Challenging times ahead for Iskandar

JOHOR BARU: Iskandar Malaysia authorities are optimistic that the special economic corridor will continue to attract both local and foreign investors and remain an attractive investment destination despite negative media reports.

An aerial view of the ongoing coastal highway linking Johor Baru City Centre in Nusajaya.Inset:Harun Johari.

Nevertheless, outgoing Iskandar Regional Development Authority (Irda) chief executive officer Harun Johari ackowledged that the journey ahead for Iskandar would be long and challenging.

Irda is the regulatory authority in Iskandar.

“Frankly, it is not a smooth journey but we have to move on as the success of Iskandar is for all Malaysians and not only Johoreans,” he told StarBiz in an interview.

It was normal for a major development like Iskandar to attract critics, negative reports or “coffee shop talk,” he said, adding that Irda would be “positive and constructive” about the flak it had received from the media, bloggers and politicians.

“People have been watching us (the stakeholders) since day one of Iskandar’s inception and we at Irda have the duty to deliver and prove the critics wrong,” he said.

Harun reckoned that perhaps Johoreans were impatient to physically see the projects in Iskandar, adding that 2012 would be the “tipping point” when most of the ongoing projects would be completed.

The first phase – comprising the Johor state new administrative centre, Kota Iskandar, as well as Puteri Harbour Waterfront Development in Nusajaya – is already completed and developers will embark on other phases.

Among ongoing and soon-to-be-launched projects are the coastal highway linking Johor Baru City Centre to Nusajaya, the Danga Bay Waterfront development, Legoland Theme Park, EduCity, Senai Hi-Tech Park and Malaysian Premium Outlet.

Iskandar, which was launched on Nov 4, 2006, was the first in a series of economic corridors in Malaysia.

Spanning over 2,217 sq km, Iskandar has five flagship development zones – JB City Centre, Nusajaya, Western Gate Development, Eastern Gate Development and Senai-Skudai.

Iskandar aims to become a strong and sustainable metropolis of international standing under its Comprehensive Development Plan (CDP), which runs through 2006 to 2025,

Other stakeholders in Iskandar include the Johor government, Iskandar Investment Bhd, UEM Land Holdings Bhd and Iskandar Waterfront Development Sdn Bhd.

The Khazanah Nasional Bhd-appointed Harun joined Irda last October and became the second CEO in February, taking over from Datuk Ikmal Hijaz who left after an equally short stint.

Incoming CEO Ismail Ibrahim, currently the director of the National Physical Planning Division, will take over from Harun next month. Ismail was involved in the formulation of Iskandar’s CDP.

Iskandar has to date attracted a total RM51bil in investments, with works on projects worth RM17bil, or 35%, already started, creating some 44,000 jobs.

“In fact, for this year, we have managed to attract RM9bil new investments exceeding the RM3bil target despite the current economic downturn,” Harun said.

He added that investments came from “all over the place” and not only the Middle East as many would associate Iskandar with, noting that Middle Eastern investors were mainly centred on Nusajaya’s Medini area, which is dedicated to lifestyle and leisure activities and high-end residential living.

For 2010, Iskandar stakeholders would be targeting investors from China and India as well as Singapore and Indonesia, according to Harun.

He said Iskandar, which is three times the size of Singapore, offered both greenfield and brownfield opportunities for investors and plenty of other choices in between, such as in areas like electronics, petrochemical, health and education.

Harun also noted that the Iskandar Malaysia Human Capital Development Blueprint had outlined 65 initiatives to produce a capable and competent workforce over the next 15 years.

“Human capital development is one of the key strategies for Iskandar’s success and also to attract the best talents from all over the world without sidelining Malaysians,” he said.

By The Star (by Zazali Musa)

Malton poised to clinch RM700m job

MALTON Bhd is set to clinch a RM700 million job to upgrade some parts of the Pusat Bandar Damansara commercial and office complex owned by Johor Corp (JCorp), the flagship investment arm of the Johor state government.

Sources told Business Times that under the deal, Malton would upgrade some parts of the 28-year-old complex or demolish some ageing structures for new development. It would then sell back the completed property at higher prices to make a profit.

JCorp, through 27.7 per cent-owned Damansara Realty Bhd, owns nine commercial blocks in Pusat Bandar Damansara, Kuala Lumpur.

JCorp chief executive officer Tan Sri Muhammad Ali Hashim and Malton deputy chairman Guido Paul Philip Joseph Ravelli did not respond to Business Times' e-mails or phone calls for comments.

"Malton will pay RM500 million in cash for the property, while the remaining RM200 million will be paid in kind, meaning that once the property is completed, some of it will be handed back to JCorp in the form of commercial or office space," said a source.

The project, which is expected to take five years to complete, will also require Malton to develop a fresh plot of land next to the complex belonging to JCorp.

The source said that JCorp, which owns various properties nationwide, is a land and property owner and property development is not its core business.

JCorp has diversified businesses, including healthcare, plantation and fast-food, through interests in companies such as KPJ Healthcare Bhd, Kulim (M) Bhd and QSR Brands Bhd.

Property developer Malton's experience ranges from building residential houses and condominiums to high-rise office buildings in the Klang Valley.

Pusat Bandar Damansara, or Damansara Town Centre, was built in 1981. It houses some ministries and government departments as well as private corporations.

By Business Times (by Zaidi Isham Ismail)

A game that teaches how a good city can be developed

In this age of high-tech computer games that require the latest soundcards and faster computers, it is refreshing to go back to games that force one to think rather than just pound away at the keyboard. And I am not talking about chess.

Building city planners should play SimCity to have a better grasp of the issues with regard to city planning.

It was in the midst of discussion about local governance issues, like how residents are battling one another over road closures, that SimCity came to my mind.

I believe that all city planners should play this game because it teaches us how a good city can be developed.

Most people who play this game normally take the easy way by just building and building. What happens at the end is that pollution, crime and a whole range of social issues arise to make you a highly unpopular mayor.

A thoughtful planner, on the other hand, knows how to balance development with the needs of the people. He builds parks, libraries and marinas in between the industrial and residential zones.

He is careful about building too many roads that lead to traffic congestion.

He modifies the tax structures for certain industries and comes up with ordinances that enhance the quality of life for the people.

If he is lucky, the people will throw him a “spontaneous parade” in his honour. I have been playing the game for weeks and despite doing what I believe is right, I have yet to get such a parade.

My son got his first parade recently and as I analysed his city, I realised that he was not simply giving “goodies” to the people but actually creating a right blend of development that ensured a thriving economy.

As he rightly pointed out to me: “What’s the point of having so many parks amidst low-density residential zones when the people have no means of earning a living?”

For sure, my city was aesthetically more pleasing than his, but the city council budget remained low and people were not flocking into my city.

Coming back to reality, since March 2008, there has been a change of government in some states that has also had an impact on the way local councils are run.

Many new councillors bring a refreshing perspective, but some of them are simply not keyed into the reality of managing the area under their jurisdiction.

Thus, an issue over whether an access road should remain open or otherwise has a more complicated scenario than one can imagine.

Pleasing one group of residents invariably means displeasing another group, and it does not help when both areas had voted for the same party the last time around.

The electoral boundaries no longer count because every sub-group can threaten to withdraw their vote if you don’t see things their way. And in urban constituencies, you can be assured that they know how to make their vote count.

All of them may be in one accord with the party on the bigger issues but when it comes to ground issues like traffic jams, billboards or landfills, you can be assured that they will think of their own interests first.

I would like to suggest that all the budding councillors play SimCity to have a better grasp of the issues with regard to city planning. There is no need to go on expensive overseas familiarisation tours. Who knows, you may even get a spontaneous parade in your honour.

>Deputy executive editor Soo Ewe Jin lives in a city that could take a few lessons from the SimCity councillors and residents associations.

By The Star (by Soo Ewe Jin)

Earning from rental

Effort, patience and research needed to achieve success

RENTING out real estate can be a lucrative source of income. Those who are already in the game know the rewards that it can reap. It offers stable returns compared with a lot of other forms of investments and is a great way to build wealth.

But just like any other investment, it requires a good deal of effort, patience and research to achieve success.

Location and money

These two factors are the essence of property investment. The investor needs to find properties in locations that are likely to generate great yields. To attract tenants, it is a good idea to own a place near a school or a college, with good access to public transportation.

Having money to spend is also very important. But what if you are a small-time investor and your financial resources are limited?

“There are many ways to find property. Look out for foreclosures or auctions. Get to know people on the inside who know about properties that are going under the hammer,” says Felix Wong, who has been a landlord for over 30 years.

“Keep an eye out for advertisements in the newspapers or speak to real estate agents who can let you know in advance about these sales.”

Alternatively, if one doesn’t have the money to buy property, one can always rent and subsequently sub-let at a profit. That was how Tan, now an accountant, financed his tuition fees when he was studying in college.

“I was renting a bungalow in Petaling Jaya and got a part-time job to pay the rent and tuition fees initially. I then sub-let the rooms in the house to other students. I was able to quit my part-time job and use the spare time to focus on my education,” he says.

It is important, though, to make sure that your tenancy agreement has no clause that forbids sub-letting.

