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Monday, May 14, 2012

Commercial property loans 22.7% higher

PETALING JAYA: Credit for the purchase of commercial properties in March grew by 22.7% year-on-year, raising concerns in some quarters of a potential asset bubble.

This loan growth in the non-residential sector, which includes industrial and commercial properties, was the highest followed by credit growth for the construction sector at 19.2%.

Meanwhile, loan growth for purchase of residential properties in March had somewhat moderated to 13.9% year-on-year.

“Starting from the end of 2009, there has been a big loan growth in the non-residential sector,'' Pong Teng Siew, head of research, InterPacific Research, said. “The pick-up in loan growth in this sector was evident in the second half of 2009.''

Illustrating the rapid pace of loan growth, the total stock of loans in the non-residential sector has grown from RM70bil in June 2009 to RM116bil currently, or 66%.

“This is faster than for any kind of loans,'' said Pong. “Can this pace of loan growth be sustained?''

“At the moment, demand for non-residential properties is a reflection of the strength of the economy,'' said Pong. “If there is a lot of demand for office space, then the 66% growth would be a reflection of the confidence in take-up.''

However, a note of caution is that projections of strong demand usually lead to overbuilding, and eventually an oversupply situation.

The presence of too many listed property and construction firms also places pressure on the need to grow profits.

“The non-residential sector has grown significantly but the bulk in value is still in residential which comprised 28% of total loans in March,'' said Low Yee Huap, head of research, Hong Leong Investment Bank.

“Meanwhile, non-residential properties made up only 11% of total loans in March.''

Over the past few years, a low interest-rate environment and accumulation of liquidity has encouraged the buying of shophouses and offices, while some high-rise buildings come with commercial titles.

“But if the situation (of rapid loan growth) gets out of hand, it will cause a potential bubble,'' said Low. “There needs to be a balance for healthy growth.”

Recently, there has also been a lot of non-residential launches. Moreover, the purchase of non-residential properties is not subject to the loan-to-value cap.

“It's become a trend now for commercial launches, with smaller commercial units and sohos being built for affordability.

“It is more a matter of market forces and changing of customer preferences,'' said Chan Ken Yew, associate director of Kenanga Investment Bank Bhd and head of its research division.

By The Star

Islamic City set to take shape in Shah Alam

Popular landmark: The Sultan Salahuddin Abdul Aziz Shah mosque.

SECTION 5 in Shah Alam is set to be turned into an “Islamic City” after the final plans have been approved by the Shah Alam City Council (MBSA) and Selangor government.

The “Islamic City” includes a 20ha area surrounding the iconic Sultan Salahuddin Abdul Aziz Shah mosque and Shah Alam Lake Gardens.

Five consultants presented their designs for the development of an “Islamic City” at a workshop held at The Saujana Hotel Kuala Lumpur recently.

Representatives from Ikhtisas Planner, AJC Planning Consultants, IZM Planning Consult, DPZ Asia and Prof Emeritus Dr Ismawi Zen, who is a lecturer in the Architecture and Environmental Design, presented their designs and how each could use the area after taking into account the lake, mosque and courts, nearby.

Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim said he was sceptical when the idea was first mooted by Shah Alam mayor Datuk Mohd Jaafar Mohd Atan.

However, he said the idea made sense and it was now time to turn those dreams into reality.

He added that the state together with MBSA would also have to come up with ways of preventing traffic congestion with the influx of cars into the city.

Khalid also wanted the “Islamic City” to be an ideal location for businesses, educational institutions and other activities.

“We have to look at all angles from marketing Shah Alam to designing the area,” he said.

He added that Islamic elements and traditions should also take precedence in one’s design.

He said the design and architecture should also be appropriate.

The cost of the project has yet to be determined but it would be between RM2bil and RM3bil as it covered a large area.

When completed, Khalid said it would be a new breather for Shah Alam and could further boost the city’s potential in business, tourism and art.

He said he wanted to look at all designs and recommendations before deciding to go ahead with the project at the end of the year but declined to comment on when the project would be completed.

By The Star

UDA’s dilemma on Pudu Jail project

It needs to follow directive but also needs to consider the best deal for the project

KUALA LUMPUR: UDA Holdings Bhd is still evaluating proposals of all parties for the redevelopment of its Pudu Jail land and wants the preferred bid to be the one that is in its best commercial interest.

Even though the board has approved the proposal by Everbright International Construction Engineering Corp last year, the Finance Ministry (MOF) has directed UDA not to consider the company and instructed UDA to prepare a masterplan based on parcelling the land into three.

