Malaysian firms put on hold Vietnam projects

With the economic situation in Vietnam deteriorating by the day, it is only natural that investors have concerns over the fate of Malaysian businesses in the country.

Similarly, against the backdrop of such uncertainty, even Malaysian companies are holding back on their projects in Vietnam, says an analyst with TA Securities. Vietnam’s economic growth slowed to 6.2% for 2008, its weakest since 1999 largely attributed to lower demand for exports as recession hit the US, Europe and Japan last year.

“Basically, it is good that they should hold back first, given the situation in Vietnam.

“They are facing a high interest rate environment and growing economic pressure on demand, even though input costs have come down,” says the analyst.

Construction and property development costs are generally considered to have come down with the bursting of the commodities bubble since the middle of last year.

As for potential losses to Malaysian developers and construction players, “the amount committed so far is not large. Losses would be minimal,” the analyst adds.

The analyst, who covers WCT Bhd, SP Setia Bhd and Gamuda, also points out that many Malaysian companies have not begun work on any projects in Vietnam as they are held back by the global economic crisis.

He says in his coverage that only Gamuda Bhd has commenced infrastructure work on the RM8bil Yen So Park project.


Artist’s impression of Yen So Park (left) and Vietnam International University Township


Artist’s impression of Yen So Park (left) and Vietnam International University Township

The Yen So Park lake-side project in Hanoi covers 130.8ha that will include a five-star hotel, an international convention centre, offices, apartments, luxury condominiums and villas, a recreational club, community facilities and a botanic park.

Responding to StarBizWeek queries, Gamuda says there has been no further change in the company’s operations in Vietnam.

Last month, Gamuda announced that it would maintain the total value of its projects in Vietnam at RM10bil. However, it added that the financial crisis and investors’ difficulty in getting funding might delay the development of the retail mall, office block and hotel parcels for one or two years. It pointed out that although the project was scheduled to run for 12 years, the delay would not be significant.

Berjaya Land Bhd which has received investment licences in Vietnam for four projects covering 920ha, expects some slowdown in demand for properties there and is prepared to defer projects.

Berjaya Land chief executive officer Datuk Francis Ng says: “With the current economic situation, we expect some slowdown in demand for properties as purchasers adopt a more cautious attitude, and we may have to slow down or defer some of our projects if the demand is not there.”

Even so, Berjaya Land aims to launch the first phase of its Thach Ban project in Hanoi by the second half of 2009.

Thach Ban City in Hanoi is the company’s maiden project in Vietnam comprising 148 units of condominiums worth a total of US$550mil (RM1.97bil).

Ng adds: “We have started work on our Dong Nai Residential Development project, and are also planning to launch it in the second quarter of 2009.

“We have also received investment licences for the Vietnam Financial Centre and Vietnam International University Township projects, and are now awaiting construction permits for these projects.”

“We believe that once the global economy has stabilised, the take-up rate for property will improve.

“We view our investments in Vietnam on a long-term basis and we have confidence that the country is resilient enough to weather the downturn and recover when the global economy picks up.”

Berjaya Land currently has no contribution from its overseas projects in Vietnam as it only entered the market in the last two years.

The company has a target that all its overseas property development ventures will contribute some 30% to group revenue in three to four years.

Currently SP Setia, which has one ongoing project in Vietnam and another in the planning, says there would be no change in schedule and it was going ahead with the development.

Its on-going project is the 226ha township EcoLakes at My Phuoc, Ho Chi Minh City in a joint venture with Vietnam’s state-owned conglomerate, Becamex IDC Corp.

The project in planning is called EcoXanh, (meaning “Eco Greens”) which will be a range of villas with club house facilities on 31.6ha in Ho Chi Minh City.

EcoXanh is a joint venture between unit Setia Saigon East Ltd and Saigon Hi-Tech Park Development Co.

Tan Sri Liew Kee Sin, group managing director of SP Setia says: “We are going ahead. Where EcoLakes is concerned, our show village is almost ready and should be launched in the first quarter of this year.


Tan Sr Liew Kee Sin

“This will enable us to market our properties better. The Vietnam market has never seen or experienced such a development before, let alone an entire show village that showcases different types of properties.”

SP Setia says it is confident its ideas will take off in Vietnam, despite the current economic turmoil.

“We feel that the sub-urbanisation of housing and offices is inevitable given the congestion, inadequate infrastructure, cramped living quarters and expensive office space in central cities like Ho Chi Minh City and Hanoi.