If you are determined to own property, you should have a rough idea of how long you plan to hold on to it, says financial planner Alex Low.

“The longer you own the property, the more you’ll need to invest in maintenance, repairs and improvements. If you’re only planning to own the property for a short period, you should avoid making any major improvements unless you’re sure you can recoup the cost with a better re-sale price,” he adds.

You’ve invested in property. What now?

Once you have something to rent out, you need to let the world know you’re looking for tenants. But before you do so, there are a couple of things that needs sorting out first.

·Checking out the competition

“Check to see if there are other properties within the vicinity that are being rented out. Find out their rates and set your rates accordingly. If you charge too much, you’ll only chase tenants away,” says Timothy Arumugam, a Bangsar-based landlord.

“Of course, you still need to charge enough to pay for maintenance, insurance and utilities, and make a profit. Don’t forget that you may also need money for repairs and other emergencies.”

·Knowing your target market

Determine also the type of people you hope to attract. If you are targeting students, your rental rates would have to be more affordable than if you are hoping to have tenants who are, say, white-collar employees.

Property to let

Now it is time to tell everyone how attractive your rental offer is. If you have money to spare, the best way is to advertise in the newspapers. If you have a specific target group in mind, such as students or only women, you could try advertising in education or women’s magazines.

Alternatively, there are creative ways to advertise for free, says K. Marimuthu, a Klang-based landlord.

“You can always place ads on trees, street lights, walls, buildings or telephone booths. If you have permission, you can advertise in the colleges or universities,” he says.

Another idea is to to promote the property via a webpage or blog. “Don’t forget to put down your contact number or e-mail address, and if it’s an outdoor ad, the website or blog address, if there is one. It’s also helpful if you had pictures of your property on it. After all, a picture tells a thousand words,” adds Marimuthu.

Protecting your investment

Before letting a potential tenant into your home, it is best to run a background check. Doing a check on the person’s financial background helps if the tenant has a bad track record.

Marimuthu says it is also very important to lay down the “ground rules” before finalising the tenancy agreement. “Determine from the start what can and cannot be done. It’s your investment, so it’s your rules. It’s of course better if these rules could be laid down in black and white.”

He adds that it is also useful to set up an “emergency fund” for repairs to the property. “You never know. The toilet could get clogged or the water heater could go kaput. It’s your responsibility to make sure everything is in working order,” he points out.

“Just before the tenant rents the place, the landlord should take photos of the premises so that when the tenant leaves, any damage to the property can be assessed more clearly.”

By The Star (by Eugene Mahalingam)

Ireka, Aseana form partnership

PETALING JAYA: Ireka Corp Bhd is proposing to jointly develop with Aseana Properties Ltd (APL) a high-end residences tower at Jalan Kia Peng, Kuala Lumpur.

The project is expected to generate a gross development value of RM272mil and a gross profit margin of RM58mil.

Ireka told Bursa Malaysia its wholly-owned unit World Trade Frontier Bhd had signed an agreement to buy a piece of freehold land there, measuring 4,047 sq m, for RM87.12mil cash.

Ireka yesterday also entered into a memorandum of understanding with APL on the joint venture for the ownership and development of the property, with APL to have a 70% stake.

Upon receipt of all relevant regulatory approvals, the project is expected to start within 18 months from the completion of the proposed acquisition.

The development cost will be funded by internal funds, bank borrowings and proceeds from sales of residential units.

By The Star

Sunrise confident of brisk sales for 28 Mont' Kiara condo

Property developer Sunrise Bhd is hoping to repeat the success of its 10 Mont' Kiara luxury condominium project in Kuala Lumpur with another similar project within the vicinity.

The 10 Mont' Kiara, featuring a 42-storey tower with 320 units, was sold out within months of launch.

Sunrise assistant general manager of projects department, Raymond H.C. Cheah (picture), said 28 Mont' Kiara is a 41-storey condo building, comprising 460 units with built-ups from 3,000 sq ft to 4,000 sq ft. Total gross development value of the project is RM800 million and is targeted to be completed in three years.

Cheah said 100 units of the condo had been taken up since its soft launch last Saturday.

"We are confident about sales (for 28 Mont' Kiara) due to its location and features of the property," Cheah said after the media walkabout of 10 Mont' Kiara in Kuala Lumpur yesterday.
He said the price of 10 Mont' Kiara condo units has appreciated by almost 30 per cent since it was launched three years ago.

"The units were sold at about RM500 per sq ft then and now they are fetching RM700 per sq ft.

"This track record has made our previous customers come back to buy more Sunrise properties, especially since second time Sunrise property buyers will get a 2 per cent discount (off total purchase price)," said Cheah.

Sunrise has completed the 10 Mont Kiara project and is in the midst of handing over the units to their owners.

By Business Times (by Zurinna Raja Adam)

More Sunrise high-end condos

KUALA LUMPUR: Sunrise Bhd will continue building high-end condominiums that give higher returns to its buyers, says projects department assistant general manager Raymond H.C. Cheah.

“Our previous developments are proof that Sunrise properties have given back much higher returns to the buyers and investors,” he told reporters yesterday during a media visit to 10 Mont’ Kiara.

As an example, he cited the just-completed 10 Mont’ Kiara. “When the project was launched four years ago, the unit price was RM500 to RM550 per sq ft. Now, the price has gone up to about RM700 per sq ft,” he said.

Cheah added that that rental rate at 10 Mont’ Kiara was now about RM12,000 to RM15,000.

By The Star

What’s the buzz on home loan refinancing?

Why would anyone want to refinance his home loan? The base lending rate (BLR) has been reducing over the past 10 years. From about 8% in early 1999, it has come down to about 5.5% currently (for most of the banks, as Bank Negara allows banks to determine their own BLRs).

Therefore, if you took a home financing package some time ago, you are paying more interest as compared with a person taking the same loan today.

That is only half of the story. Loans taken in early 2004, for example, came with a BLR + 0.25% rate. More recently, the rates are BLR minus 1.8 to 2.4%. To show the variance in the interest payments, let’s use an example with the recent average rate of BLR minus 2%.

We compare a loan signed in 2004, with an outstanding balance of RM100,000, against a new loan of RM100,000, with the following scenarios:

·BLR in 2004 : 6.75% (Therefore loan interest is 6.75% + 0.25% = 7%)

·BLR in 2009: 5.55% (Therefore loan interest is 5.55% - 2.0% = 3.55%)

So the loan taken in 2004 would result in an annual interest cost of RM7,000 (RM100,000 X 7%), whereas interest on the taken during recent times cost would be RM3,550 (RM100,000 X 3.55%).

The difference is a whopping 49%, and the annual saving is RM3,450. For loans of RM300,000 and RM500,000, the amounts saved work out to RM10,350 and RM17,250 respectively.

Therefore, looking squarely at interest cost, there is tremendous savings to be achieved by refinancing your home loans today.

However, one must also be aware of the “lock-in” periods usually provided for in loan agreements, whereby banks specify minimum loan holding period (ranging from three to five years).

Therefore, an early settlement of the loan will result in a penalty payment, usually a percentage (ranging from 2% to 5%) of the loan amount.

Another element of refinancing is that the bank that provides the refinancing usually absorbs the transaction costs such as legal fees.

You can also turn to refinancing to lengthen or shorten your loan tenor, depending on your priorities. For example, you can increase your loan tenor so that your monthly loan repayment is lower. Others cut their repayment periods, therefore opting for higher instalments and less total interest cost.

Yet another reason for refinancing is to realise the cash value when the property that has appreciated significantly. Otherwise, the only way to benefit from the capital appreciation is by selling the property.

Refinancing makes it possible to realise up to 90% of the property’s current market value. Let’s assume a 100% home financing loan at RM100,000 as an example.

If the property has appreciated 20%, the value today would be RM120,000. As such, one can refinance at RM108,000 (90% of RM120,000).

If the RM100,000 loan was taken in 2004 on a tenor of about 15 years, the outstanding balance would be about RM77,000. The refinancing of RM108,000 will result in a cash-in value of RM31,000, which can be used to retire high-cost borrowings (such as credit card balances) or to invest for higher returns.

Here is the interesting part. For the higher new loan, the interest per annum works out to about RM3,800 (RM108,000 X 3.55% = RM3,834). This is still lower than the interest payable on the existing loan balance of RM77,000, which is about RM5,400 (RM77,000 X 7% = RM5,390).

With the refinancing, interest cost is slashed, instalment is lowered (assuming continued loan tenor with no increase), and you get RM31,000 cash in hand. Now, isn’t that just a clever idea!

A point to note is that while you qualified for the initial loan, refinancing is not an automatic option. The financial institutions will check your credit worthiness and will want supporting documents to show payment capabilities. Therefore do maintain a sound financial status. Never allow overdue payments to exceed two to three months and verify your credit status.

It pays for the borrower to walk up to his banker and request for a loan restructuring, especially when the loan is still within the lock-in period. Banks are known to be willing to listen and accede to restructuring requests, albeit resulting in a longer lock-in period.

This works out well as both parties’ interests are served. I propose this option first.

Financial institutions have been on the prowl for refinancing, with a foreign bank advertising with this tagline: “Refinance with us and earn a free flying lesson.”

Why not? Happy refinancing.