A special committee formed by UDA's board has included the development model proposed by Everbright in its evaluation to ensure that UDA's long-term commercial interests are protected.

On protecting bumiputra interest, UDA, under the Everbright proposal, will own a significant portion of the assets in the project and will ensure bumiputra contractors will be given the opportunity to participate in all stages from consulting, construction and retail space

Chairman Datuk Nur Jazlan Mohamed said the committee was at the initial stages of developing the masterplan but early indications were that the development model proposed by Everbright gave the best returns to UDA .

“On a commercial basis, Everbright's proposal is the best because it will develop the land as one piece. If the land is cut into three parcels, you know you will lose the value of the land,” he told StarBiz in an interview.

“But we have not come to a conclusion yet.”

MOF has asked UDA to divide the land into three one is for a bumiputra controlled party, another by a bumiputra company in a joint venture with others and the third parcel is open to a non-bumiputra company.

Under Everbright's proposal, the China company will fund the entire development of the land that has been called Bukit Bintang City Centre (BCCC). Its proposal comes with a committed funding of US$1bil and Everbright will take the construction and financing risk, build a contiguous retail space of 2 million sq ft, a car park and a convention centre and hand it over to UDA.

All that time, UDA will retain control of the land and Everbright will, after handing over the assets UDA needs in four years, develop its own properties on the land at its own pace.

Given the amount of commercial space that is planned in Kuala Lumpur, Everbright will have the muscle and foreign connection to handle the flood of floor space that will come on stream in the next few years.

The best option so far for the bumiputra developer will see UDA take on a lot of the risk Everbright is willing to shoulder. UDA. together with the bumiputra developer, must secure the funding for developing the project, which will lower the returns it will obtain.

That means the property will have to be injected into a special purpose vehicle and the ownership of the land will be charged to a bank to get the funding.

The land will have to be charged to the bank in order to raise the funding since UDA does not have the cash to fund the multi-billion ringgit project,

That will translate into lower earnings for UDA compared with the proposal by Everbright.

Furthermore, the floor space it will have to lease out to retailers once the project is completed under the parcelled-out proposal will also be smaller as the land would have been sub-divided among three different developers.

Nur Jazlan said the proposal by Everbright would mean that UDA stands to receive RM300mil to RM400mil a year in income from its property at BCCC, which is essential for a company that has just 400 arces that can be developed.

“The best solution is for UDA to have enough retail space to allow it to earn substantial recurring income to continue to have money to acquire land and grow as a developer.

“What is UDA's long term future and the Puda Jail land provides the only hope for UDA where if developed properly, UDA can get the right quality assets that can give it recurring income.

“That's why the decision on the Puda Jail land is not a normal decision. We need to develop the right quality assets to give us the recurring income for us to have a future,” he said.

Shopping centres need to be of a big size to attract the traffic to be successful. He said the retail space at the Puda Jail land will require a contiguous space in order to compete against the like of Pavilion and Mid Valley Megamall.

If the carved out proposal gives UDA retail space in three separate locations, Nur Jazlan said it would be hard to attract retailers and shoppers to the retail parts of the development.

“If it is not integrated, it will be hard to attract people. We won't achieve the rental yields.”

Nur Jazlan said the Government had not pumped money into UDA after it got listed in the 1990s and he did not think it would do so in the future. UDA has been asking for more land since it has been privatised but has yet to be allocated any.

Nur Jazlan said it was also easier to stratify the assets if the property was built by a single developer.

“It will be a problem if the land was parcelled out as you will be dealing with three different parties,” he said.

Nur Jazlan said it would not be easier to REIT out at a later date if the assets were jumbled up with different developers.

By The Star

Emas Kiara arm buys land for RM5.3m

Emas Kiara Industries Bhd (EKIB)'s wholly-owned subsidiary, Noblecorp Sdn Bhd, has acquired land in Kulai, Johor, from Creative City Development Sdn Bhd for RM5.258 million.

The company would obtain a bank loan to complete the acquisition which would not only benefit the group but also help diversify into different businesses including investment.

In a filing to Bursa Malaysia, EKIB said the property outlook in Johor was expected to be positive taking into consideration the advanced stage of completion of major infrastructure works.

"Major projects in Iskandar Malaysia are coming on this year and the investment prospects enhanced by the Economic Transformation Programme would also contribute to the overall positive outlook," it added.

Barring unforeseen circumstances, the acquisition is expected to be completed within three months.

By Bernama