but have security guards and perimeter fencing.

In our search for peace and safety to build and raise a family, we have put a premium on security, either by installing alarms or living in places that comes with such features. There is nothing wrong with this.

But has anyone asked why we have come to this? And to what extend can these measures ensure that our children and loved ones will be secured and safe? While it may be relatively safe within the gated and guarded community and internal break-ins may, or may not, be an issue it is what happens on the streets that is of concern today.

Once a person is outside these “safe” perimeters, he or she is at the mercy of unsavoury and unwanted attention, which may be in the form of snatch theives, robbers, kidnappers or other tricksters, as in the case of Nayati, who was kidnapped while walking to school. Does this mean we install these features in public areas and how far should we go in pursuit of these measures?

While installing CCTVs in public areas like schools, malls and basement car parks and shops may help, there is the cost of keeping them in serviceable condition. But even if the images of tricksters and kidnappers' get-away cars are caught on camera, is there a system where this images and information can be relayed in minutes or seconds to police patrols who will then take it from there? In other words, patrol cars equipped with audio visual gadgets. It sounds so Hollywood. But we've seen enough of police car chases on TV.

This goes back to the systems we have. If cars can come with TVs and police patrol cars with walkie-talkies, why can't these gadgets and their functions be integrated in order to relay images to speed up the pursuit of criminals on-the-run?

But we have to admit that installing security gadgets that integrate seamlessly with policing comes with a cost. Another simple and cost effective way would be police presence.

Yes, there is a need for the men in blue to ride around on motorcycles, some to be in police patrol cars. But we also need those who will patrol on foot on a sustainable intermittent basis, not just because a high-profiled crime has been committed. This will give a sense of security to the people and at the same time serves as a deterrent, to a certain degree, to street crime.

There is something very wrong when the people spend so much money on being safe when they are at home, yet remain vulnerable to all sorts of crime when they hit the streets. We need police presence, and we also need to weed out corruption at all levels of the Government. We need a roof over our heads, but not a leaky one.

Deputy news editor Thean Lee Cheng thinks the building blocks that go towards making a city liveable is more than gleaming towers.

By The Star