Raymond Roy Tiruchelvam is a former senior manager – economics and investment analysis at an oil and gas outfit.

By The Star (by Raymond Roy Tiruchelvam)

Ireka buys KL land, plans upmarket project

Builder Ireka Corp Bhd plans to build a block of high-end serviced residences worth RM272 million near the Kuala Lumpur Convention Centre in 2011.

This follows the signing of a sale and purchase agreement by its wholly-owned unit, World Trade Frontier Sdn Bhd, for 43,559 sq ft of prime land in Jalan Kia Peng, Kuala Lumpur, for RM87.12 million yesterday.

In a filing to Bursa Malaysia, Ireka said the project was expected to generate gross profit of RM58 million. It will have a net sellable area of 212,650 sq ft.

"The timing of this acquisition is opportune as we have begun to see confidence returning, albeit with a slower momentum, to the real estate sector," chairman Abdullah Yusof said in a separate statement yesterday.

Simultaneously, a non-binding memorandum of understanding was signed between Ireka and the London-listed Aseana Properties Ltd to co-develop the land on a 30:70 basis.

Abdullah said that having built its success in the upmarket Mont'Kiara area, Ireka believes that it fully understands the aspirations of today's discerning buyers.

"We believe that small- to medium-sized upmarket serviced residences will appeal to the growing cosmopolitan lifestyle of urban Malaysians and foreigners who desire to live in the heart of the city and near one of the most famous landmarks in the world, the Petronas Twin Towers."

The proposed project is expected to start within 18 months after the land acquisition is completed. Financing will come from internal funds, borrowings and proceeds from sales of residential units.

By Business Times (by Azlan Abu Bakar)

Building-for-land deal with a slightly different model

About three weeks ago, Naza TTDI Sdn Bhd surprised the market when it announced it was going to build a RM628mil expo centre for the Government in exchange for 65 acres of state land in Jalan Duta, Kuala Lumpur, in the vicinity of the Malaysia External Trade Development Corp (Matrade).

The total gross development value (GDV) of all the projects on that piece of land comes up to RM15bil. The announcement set tongues wagging among politicians, developers, analysts and property consultants. How did the Naza group land the deal? Did they get the 65 acres for a song? Shouldn’t there be an open tender for the project? Is the timing right, even amid the soft property market?

There are many questions and Naza TTDI group managing director SM Faliq SM Nasimuddin will attempt to answer them when he calls for a press conference, likely to be next week.

The Naza group is headed by Faliq and his brother, SM Nasarudin SM Nasimuddin. They have some very prominent projects, the KLCC Platinum Park being one of them.

They have other developments, residential and commercial, in Ampang, Shah Alam, Kajang and Taman Tun Dr Ismail. The group, however, is best known for its automotive business.

The Government has said that the Naza project is a public-private partnership (PPP). But what exactly constitutes a PPP?

A check on the Internet brings up this example – a PPP is a contract between a public sector authority and a private party where both parties enter into an agreement in which the private party provides public service and assumes substantial financial, technical and operational risks.

A PPP can be between the government and one or more private sector companies, which come together to form a consortium, according to Wikipedia. The consortium may have different functions, but they have one single objective.

In the case of the Naza project, that single objective should be to develop this 65 acres into the form, shape and function that will meet the criteria of the government, with the benefits to be accrued to the community at large.

A PPP takes into consideration the larger community and how a project can benefit them. It is not to the profit of a single entity or company.

Kumar Tharmalingam, chairman of Hall Chadwick Asia Sdn Bhd, says Naza’s building-for-land deal is a PPP, but with a slightly different model.

“The Government is not providing any financial undertaking other than that piece of land. All the expertise and financing is from the private sector,” he says.

“Instead, the Government acts as a facilitator or enabler by giving a list of approvals – from the master plan, to the building approvals to re-zoning.

“Naza will have to find people to develop and build the different components. They will have to sell the place, or find people to occupy all those projects around the convention centre. So in that context, all the Government does is give them planning approvals.”

As Matrade will get the expo centre, the Government will have to maintain it. Kumar says in some ways, the Government is turning away from the old style of doing things.

“It is not giving any guarantees,” he says. He cites the North-South Expressway concession, in which the Government had to provide a guarantee to Projek Lebuhraya Utara-Selatan (PLUS) on traffic volume in return for PLUS taking on the job.

“The Government does not need to guarantee that the buildings on that 65 acres will be filled, or how these buildings will come into existence. That is Naza’s responsibility. So in this sense, we are moving one big step forward,” says Kumar.

On the Government being handed a convention centre, Kumar says that should not be an issue as Matrade can give it to someone else to run and operate.

He does not share the view that such a development may be unnecessary. “There is something about convention centres. People will use it after it is built. The Kuala Lumpur Convention Centre is very popular because it is well located, managed and marketed,” he argues.

He says an important point that most observers have missed thus far is that the components that make up the master plan has to feed the expo centre. “All the components on that 65 acres have to complement the expo centre. So the onus is on Naza,” he adds.

A source, who declined to be named, says it will be a challenge for Naza to make a success of the huge project. “It will have to get the master plan right. If it pulls this one off, it will elevate the group to another level as a developer,” he says.

PPPs exist throughout the world in different forms. In some types of PPPs, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer. A mass transport system is one example. In this case, the user may be a taxpayer also.

In other types of PPPs, the capital investment is borne by the private sector on the strength of a contract with the government to provide agreed services, and the cost of providing the service is borne wholly or in part by the government.

The government contributes to the contract by transferring certain existing assets into the partnership. In this particular case, that government asset would be the 65 acres of state land located behind Matrade.

Because the RM628mil expo centre will be turned over to Matrade on completion, this effectively means Matrade will be going into a new business.

By The Star

Naza to hold PC soon over recent deal with Government

NAZA Group will call for a press conference soon to address the many questions that have arisen after the group recently signed a building-for-land deal with the Government.

Naza’s property arm, Naza TTDI Sdn Bhd, will receive 65 acres of prime land in the Jalan Duta area in Kuala Lumpur for building a RM628mil expo centre for Malaysia External Trade Development Corp (Matrade).

The centre and other projects planned on the land would have a combined estimated gross development value (GDV) of RM15bil over a 10-year period.

Observers have questioned whether Naza has landed a sweetheart deal and if the project will yield the best returns on a valuable government asset. Naza TTDI group managing director SM Faliq SM Nasimuddin is aware of the level of scepticism.

“There has been much talk about the deal since we announced it. We will be having a press conference, maybe early next week, hopefully, to talk about it. At this juncture, however, the master plan has not been approved,” he told StarBizWeek after a function on Thursday to mark the rebranding of the Naza Talyya hotel business.

He says phase one of the project comprises the expo centre, which will be on that 65 acres together with a hotel, a shopping mall and one office tower. This will be ready in four years.

He adds that the company is currently talking with investors in the hotel and retail sectors on their participation in the project.

“We would like their involvement and contribution. It is a big piece of land, and their experience and presence will help to ensure its success.”

On the possible strategy of carving out parcels of the project land to different parties, he says Naza “is looking to develop what we can, but will also enter into various joint ventures with foreign and local developers and contractors.”

An analyst, who declined to be named, says the deal lacks clarity. “On what basis was the land awarded to them? If private negotiations are the way to go, does this mean government land banks like the ones in Jalan Cochrane, Ampang and Sungai Buloh, will go the same way?” he asks.

“There are other government-linked companies that are in construction and property development. They could all be parties to a restricted tender if the Government does not want to have an open tender.

“This would at least give the whole deal a vague semblance of transparency, if not total transparency. Without calling for a tender, the Government may not be maximising returns on its assets.”

Another sticky point is the current soft climate. Property consultants have their reservations, given the scale of the development. It has everything – condominiums, hotel, expo centre and shopping malls.

“They have to get their master plan right. When MRCB (Malaysian Resources Corp Bhd) got the KL Sentral project, it did the right thing by anchoring the place as a transport hub and got two five-star hotels in to upgrade the image of Brickfields,” says the analyst.

The market value of the land is also a subject of debate. Says valuer Elvin Fernandez of Khong & Jaafar: “The straight analysis of this is that the price per square foot (per sq ft) is RM222. In order to equate the price to a current market value, one has to discount it at an acceptable rate of return.

“Based on a five-year period, we would arrive at a discounted per sq ft value of about RM150.”

Several land deals of between two and three acres were done in the Jalan Ipoh area at over RM600 psf this year. If the gross development value of all the projects totals RM15bil, that means it will be high-density development.

Another source values the land at between RM350 and RM500 per sq ft. In Malaysia, the land cost would make up between 10% to 20% of the total GDV of RM15bil. In Singapore, land cost could go up to 50% of GDV, while in Hong Kong, 65% of GDV.

A property consultant, who declined to be named, says Naza got a fair price for the land.

“They did not get it for a song. They are planning the convention centre for Matrade over a period of time. That means the land price is being paid for that period of time,” he says.

By The Star (by Thean Lee Cheng)

Dubai, or is it bye-bye?

The Gulf city state’s debt problems offer an important lesson – unpredictable, unsustainable and unclear policies are a no-no.