“In this sense, we feel that SP Setia has a distinct advantage in Vietnam as building sub-urban townships is our forte,” he adds.

At present SP Setia’s revenue solely comesfrom the domestic market.

Main board-listed Ireka Corp Bhd’s exposure to the Vietnam market is mainly through its 19.6% stake in London-listed Aseana Properties Ltd as well as the appointment of wholly-owned subsidiary Ireka Development Management Sdn Bhd as the exclusive development manager for Aseana. The successful London-listing of Aseana in April 2007 was initiated by Ireka.

In mid-2008, Aseana received investment licences for Queen’s Place (formerly known as Horizon Place) and International Hi-Tech Healthcare Park in Vietnam; both are mixed developments with residential component.

Queen’s Place will cover 8,400 sq m adjacent to the central business district in Ho Chi Minh City and the Hi-Tech Healthcare Park will be a fully integrated “Medical City” with approximately one million sq m of gross floor area.

Meanwhile, all of Aseana’s other pipeline projects in Vietnam are still at the master planning and approval stages.

Ireka Development president Lai Voon Hon says: “This includes Wall Street Centre (District 1, Ho Chi Minh), Nam Khang Resort & Residences (Danang) and One Saigon.


Lai Voon Hon

“In July last year, Aseana also acquired a strategic stake in Nam Long Corp, one of Vietnam’s leading property developer with over 500ha of land bank in Ho Chi Minh City and neighbouring provinces.

“Through this partnership, Aseana is expected to co-develop at least four property development projects with Nam Long in Vietnam.”

On the company’s outlook for Vietnam, he says: “Vietnam is frequently compared to China of a decade ago and therefore is thought that the current challenging environment mirrors that of China in the mid-1990s. This is as a result of rapid growth, in which there is bound to be a reactionary correction but eventually will be followed by stabilisation and growth.

“Hence, though it may be a challenging environment today, I am optimistic that the property market will ride out this uncertainty and will be on an upturn in the next four to five years). We will take an opportunistic approach in our involvement so that we will be there when the market takes an upturn.”

That pretty much sums up most Malaysian companies’ aspirations in their Vietnam ventures.

By The Star (by Loong Tse Min)

Good time for value buys

DESPITE the gloom and doom encompassing much of the global economy these days, there are still good opportunities for cash-rich entrepreneurs and companies looking for value acquisitions.

As a more meaningful recovery of the local economy and property market will only become more evident around year-end or in early 2010, most developers will be consolidating their positions to get ready to ride on the next wave of growth.

Companies with strong balance sheets and cash reserves should look out for the right opportunities to snap up good quality assets, both within and outside the country, that may be available at more realistic prices now.

Besides local opportunities, companies should also look to the global market and consider investing in assets overseas for a wider geographical expansion as it would cost less to do so now.

Companies that have laid the groundwork by building up a pool of top-notch management and technical capability, internal processes, and financial resources should take advantage of the current slowdown to further enhance their areas of competency.

Regional markets like Singapore, Vietnam, India and China have much to offer investors as asset values have eroded by 20% to 30% since they succumbed to the contagion effect of the global financial meltdown.

According to the latest market report on Singapore by CB Richard Ellis (CBRE), out of 2,200 units in luxury projects that were launched in the city state between 2006 and 2008, 55% or 1,204 units remained unsold as of last November.

The average launch prices of new luxury condominiums fell from a range of S$2,000-S$4,000 per sq ft (psf) in the last quarter of 2007 to S$2,000-S$2,600 psf in the fourth quarter last year.

CBRE is projecting a 10% to 15% fall in prices of existing projects this year. That means retail property buyers can also look around for some value buys.

Vietnam, which is still reeling from the effects of an overheating economy and high inflation in the first half of last year, also offers good potential for some good cherry picking.

Companies with strong net cash position such as YTL Corp Bhd has already started shopping around for distressed assets.

With its war chest of more than RM10bil cash, YTL Corp is making great headway in the construction, property and infrastructure sectors in Malaysia, Australia and Britain, via acquisitions.

Last October, the company agreed to pay S$285mil for control of Macquarie Prime Real Estate Investment Trust (MP REIT).

With the price at a 49% discount to the net asset value, the proposed acquisition of MP REIT will provide stable earnings and good upside potential to the company.

By having a REIT in Singapore, YTL will be well placed to tap the city-state’s expanding real estate sector and promote its Starhill brand in the international market.

A consolation for local property players in the current challenging market is that their low gearing position and prudent financial management will likely pay off and enable these companies to ride out the current downcycle.