After two difficult years, most come away with the thought that financial markets the world over should have stabilised. Sure, the extraordinary steps taken to stop the panic resulted in flooding the global system with trillions of US dollar liquidity.

In all, governments have spent, lent or guaranteed close to US$12 trillion and central banks held interest rates to near zero to end the financial crisis. Even so, as to be expected, most of the previous excesses were never quite worked off.

They can’t just make all these excesses go away, no thanks to continuing flows of cheap money around the world. So, we should not be surprised to see over-leveraged Dubai stumble towards the end of November.

Inevitably, it had to cut its debt burden down to size. Around the world, financial markets quivered. Investors – mainly banks – found themselves in a flare-up they feared would happen, but had hoped would not.

Dubai’s caustic lesson

The problems of Dubai are already well known. It is a property play that turned into a bubble that burst. The boom was fuelled by easy credit and a poorly regulated market overrun by speculators, and it was cheered on by a go-go Dubai during the heyday of the pre-financial crisis. Since then, residential real estate prices have slumped by nearly 50%. Across the United Arab Emirates (UAE), it has been reported that some US$450bil of construction work had been scrapped.

It all culminated in the recent announcement by Dubai World, the UAE’s largest state-owned conglomerate, that it wanted to impose a six-month standstill on debt repayments.

Because Dubai is not rich in oil, it borrowed heavily to fund its grand ambitions. Nakheel, a government-sponsored developer, used part of these funds to develop the Palm Islands and other spectacular land reclamation projects.

On Monday (Dec 14), Nakheel is due to repay US$3.52bil to holders of its Islamic sukuk bonds. This is part of the US$26bil debt that its parent, Dubai World, is seeking to restructure.

In all, Dubai’s sovereign and its state-controlled companies’ debts could reach US$80bil, in excess of the size of its gross domestic product (GDP) (nobody knows for sure).

Viewed in perspective, Dubai makes up less than 0.1% of the global economy and the UAE, just 0.4% of outstanding global cross-border lending.

What caught investors “feeling wrong and wrong-footed” were reports that Dubai’s ruler had only weeks earlier assured investors that enough funds would be raised to meet “current and future obligations”, the emirate had only hours earlier raised US$5bil from two state-controlled banks in Abu Dhabi, having raised US$10bil from this neighbour in February, and banks in particular felt sure that the emirate would make good on publicly traded papers (particularly Nakheel’s sukuk) rather than lose face and damage the reputation of the Gulf as a business and financial hub.

So, investors can no longer take the “UAE umbrella” for granted. In the end, there are hints that it may still “pick and choose when and whom to assist.”

Over the past year, moral hazard appears to be firmly embedded throughout the global financial system. So for bankers, Dubai offers an expensive lesson. Most had expected the government to stand behind its “ward” (Dubai World).

In the wake of the Dubai debacle, it looks like Dubai is set to make investors share the pain, rather than foster moral hazard. Indeed, lenders are still reeling from the spectacular Saudi defaults not so very long ago.

Fair enough, Dubai World was technically not government-backed. But investors had perceived it to be so and acted accordingly. Dubai’s repudiation of such an implicit guarantee leaves a bitter taste in the mouth of most investors, something they are unlikely to forget anytime soon.

Tail risk resurfaces

Credit worries are back. Two years ago, few investors would worry about “fat-tail” risk. This refers to the occurrence of seemingly remote risky events, carrying with it blotted (hence, fat) devastation. The rest is history.

But the lesson is not easily unlearnt. Indeed, the mere sound of a crack can get everyone running for cover. Little wonder for the knee-jerk reactions to recent developments – from the sharp rise in risk premium for Greek bonds and Turkish as well as Hungarian credit default swaps (following their profound budget mess) to the Dubai debacle when investors fled from risks.

Wall Street tells us government debt is “risk-free.” Don’t you believe it. History is littered with sovereign defaults.

The charade continues. Early this week, reality came home to roost. Greece’s and Spain’s sovereign credit rating were downgraded. Even Britain and the US are not spared.

Moody’s rating for them were set apart from other top-rated sovereigns, calling them “resilient” and not “resistant” (a label kept for Germany, France and Canada).

In Dubai, lack of confidence continued to spread. Tuesday’s tumble in Dubai’s stocks wiped out its whole year’s gain; Moody’s downgraded six Dubai government-controlled companies, citing lack of government support. The carnage goes on.

The moral of the Dubai saga is clear: nasty fiscal shocks are not confined to just emerging nations. Markets soon realised that debt fundamentals in Dubai are no different from those in developed nations, even Britain and the US. Indeed, the line between emerging and developed gets more blurred; the rush to judgement that stability has returned is premature; fundamental imbalances created during the crises (for example, excess leverage) have yet to disappear. Beneath it all, huge vulnerabilities remain. The Dubai saga is a welcome wake-up call.

Sukuk’s dilemma

No doubt, the problems of Dubai will have a chilling impact on the market for sukuk bonds.

These are a class of financial instruments that complies with Islamic investment principles, which prohibit the payment of interest (ironically, bonds theoretically are associated with interest payments).

In the past decade, the market for such US dollar denominated debt-like instruments has gained popularity. This year, US$19bil was raised in the international sukuk market; it peaked in 2007 with US$25bil.

The range of issuers, investors and instruments has since widened and deepened. About a month ago, General Electric’s financing arm became the first western industrial company to issue a sukuk bond for US$500mil. It attracted a new source of investors.

The debt standstill sought by Nakheel has thrown a spanner in the works and so close to the repayment date of Dec 14. In the past week, activity in sukuk bonds came to a virtual standstill in the face of its potentially biggest default.

By any standard, sukuks are small potatoes in the bond world. Less than US$1 trillion of such debt is outstanding – smaller than the amount of new bonds sold by non-financial institutions this year alone.

Nevertheless, it’s a big deal since it is now unclear how sukuks can be restructured. It will be a test case for how well investors are protected because these are viewed as quasi-sovereign credit, i.e. akin to government debt.

There have been at least two defaults so far – one in Kuwait and the other in the US by a small oil and gas company. At issue is whether investors can take possession of the underlying assets or are simply entitled to the assets’ cash flow.

There are no precedents in the Dubai courts. Further, sukuks are structured to comply with Islamic law but are created under English law. Further complications can arise since Nakheel’s assets are situated in the UAE. Moreover, investors have the benefit of Dubai World’s guarantee whose enforcement is subject to some local law issues.

Be that as it may, the episode looks likely to be long drawn out. Bankruptcy in UAE do allow for a protective monitorium, which can be a double-edged sword. Whatever the outcome, Dubai’s action has done the sukuk market a great disservice.

While Islamic finance wasn’t at the root of Dubai World’s problems, investor reaction so far in the face of delicate markets and an uncertain global recovery make people nervous about the future.

At the very least, short-term activity in sukuk will remain stalled. Credibility in the manner restructuring is being handled will determine the future. Indeed, investors are fast learning that no matter how buoyant potentials look, resources are not limitless.

Looking past the sandstorm

As it now stands, the Gulf markets are soft and under continuing pressure. To be fair, the structural underpinnings of these markets need to be viewed in perspective over the longer term.

Lest it’s forgotten, Dubai’s hydrocarbon-rich neighbours – Saudi Arabia, Kuwait, Qatar and Abu Dhabi – command two thirds of the world’s oil and 45% of gas reserves.

Debt levels are very low and high oil prices have enabled them to accumulate more than US$1 trillion in reserves. A few key elements set the stage.

These Gulf nations need some US$2 trillion in infrastructure spending to diversify from oil. This fiscal spending can be financed out of current reserves (viable even at US$40 oil price); offer strong benefits viz no taxation, cheap feedstock, and virtually free land; give rates of return on equity hovering historically around 25%, as against 10%-15% in other emerging markets; and provide access to low-cost funds made possible by accommodative monetary policy, with Gulf currencies pegged to the US dollar.

As with any market, risks loom large. It is always possible for oil prices to fall below US$40 per barrel; geopolitical risks don’t lend readily to being well managed; and opaque family groups dominate markets that are not really transparent.

But these oil-rich nations are known to be basically conservative. No doubt the Dubai excesses present lessons to be learnt. Throughout history, nations have defaulted and live to fight again, and succeed, even prosper.

To regain confidence, a number of things need fixing: call for fiscal transparency, opaque family business groups need to heed the lessons of Korean chaebols, and clarity on the road-map to government prudence over the longer term. This includes a credible plan on debt management once global recovery becomes sustainable.

Dubai teaches an important lesson. Unpredictable, unsustainable, unclear and uncertain policies are a no-no.

Former banker, Dr Lin is a Harvard-educated economist and a British chartered scientist who now spends time promoting the public interest. Feedback is most welcome at starbizweek@thestar.com.my.

By The Star (by TAN SRI LIN SEE -YAN)

SP Setia aims to launch RM6b Eco City by July

Kuala Lumpur City Hall will be SP Setia's partner on a profit-sharing basis, taking 20 per cent of the project's net profits

Developer SP Setia Bhd plans to launch its RM6 billion "green" mixed development opposite Mid Valley Megamall in Kuala Lumpur by July next year, its chief said.

The project, to be known as KL Eco City, will be developed in three phases over at least 10 years.

It will be a joint venture with Kuala Lumpur City Hall (DBKL), which owns the 9.7ha leasehold land in the Kampung Haji Abdullah Hukum area.

SP Setia first announced its intention to develop the land almost a decade ago, but had faced problems with squatters in the area, among other things.
"That project has been approved. We hope to launch it by the third quarter of our 2010 financial year ... and start work on it even earlier if we can," president and chief executive officer Tan Sri Liew Kee Sin told reporters at the company's results briefing in Shah Alam, Selangor, yesterday.

DBKL will be its partner on a profit-sharing basis, taking 20 per cent of the project's net profits, he said.

SP Setia will develop office, commercial and retail space in the first phase; condominiums in the second; and signature offices in the third.

Liew ruled out building another mall.

"We'd like (our development) to complement Mid Valley. We think there's a market for niche shops," he said.

KL Eco City is expected to start contributing to the developer's bottom line in its financial year ending October 30 2011.

Liew acknowledged that there would first have to be a lot of work done to ease traffic congestion in that area.

SP Setia will spend RM250 million of its own funds over this financial year and the next to improve the infrastructure there. The KTM Komuter station in that area will have to be relocated, he said.

Liew also said that KL Eco City would be the first total integrated development to apply for the Green Building Index "gold standard".

Property analyst Ong Chee Ting of Maybank Investment Bank said the project would be feasible if well planned.

"It's a prime area and the developer has a strong brand name. So I don't see why it should fail," he told Business Times.

By Business Times (by Adeline Paul Raj)

SP Setia net profit down 25% in Q4 on slower sales

PETALING JAYA: SP Setia Bhd’s net profit fell 25% to RM56.9mil in the final quarter ended Oct 31 without the one-time gain that boosted its income in the previous corresponding period.

The group’s latest quarterly performance was also affected by slower sales.

The drop in profit dragged down the group’s full-year (FY09) earnings to RM171mil, or 16.8 sen per share, compared with RM213mil, or 21 sen per share, in the previous year.

Revenue slipped 4.8% to RM1.4bil from RM1.47bil in FY08.

SP Setia will pay a final dividend of 9 sen per share, bringing the total payout for FY09 to 14 sen compared with 17 sen in FY08.

SP Setia, the most valuable property stock on Bursa Malaysia, said its earnings would be back on the growth track in FY10.

In notes accompanying the group’s latest set of results, SP Setia said market forecast of 10% to 15% growth in earnings for FY10 was “in line with internal management targets”.

Affin Research analyst Loong Kok Wen, who attended a briefing by SP Setia yesterday, said the group’s full-year performance was well within market expectation.

“The management also indicated that its focus next year will be on margins,’’ she said.

To do this, SP Setia intends to improve overall yields by targeting to grow its gross development value and create higher values at all its projects.

This includes launching the RM6bil Kuala Lumpur Eco City by October next year.

Other plans include the disposal of “certain non-core” assets and deployment of the group’s strong balance sheet to acquire new landbank.

SP Setia said it achieved “a new benchmark” in terms of total group property sales that reached RM1.65bil in FY09.

This was 18% higher than the previous high achieved in FY08 and 50% better than its own target set for the year.

By The Star (by IZWAN IDRIS)

SP Setia full-year net profit drops to RM171m

Malaysia's biggest property developer SP Setia Bhd said net profit for the full year to October 31 2009 fell by a fifth to RM171.2 million, despite hitting record sales.

The company is however confident of returning to net profit growth this fiscal year, helped by new launches and its new "Best of the Best" campaign to boost home sales.

President and chief executive officer Tan Sri Liew Kee Sin expects sales this year to be better than the record RM1.65 billion it achieved in the year just ended.

The new campaign, launched in October, is proving to be popular and has already helped it pull in RM300 million in November, its best monthly sales ever, he said.

Net profit had dropped in the last fiscal year due to the company having to bear costs from its previous 5/95 home loan campaign, as well as higher constructions costs.
The company is actively looking to buy more landbank in the Klang Valley, Penang and Johor, Liew said.

"I think the Malaysian market is very strong, so we'll focus strongly on Malaysia," he said, adding that it would expand in a bigger way in China and Vietnam in five years' time.

It may sell its two Tesco hypermarkets in Setia Alam (Shah Alam) and Johor this fiscal year to obtain funds for land purchases, he said.

Analyst Ong Chee Ting of Maybank Investment Bank raised SP Setia's stock to "buy" from "sell" yesterday on the back of its improving prospects and inexpensive valuation. The company still has unbilled sales of RM1.5 billion, he noted.

SP Setia's revenue for the year just ended fell by 4.3 per cent to RM1.41 billion. Net profit for the fourth quarter fell by 25 per cent to RM56.8 million, while revenue slid 36 per cent to RM293.4 million.

By Business Times (by Adeline Paul Raj)

Naza TTDI to build iconic tower

The iconic tower on a 25ha site near the proposed Matrade Centre could even be higher than 100 storeys

Naza TTDI Sdn Bhd, property arm of the Naza group, will build an iconic tower on a 25ha site near the proposed Matrade Centre in Kuala Lumpur, but is yet to finalise the height.

Group managing director SM Faliq SM Nasimuddin suggested that the building could even be higher than 100 storeys.

However, much will depend on the amount of investments it can secure.

Buildings of such height could cost up to 50 per cent more than an average high-rise.
SM Faliq was confirming a recent New Straits Times report that it was one of three developments expected to house iconic structures in Kuala Lumpur.

The other developments slotted for the iconic structures are believed to be Permodalan Nasional Bhd's (PNB) 7.2ha project surrounding Stadium Merdeka and Pelaburan Hartanah Bumiputera Bhd's (PHBB) site at Dataran Perdana.

Currently, the country's highest building is the 88-storey Petronas Twin Towers.

"The master plan (for the 25ha area) is yet to be finalised. It should be completed by early next year," SM Faliq said after the launch of Naza Talyya's newly refurbished hotels in Kuala Lumpur yesterday.

"No matter what the height, the structure will be a green building," he added.

The company is expected to hold a press conference on its developments sometime next week.

Four international firms are working on the master plan for the 25ha development near Jalan Kuching, which includes the RM628 million Matrade Centre, deemed to be the largest exhibition and convention centre in in the country.

PNB did not respond to queries sent to its communications team.

However, a source said PNB had managed to secure the approval of Prime Minister Datuk Seri Najib Razak for its proposed iconic development.

Sources said the third site, to be developed by PHBB, was expected to house a 50-storey building although a much taller one had been planned initially.

Meanwhile, news of the proposed iconic structures have triggered a backlash from some property players in the country.

Property tycoon Datuk Tan Chin Nam said building 100-storey office structures could cause a glut in office space and leaving the buildings empty subsequently would mean non-income producing space.

"Why do we need to go for high-rise when we have land? The money could be put to better use," said Tan, patriarch of the Tan family which controls IGB Corp Bhd.

He suggested that a forum or discussion be held before the developers went ahead with such large-scale projects.

By Business Times (by Vasantha Ganesan and Presenna Nambiar)

Naza plans 5 new hotels in KL

The Naza group plans to invest some RM780 million to open five new hotels in Kuala Lumpur over the next two to six years.

It is looking at opening three three-star category hotels under the Naza Talyya name in Kuala Lumpur's Golden Triangle.

The remaining two will be five-star properties; one scheduled for opening at its Platinum Park development next to the Petronas Twin Towers and another near the proposed Matrade Centre on Jalan Kuching.

Naza Hotel Management Sdn Bhd director Nur Nadia SM Nasimuddin said that investment in each of the three-star properties could be between RM50 million and RM60 million.

She was speaking to reporters after the launch of Naza Talyya's newly-refurbished hotels in Kuala Lumpur yesterday.
Naza TTDI Sdn Bhd group managing director SM Faliq SM Nasimuddin said the hotel to support the proposed exhibition centre could cost some RM300million.

"It will be ready at the same time as the Matrade Centre in 2014," he told Business Times.

As for the hotel building at Platinum Park, he estimates that it too could cost RM300 million for a 350-room hotel.

It is looking for a foreign operator to manage this hotel, which is slated for completion in 2014/2015.

It is open to foreign investors pumping money into the project.

The Naza group now operates three hotels in Penang, Johor and Malacca under its Naza Talyya brand name.

The name "Talyya" means bloom or blooming in Arabic.

By Business Times (by Vasantha Ganesan and Presenna Nambiar)

Ireka to buy KL land for RM87.12m

IREKA Corporation Bhd has proposed to acquire a piece of freehold land measuring 43,559 square feet located in Jalan Kia Peng, Kuala Lumpur, for RM87.12 million.

Subject to planning and development approvals, the site will consist of single-towered high-end serviced residences with an estimated gross development value of RM272 million.

"We are pleased to acquire this prime site for development, located in the heart of Kuala Lumpur City Centre (KLCC). The KLCC area will always be the country's most exclusive address and an international real estate investment destination," Ireka chairman Abdullah Yusof said in a statement today.

Ireka has also entered into a memorandum of understanding with Aseana Properties Limited to co-develop the land on a 30:70 basis.