In fact, a number of property companies have net cash reserves to expand their landbank and pick up some value assets.

As the saying goes, “Every cloud has a silver lining.” While developers have been forced to review and delay project launches, the market slowdown also offers them the chance to consolidate and identify new opportunities to thrive when the good times return.

# Angie Ng is deputy news editor of The Star and she believes with right planning and foresight, developers will be able to ride out the tough times.

By The Star (by Angie Ng)

Retail space faces mounting pressure

Both are components of the commercial real estate business and neither will escape the pressures of the economic slowdown, but the performance of office space and retail space in the coming months will also depend on a few factors unique to each segment.

For one thing, office space may not do well if many companies opt to stay put instead of shifting to larger and better premises. In retail, occupancy depends significantly on the growth strategies of the business operators, and the kind of products and service they sell.

Regroup Associates executive chairman Christopher Boyd says the Malaysian commercial property market will remain quite competitive this year as the take-up of new space is expected to be affected by the global financial crisis.

“We have already seen a lot of potential tenants saying they would like to wait and see. With so much uncertainties in the world, companies will play safe and defer any decision to move if they can avoid it,” he told StarBizWeek.

Boyd says it costs about RM100 per sq ft to fit out an office. This is a big commitment. For example, a 5,000 sq ft office may require about RM500,000 just for the furniture and fittings.

“The poor sentiment will lead to weaker demand for commercial space. The asking rentals will probably weaken but there isn’t going to be a crash because supply is fairly tight,” he adds.

However, he believes that international companies that are looking for a lower-cost environment will still choose Malaysia because the rental rates are still low as compared with those in other parts of the region.

“Businesses like service centres and back-office services might decide to come to Malaysia simply because of the low rental rates,” he says.

According to Boyd, this year alone, 10 new buildings in Kuala Lumpur will be completed, thus adding to the market a total area of about 3.4 million sq ft.

“However, approximately half of these building will be pre-let, like the SSM building, Menara Bumiputra Commerce and MIDA building. The available space to let is actually about 1.9 million sq ft only,” he says.

Among other buildings available for lease this year are G Tower, KL Pavilion, Menara Worldwide and Towers B, C and D of KL Sentral. He says the average rental rate for Grade A buildings in the Golden Triangle is currently at about RM7 to RM9 per sq ft.

Retail rumblings?

On the outlook for the retail sector this year, Regroup Associates managing director Allan Soo says the market has dipped since the third quarter of 2007.

“Although companies like Parkson, Jaya Jusco, the hypermarkets, and some local fashion operators and food retailers seemed to be doing well until the third quarter, they all faced business decline by the fourth quarter,” he adds. Everybody agrees that the fuel hike last June has affected sales.

“In most cases last year, there was a sales drop of about 5% to 10%, while the drop for some higher-end fashion brands was about 10% to 30%,” says Soo.

“Because of the huge drop last year, we don’t expect another plunge this year. There will be a fall but it won’t be dramatic. Overall, most sectors will see turnover shrinking by 5% to 10%.”

However, he reckons that the hypermarkets will keep faring well because people still need to shop for groceries. Their margins may narrow because of price competition, but the total sales volume should increase.

More hypermarkets will open this year to cater for the demand for bargains and lower-priced goods.

Soo says there will be 1.5 million sq ft of additional retail space this year and it will badly affect the market.

He points out that there is already about 39 million sq ft of retail space in the Klang Valley. The new properties will increase the available space by 3%.” The new malls will be much smaller and are mostly located in the suburbs.

“By 2010, the incoming supply of retail space will drop to 1.7 million sq ft from the proposed 3.4 million sq ft. This is good news for the industry, for that avoids an oversupply of space,” he adds. Some of the planned projects are put on hold.

“Based on our survey of 13 shopping centres, the occupancy rate is still stable. We foresee some people closing their shops but it will be very limited,” he says.

DTZ Nawawi Tie Leung Property Consultants Sdn Bhd director Adzman Shah Mohd Ariffin says some mall operators will start looking seriously into repositioning their properties. The aims are to remain competitive, attract more shoppers and retain tenants.

“Well-located and well-managed malls will continue to do well in weathering the downturn. More spending on advertising and promotion activities will have to be carried out to attract or at least, retain shoppers,” he adds.

He, however, cautions that mall operators should be prepared to come up against stiff resistance should there be any attempt to raise rental rates after the Chinese New Year. Some tenants have begun to consolidate and downsize to reduce operating expenses.