By Bernama

China property prices surge

HONG KONG: China’s property prices climbed last month at the fastest pace since July 2008, adding to concern that record lending may create asset bubbles in the world’s fastest growing major economy.

Residential and commercial real-estate prices in 70 major cities rose 5.7% from a year earlier, compared with a 3.9% increase in October, the National Bureau of Statistics said on its website yesterday. Prices of newly built homes rose 6.2% in November, accelerating from 4% the previous month, and second-hand housing prices rose 5.5%.

China yesterday issued policies to curb surging property sales amid record prices and after a pledge by Premier Wen Jiabao to support affordable housing. The government would curb “speculative” purchases to cool the residential housing market, the official Xinhua News Agency reported yesterday, citing National Development and Reform Commission chairman Zhang Ping.

“The November number shows that in some cities prices are growing very fast,” Alva To, Hong Kong-based head of consulting at North Asia at DTZ Holdings Plc, said in an interview yesterday. “For the whole country prices are still not overheating and that’s why government measures were specifically aimed at speculators.”

The country’s banking regulator planned to slow new lending to between seven trillion (US$1 trillion) and eight trillion yuan next year, versus 8.9 trillion yuan in the first 10 months of 2009, a person familiar with the matter said yesterday.

The measures may not be enough to curb further price gains next year, as supply growth was not keeping up with demand, analyst Wang Ren said.

“Inflationary concerns and ample liquidity will keep boosting home prices, especially when supply isn’t enough. Prices are likely to continue rising in the first half of next year,” a Hong Kong-based analyst at CCB International Co said before the data were announced.

A drop in new lending next year may not cut liquidity significantly given the record loans made in 2009, he added.

Shanghai’s index of property stocks was 0.5% lower at the midday break, after more than doubling this year, making the industry the second-best performer. The Shanghai Composite Index was little changed at the break.

In the latest Chinese data, price increases were led by the eastern cities of Hangzhou, Nanjing and Wenzhou, the statistics bureau said. — Bloomberg

Property sales by value jumped 86.8% to 3.6 trillion yuan in the first 11 months of the year. By floor area, sales rose 53% to 752 million sq m.

Investment in property development rose 17.8% in the first 11 months of 2009 from a year earlier to 3.13 trillion yuan, the statistics bureau said. That was an acceleration from the revised 16.6% for the 10 months through October and 9.9% in the six months to June.

By Bloomberg

Magna Prima unit to buy land in KL

MAGNA Prima Bhd's wholly-owned unit Twinicon (M) Sdn Bhd has signed a deal with Santari Sdn Bhd to buy a 5.506-acre freehold land in Bandar Bukit Jalil, Kuala Lumpur for RM10.7 milllion.

The property will be used for the relocation of Lai Meng Primary School and Lai Meng Kindergarten currently located along Jalan Ampang, Kuala Lumpur.

The proposed acquisition is expected to be completed in the first quarter of 2010.

This purchase is part of Twinicon's plan to buy Lai Meng Girls' School Association's land along Jalan Ampang for RM148.2 million.

By Business Times

SP Setia eyeing more land in JB

JOHOR BARU: SP Setia Bhd is eyeing more land in the Johor Baru district for future development projects in view of the good long-term business prospect, said president and chief executive officer Tan Sri Liew Kee Sin.

To date, the company has 607ha left for development from four projects in Johor Baru, namely Bukit Indah and Setia Eco Gardens in the Nusajaya Corridor, Setia Indah in the Tebrau Growth Corridor and Setia Tropika in Kempas, according to Liew.

A Starbucks employee (left) showing Tan Sri Liew Kee Sin (right), Mohd Jaafar Awang (second from left) and Berjaya Starbucks Coffee Co Sdn Bhd executive director Datuk Francis Lee how he makes coffee at the opening of the drive-thru outlet at Setia Tropika.

“The remaining land here will keep us busy for the next three to five years and we are looking to add 607ha for future projects,’’ he said yesterday.

Liew said Johor’s contribution to SP Setia’s earnings was significant and for the financial year ended Oct 31, RM500mil of its RM1.6bil turnover came from Johor.

He was speaking at the official opening of the drive-thru Maybank and Starbucks Coffee outlet as well as the KFC and Pizza Hut outlets at Setia Tropika’s central business district (CBD) by Johor Baru Datuk Bandar Mohd Jaafar Awang.

Maybank offers the first-drive thru banking services in Johor and the second private banking here after its outfit at the Johor Baru City Square Office Tower and is connected to Malaysia’s first Starbucks drive-thru.

Liew said a three-star hotel by a local operator and serviced apartment blocks would be coming up in Setia Tropika’s CBD next year, occupying 0.40ha and 1.21ha respectively.

“We are going to sign the agreements with the respective parties in the first quarter of 2010 but at this point, I cannot give more details on the two projects,’’ he said.

Liew said the company did not plan to build a stand-alone shopping centre in any of its ongoing projects in Johor Baru as there were already too many shopping centres here.

He said it would instead focus on the niche markets such as drive-thru outlets, hotels and serviced apartments as demand for such products and services in Johor Baru was not fully tapped.

Liew said that for instance, Johor Baru could offer good hotel accommodation alternative for those attending seminars, conferences or business meetings in Singapore as the rates here were much lower.

He said the company would also be looking at Sabah and Sarawak and the contract to build a state-of-the-art transportation hub Aeropod @ Tanjung Aru in Kota Kinabalu would be a starting point.

By The Star (by Zazali Musa)

SP Setia 4Q09 net profit down 25% to RM56.86m

KUALA LUMPUR: SP SETIA BHD net profit for the fourth quarter ended Oct 31, 2009 fell 25% to RM56.86 million from RM76.08 million a year ago, mainly due to the inclusion of profit recognised on the disposal of its 25.07% interest held in Loh & Loh Corporation Bhd amounting to RM26.9 million a year ago.

However, the effect was partially mitigated by the recognition of profits on the disposal of land to Greenhill Resources Sdn Bhd in the current quarter of this financial year, the company said on Thursday, Dec 10. It proposed dividend of nine sen per share.

For the full-year, net profit was RM171.23 million compared to RM213.46 million, while revenue declined to RM1.41 billion from RM1.47 billion.

S P Setia’s profit and revenue were mainly derived from its property development activities carried out in the Klang Valley, Johor Bahru and Penang.

Ongoing projects that contributed to the group’s profit and revenue include Setia Alam and Setia Eco-Park at Shah Alam, SetiaHills at Bukit Indah Ampang, Setia Walk at Pusat Bandar Puchong, Bukit Indah, Setia Indah, Setia Tropika and Setia Eco Gardens in Johor Bahru and Setia Pearl Island in Penang, it said.

Apart from property development, the group’s construction and wood-based manufacturing activities also contributed to the earnings achieved, it said.

Reviewing its performance, SP Setia said that in FY2009 it set a new benchmark in terms of total sales of RM1.65 billion, or an 18% improvement from its previous record-high achieved in FY2008 and 50% higher than its FY2009 sales target of RM1.1 billion.

Of the total, Malaysian projects accounted for RM1.58 billion whilst EcoLakes, the group’s maiden project in Vietnam, achieved a commendable US$21 million or RM71 million from the launch of its first two phases, it said.

SP Setia said the strength of its sales was a strong testament not only of the resilience of the regional property market particularly that of Malaysia but also of the inherent attractiveness and desirability of its products – twin conditions necessary to excel in challenging times.

Macroeconomic conditions in the region are expected to further improve in FY2010, which will enable the group to reap the benefits of the long-term seeds of growth planted in FY2009, it said.

“These include the strategic decision made to proceed with the launch of Setia Sky Residences, Setia Walk and EcoLakes, projects that represent the group’s maiden expansion into the luxury high-rise, integrated commercial and international spheres respectively.

“The strong take up rates of 80% top 90% achieved by all three projects in these new markets are early firstfruits of the group’s bold implementation of its growth plans amid the turbulence of FY2009,” it said.

The company said that for FY2010, its management intends to focus on improving overall yields by targeting to grow either the gross development value and/or margins on PROPERTIES [] sold through continued value creation on all its development projects.

Other plans include the proposed disposal of certain non-core assets and deployment of its strong balance sheet to acquire new landbank to secure long-term growth prospects.

“While near-term profit margins will continue to remain range-bound next year due to the flow-through effect of the 5/95 financial incentives given and the attractive introductory prices in 2009 for new project launches, the group is still expected to see a return to earnings growth in 2010.

“As such, based on the strong sales achieved in FY2009, management’s plans for FY2010 and on the assumption that macroeconomic factors remain conducive, the consensus earnings growth of between 10% and 15% estimated by investment analysts is in-line with internal management targets,” it said.

By The EDGE Malaysia (by Surin Murugiah)

MK Land charts roadmap to profits

Property developer MK Land Holdings Bhd projects profits to grow in double digits for the next five years as it launches more projects.

The company fell into the red in fiscal year 2008, recording a net loss of RM60.8 million. However, it returned to profitability in the financial year ended June 30 2009, posting a net profit of RM18.3 million.

MK Land's redesignated executive chairman, Tan Sri Mustapha Kamal Abu Bakar, said the growth projection was based on its renewed business strategy of focusing on saleable products such as affordable homes with high profit margins.

"The group now has a roadmap whereby all MK Land 'citizens' will concentrate on selling a basket of products, which include residential, commercial and office buildings.

"For example, we plan to launch 40,000 low-cost houses which can bring us high profit margins. We have the same people, landbank and products to achieve the growth," he told reporters after the group's annual general meeting in Petaling Jaya yesterday.
Mustapha Kamal, through the privately-held Emkay group of companies, owns 47 per cent of MK Land.

About one and a half years ago, Mustapha Kamal relinquished his executive position in MK Land to focus on the Emkay group. However, he assumed the chief executive post in June this year to help MK Land regain its footing.

"We have managed to register average monthly sales of RM11.3 million for the past one year, compared with RM7.6 million in 2008 which had contributed to the loss.

"Hopefully, the average monthly sales can climb to RM51.3 million in the coming months," he said.

MK Land's five-year sales drive will cover 30 per cent of its landbank of 3,239ha nationwide.

Mustapha Kamal said that global recession notwithstanding, the company expects the domestic property market to recover.

MK Land is confident of riding out the slowdown through strategies like targeting landed property products at niche markets, he added.

By Business Times (by Zaidi Isham Ismail)

MK Land launched RM3b Bangalore project in India

Property developer MK Land Holdings Bhd will launch the first phase of its RM3 billion affordable housing project in northern Bangalore, India, by June next year, three months later than initially planned.

Its redesignated executive chairman, Tan Sri Mustapha Kamal Abu Bakar, said that building plans were awaiting the approval of authorities in the state of Karnataka.

"Under Phase 1, we will build 4,500 affordable homes which are a replica of MK Land's house design in Malaysia," Mustapha Kamal told reporters after the group's annual general meeting in Petaling Jaya yesterday.

MK Land is partnering two other companies in the project: Embassy Group of India and MKN Embassy Development Sdn Bhd.

MKN is a joint-venture company set up by MK Land and Embassy Group to develop information technology parks, particularly in Cyberjaya, Selangor.

It will be the group's first project in India and second overseas, after Namibia. The development will encompass 120ha near the new Bangalore International Airport.

The project will be undertaken in four phases and developed within five years. It will potentially deliver 16,000 affordable houses, ranging from 650 sq ft to 1,200 sq ft, and about 560 retail outlets.

The houses, priced from RM100,000 to RM130,000 each, are targeted at the low-middle-income group.

Bangalore, India's Silicon City and Karnataka's capital, is home to well-known information and communications technology companies, related colleges and research institutions.

Mustapha Kamal said the group had received more than 600,000 applications to buy the Bangalore houses. The city has a pent-up demand for more than six million houses.

By Business Times

Property overhang raises concerns over viability of new mega projects

PETALING JAYA: Some analysts and property consultants say the development of mega property projects in the nation’s capital, worth billions of ringgit, may provide abundant jobs for players in the construction industry, but note that these projects could be detrimental to the property market in the long term if not implemented properly, and especially if the take-up rates are slow.

It is reported that mega development projects would take place at Dataran Perdana in Jalan Davis, the area surrounding Merdeka Stadium and the vicinity of the Matrade Centre in Jalan Duta.

A property analyst with OSK Research said the mega projects, including the proposed 100-storey skyscraper near the Matrade Centre bordering Jalan Kuching and Jalan Duta, would negatively impact the property market.

“The property market is still in an oversupply position, especially in the high-end sector in the Kuala Lumpur city centre,” he told StarBiz.

The analyst said mega property projects like the proposed 100-storey skyscraper near Matrade should have due considerations to ensure satisfactory occupancy and take-up rate, and that they are built within the set timeframe to ensure return-on-investment targets are met.

“The approved mega projects and proposed high-end mega projects are in decentralised locations that may not have the population and infrastructure to support the huge development,” the OSK analyst said.

Although the area near Matrade has a certain level of affluence, as it is located close to Bukit Kiara and Sri Hartamas, it remains questionable whether the population, road access and infrastructure are sufficient to support the mega development.

“For the 100-storey skyscraper to be feasible, it would require significant Government commitment and support, possibly even funding to develop the required infrastructure such as roads, tunnels, bridges and highways to ensure the project is a success,” the analyst said, noting that “so far we have not heard of any major Government commitment for these projects.”

Another local property analyst said with the current property overhang, perhaps the priority should be to address the situation, especially unsold properties in the high-end sector.

“We are not saying that mega projects should not go ahead in this current environment (property overhang), but they should be carefully selected and implemented to ensure these projects do not adversely impact the property market, particularly when the market is still recovering,” he said.

Amy Chung notes that current demand for prime properties in the city is in the ‘affordable’ segment.

Amy Chung, a real estate property agent who specialises in selling and renting prime properties in the Golden Triangle area in Kuala Lumpur, noted that the current demand for prime properties in the city was in the “affordable” segment, and the recent Dubai debt crisis had exacerbated the demand for high-end properties.

“Even foreign investors from the Middle East are now opting to buy more affordable and smaller properties here,” she said, adding that some developers were now risk averse, choosing to build fewer high-end units and only in strategic locations where they were confident of sales.

Chung said the property sector was market driven and developers and government planners of high-end mega property projects should take note of this fact.

A local property consultant concurred with Chung, saying that any mega property project worth billions of ringgit must be well planned and carefully thought through.

“Many of the prime properties in the city are bought for investment by individuals and institutions expecting attractive yields and favourable capital gains over time.

“Currently, we still have an oversupply of prime properties, especially in the high-end segment, that do not give the expected yields. As such demand for such properties is low,” he said.

And with more high-end mega property projects expected to come onstream, the current oversupply position would get worse and likely depress the prices of properties that are currently unsold and even affect rental prices, according to the local property consultant.

“We believe there is a need to perform a comprehensive impact assessment on the Malaysian property market before any funds are used to finance mega high-end property projects worth billions, which may very well end-up as white elephants,” he said.

He added that the fall in property prices in Dubai was a lesson for everyone, including Malaysia, noting that the prices of prime properties in Dubai had fallen 50% or more since the debt crisis.

The property consultant also criticised the banks that had funded the Dubai projects, questioning whether they had performed sufficient due diligence on the commercial viability of the projects.

By The Star (by Danny Yap)

Secondary property market to remain soft

PETALING JAYA: The secondary property market in the Klang Valley is expected to remain soft in the next three to six months due to an abundance of supply, according to property consultants and experts.

PPC International Sdn Bhd executive director Thiruselvam Arumugam in an e-mail response to StarBiz, said: “The secondary property market in Mont’ Kiara will remain soft in 2010 as incoming supply and new launches will bring competition.”

“But (demand for) the better managed condominiums will remain unchanged as there will still be a market for this type of property,” he added.

However, Thiruselvam said all the properties (in the Mont’ Kiara area) had seen a decrease in both rental and capital value this year.

A real estate agent concurred that there was an over-supply of property, especially in the Mon’t Kiara area.

However, she said rental rates for some locations in the Klang Valley were “more challenging” than others.

“Selling prices in places like SS2 have been better compared with rentals. In the past five years, the rental rates did not grow as much as selling prices,” she said.

She also said rental rates in selected areas in Mont’ Kiara and Kuala Lumpur city centre were better than others.

“Sometimes it also comes down to word of mouth. Exiting tenants will give good recommendations on locations they think are better than others and this will be the areas that will attract more people.”

She, however said there were some established areas, like Damansara Heights, where regardless of a downturn, selling prices still remained stable.

“Demand there has been good.”

According to Zerin Properties chief executive officer Previndran Singhe, rental rates for Grade “A” office space within the Golden Triangle area has been stable and is expected to improve towards year-end.

“Even in areas such as Damansara Heights and Bangsar, rental rates are expected to increase because there just aren’t enough Grade A office buildings,” he said, adding that the end of the day, it all came down to “location.”

“Let’s just say that if you put up a Grade A office in Balakong, you’re going to have a tough time filling it up.”

Previn also said rental rates for commercial property would remain good in Cyberjaya.

“There is a good demand for BPO (business process outsourcing) offices there.”

He also said the expatriate residential market was expected to remain soft until the first quarter of 2010.

“We expect things to improve in the second quarter. As the effects of the liberalisation measures announced earlier kick in, there should be more demand for residential property from expats.”

By The Star

TAE Q3 net profit falls to RM17.6m

Financial services and property development group TA Enterprise Bhd's (TAE) third-quarter net profit fell more than half to RM17.58 million, due to lower contribution from its property business.

Net profit for the quarter ended October 31 2009 dropped 54 per cent from RM38.2 million in the same period a year ago.

Revenue was 16.6 per cent lower at RM118.2 million from RM141.7 million a year ago.

TAE attributed the decrease in the group's net profit to the lower revenue from stockbroking and property divisions and lower gain on disposals of investments.

The reduction in profit was, however, cushioned by the lower net provision for doubtful debts and impairment losses on investments.
In its filing to Bursa Malaysia yesterday, TAE said it expects to perform satisfactorily for the financial year ending January 31 2010.

The company said the current economic statistics show that the economy seems to be in the path of recovery.

The relatively low interest rate prevailing in the market should support the economic growth and boost the activities of the financial market.

However, the newly imposed Real Property Gain Tax of 5 per cent on gain on disposal of properties may impede the growth of the property sector, it added.

By Business Times

Property arm lifts TA Global net profit

PETALING JAYA: Newly listed TA Global Bhd has posted RM13.39mil net profit for its second quarter ended Oct 31.

It recorded pre-tax profit of RM17.64mil, of which about 65% came from its property development arm, followed by property investment and hotel operations, it said in a filing with Bursa Malaysia yesterday.

TA Global said there were no comparative figures in the previous corresponding period as this was the group’s first quarterly report on consolidated results in conjunction with its listing on the main market. It was listed on Nov 23. Revenue for the quarter under review was RM89.72mil while earnings per share was 0.37 sen.

By The Star

Genting Malaysia to buy Wisma Genting, land

PETALING JAYA: Genting Malaysia Bhd (GMB), formerly known as Resorts World Bhd, has proposed to acquire Wisma Genting in the heart of Kuala Lumpur and two parcels of lands in Segambut from parent company Genting Bhd for RM228.6mil.

Under the deal, GMB will pay RM212.7mil to Genting to acquire the 25-storey Wisma Genting from Genting’s Oakwood Sdn Bhd.

Meanwhile, GMB will pay RM15.9mil to acquire Genting’s 100% owned Genting Highlands Tours and Promotion Sdn Bhd, the owner of two parcels of adjoining develoment land in Segambut.

Genting owns 48.65% of GMB.

GMB, which occupies eight floors and two basement levels at Wisma Genting, said the acquisition would enable it to save RM3mil in annual rental cost and earn rental income of RM17.3mil from other tenants.

The purchase of the property in Segambut would also reduce GMB’s rental expenses by RM300,000 a year, while offering it the opportunity for development in the future.

In a separate statement, Genting said the disposals were consistent with the group’s intention of streamlining its Malaysian property investment and management activities under GMB.

“The disposals are expected to be completed on Dec 11, 2009 at which time, Oakwood and GHTP will cease to be subsidiaries of Genting,’’ the company told Bursa Malaysia yesterday.

By The Star

Asia property funds to top US$200b in coming years

HONG KONG: Asia’s property fund size will expand by more than 50% in the next two to three years to US$200 billion (RM678 billion), driven by demand from institutional investors from countries including China, industry executives said yesterday.

Pension funds, sovereign wealth funds and affluent individuals would likely boost their portfolios for real estate funds in coming years after appetites waned sharply during the sharp economic downturn earlier this year, the executives told Reuters.

“The next 12 months will probably be a bit slow because we are still coming out of this difficult global situation, but then I think it will pick up more quickly after that,” said Nicholas Loup, Asia-Pacific chief executive of UK-based private property group Grosvenor Ltd.

Asia’s fund managers have US$130.9 billion of property assets under management, based on a survey by the Asian Association for Investors in Non-listed Real Estate Vehicles, a non-profit organisation focusing on fund-related companies in the region.

The current global property fund totalled US$409.6 billion, the association’s first-ever survey showed.

Loup, who is also chairman of the association, said Asia’s fund size could easily top US$200 billion over the next few years, barring risks external to the region, such as debt problems faced by financial institutions in markets outside Asia.

“The big sovereign wealth funds in the region, the Chinese insurance companies, will start investing, (and) you’ll see the Middle East looking more eastwards for their capital to be deployed,” said Willem de Geus, managing director for Morgan Stanley Asia.

Morgan Stanley, Singapore’s CapitaLand and Australia’s AMP Capital, are Asia’s top three property fund managers, making up nearly 40% of the region’s total property funds, the survey showed.

With growing appetites for property funds in Asia, Morgan Stanley is considering launching products aimed at institutional investors in potentially lucrative emerging markets.

By Reuters

KL mayor unveils a budget for the people

RESIDENTS of Kuala Lumpur have themselves to thank for the people-friendly budget announced by Kuala Lumpur City Hall. The 2010 budget was prepared based on opinions garnered from various residents’ representatives and NGOs.

Kuala Lumpur mayor Datuk Ahmad Fuad Ismail added that the budget was also aimed at cutting costs for the DBKL (see accompanying story), with several reductions in administrative allocations.

The surplus budget sees an increase of 2% from last year and about two-thirds of the money will be provided by the Federal Goverment.

About half of the RM2,1bil surplus budget will be allocated for operations costs (RM1.102bil) that include cleanliness and beautification as well as upgrading various public amenities.

A further RM1.07bil has been allocated for development costs and will focus on on-going projects, including those under the Ninth Malaysia Plan (9MP), the Economic Stimulus Package and the Special Flood Mitigation Project.

There is also some good news for property owners as the assessment rates have not been hiked although DBKL has made plans to review the rates that have remained unchanged for the past 15 years.

Assessments are still DBKL’s biggest revenue earners, contributing RM755.08mil to its coffers. Other revenues include building and planning permission payments (RM116mil), rentals (RM65.1mil) and licensing and permits (RM47.96mil).

The DBKL also expects to receive RM451.3mil from the its assets, including the sale of DBKL flats.

The Federal allocation will be channeled into 9MP projects (RM245.84mil), Flood Mitigation (RM71.34mil), the Economic Stimulus Package 2 (RM133.53mil) and Special Housing Allocations (RM236.97mil).

For 2010, DBKL will also be receiving road and ITIS maintenance grants (RM68mil) from the Federal Government, which will also be allocating RM10mil for the management of properties not owned by DBKL like Istana Negara and government-owned vacant land.

There is also a strong focus on ICT, with RM26.58mil planned for developing DBKL’s IT system to provide a better e-Licensing system and to develop its Digital Library.

A total of RM239.37mil has also been allocated under the housing fund to sustain 48 projects. This includes allocations for consultants for the public house projects at Kg Wira Jaya, Kg Pandan Indian Settlement, Sg Udang and Kg Semerah Padi.

However, Ahmad Fuad was disappointed with the negativity of the Kuala Lumpur Opposition MPs who had met with him on Friday to discuss the budget.

He said they should be thankful that a large sum of money had been allocated to Kuala Lumpur.

“The Budget is based on our capabilities and our ability to fulfil commitments from previous years. Isn’t it a good thing we have a bigger budget?

“They should be happy and not compare it to Selangor’s budget. Otherwise, we can lower the budget next year to meet their requests,” he said in reply to an article published on Saturday.

The mayor also said that the budget was only a guide to expenditure next year.

“We do not have to follow it completely but it helps us plan our finances and work in a systematic manner,” he said.

Ahmad Fuad also stressed that DBKL’s main target was to provide better service to the people.

He added that this was the reason City Hall would launch a call centre using a system adapted from that used by the Public Complaints Bureau.

He explained that the pilot project was part of efforts to build an effective communications system where complaints could be handled systematically.

“There will be five officers at the call centre and they will channel all complaints to the relevant departments.

“They will handle the situation and get back to the complainant within three days.” Ahmad Fuad said, adding that 20 officers would be appointed to the call centre.

By The Star (by JAYAGANDI JAYARAJ)

Parkson: RM25m-RM30m outlay on Shah Alam store

PARKSON Corp Sdn Bhd will spend between RM25 million and RM30 million in direct and indirect investments in its new department store at Setia Alam City Mall in Shah Alam, Selangor.

The department store will be Parkson's first in Shah Alam.

Greenhill Resources Sdn Bhd, the manager and marketeer of the mall, yesterday signed on Parkson Corp as an anchor tenant.

The retailer will take up 120,000 sq ft of the mall's net lettable area of 700,000 sq ft.
Greenhill Resources is a joint venture between SP Setia Bhd, the country's biggest developer, and Asian Retail Investment Fund (ARIF).

ARIF is managed by Lend Lease Investment Management Pte Ltd, a member of Lend Lease Corp Ltd, a fund management, property development, management and construction group.

"I am confident that in three to five years, this store will be one of our top 10 stores (in terms of sales) in Malaysia," Parkson Retail Group managing director and chief executive officer Alfred Cheng told reporters after witnessing the signing ceremony in Selangor yesterday.

Parkson Corp chief operating officer Toh Peng Koon said the group will continue to look at adding 15 per cent more space each year.

This translates to two to three stores a year in Malaysia, three to four in Vietnam and five to six in China.

"Parkson has recognised both the suitability of this location for a shopping centre of this nature and the scale of the current and future customer base.

"This confidence will resound with retailers and will allow us to secure a retail mix that complements our positioning and customer desires," Greenhill Resources development director Robert Spinks said.

Greenhill Resources looks to sign on between seven and eight more anchor tenants for the mall.

Apart from the new Parkson store, the mall will include over 200 local and international specialty stores, a number of major anchor retailers, an entertainment precinct and a large park.

Designed by the Lend Lease team, the mall will support SP Setia's vision for Setia Alam, which has over 20,000 new residents and is set to expand to over 50,000 by the time the mall opens.

The new centre will also draw customers from a wider catchment area with a population of about one million people.

"Parkson's proven success in the middle and upper-middle income segments of the Malaysian retail market complements the buyer profiles of both Setia Alam and Setia Eco Park," SP Setia president and chief executive officer Tan Sri Liew Kee Sin said.

By Business Times (by Presenna Nambiar)