Although lower growth and sales are expected, retailers are more prepared now than in previous downturns, to revise their sales projections. They may want to consider moving to new locations to achieve better market penetration.

Optimistic owners

The building owners and managers are somewhat more upbeat. Joyce Yap, president of the Malaysian Association for Shopping and Highrise Complex Management, says the outlook for shopping malls this year is still vibrant despite the slowdown.

“Though people are a bit cautious, the traffic flow at the malls is still strong,” she adds. As she points out, shopping is a way of life among Malaysians and they will still go to the malls even in these tough times.

She says good shopping centres will still record good occupancy rates, such as Pavilion in Kuala Lumpur, which is 100% occupied.

She believes that shopping centres that will be ready this year will survive although they have to face more competition from the existing complexes.

“However, malls that have still some way before completion will face tough times ahead to fill the space as retailers are now more cautious and are putting their expansion plans on hold,” she contends.

Yap says shopping malls that are located in the city centre will still be attractive, especially among the tourists, and can benefit from their spending power. “The ones that are located in the suburbs will face difficulty in boosting sales,” she adds.

Berjaya Land Bhd chief executive officer Datuk Francis Ng agrees that the current economic situation will dampen the demand for commercial properties.

“Purchasers are exercising more caution and we expect the market to be soft during this period. However, we believe that once the global economy stabilises, the take-up rate for commercial property will improve,” he told StarBizWeek in an e-mail.

Boustead Curve Sdn Bhd director Datuk Ghazali Mohd Ali says the company’s shopping mall, The Curve at Mutiara Damansara, Petaling Jaya, is still doing very well, with existing tenants eager to expand their businesses.

This is a good sign that their businesses are doing well, he says, adding that the mall’s occupancy rate is about 98%.

By The Star - StarBizWeek - (by EDY SARIF)

Slew of aborted deals

Over the past several months, there have been at least 10 aborted deals in some form or the other. Some of them were biggies like Menara Citibank in Jalan Ampang. Others may be considered just a scratch, but no less interesting, involving land and old buildings.

Among them is Bok House, built in the 1880s, in Jalan Ampang. At one time it was known as Le Coq Dor, where English tea and scones were served.

Will this be the way to go for the rest of the year?

Consultants are reluctant to say what’s coming simply because they don’t know. “We don’t even know what’s going to happen next week,” one of them says.

Instead, they prefer to wait until after Chinese New Year, and after that the transition period when Deputy Prime Minister Datuk Seri Najib Tun Razak takes over the premiership in March to see what sort of policies he will unveil.

What precipitated the slew of aborted deals? YY Lau, executive director of YY Property Solutions Sdn Bhd says business uncertainty became an issue overnight.


Lau: Some of them feel they are able to get better pricing if they wait a little.

“If you are buying for own occupation, the need to buy remains. Or they can wait and go for short-term tenancy. But if you are buying for yield, the question to ask is, will there be tenants? Will rentals be stable and attractive? If you are building, will cement and building materials cost go up or down?”

All of a sudden, the scene appears to have changed. The US sub-prime issue imploded in the first quarter of 2007. We in Asia took little notice, until the fall of Lehman Brothers and reality set in.

Lau says another reason why deals were called off was the hope for better pricing later on.

“Some of them feel they are able to get better pricing if they wait a little longer,” says Lau.

Consultants and developers say they have been getting calls from clients and friends, asking whether there are any “fire-sale”. The answer is no.

A third concern is financing. Although commercial banks say they have not unplugged this channel, consultants say the margin of financing has dropped. If banks were prepared to lend 80% for the project, now they are looking at 70%, they say.

The fourth reason has much to do with sentiment and confidence, or lack of it, as echoed by three consultants – Lau, Jerome Hong, managing director of PA International Property Consultants (KL) Sdn Bhd, and C H Williams Talhar & Wong Sdn Bhd (WTW) managing director Goh Tian Sui.


Goh: There are various issues to be handled at home.

Says Goh: “You have the external situation, with bad news coming hard and fast from the US and Britain. At home, there are various issues to be tackled.”

These, he says, have dampened sentiment.

A factor to note is the entry of foreigners, particularly from the Middle East, South Korea and Singapore, who have entered the local property market in a significant way in recent years, snapping up commercial properties and some others, as developers.

Assuming they have, thus far, merely forked out 10% or less, chances are they may choose to forfeit the sum rather than move ahead with the project if they feel that it is in jeopardy or may not be a sound investment any more.

When things turn sour back home, it is logical for them to liquidate here to move their money home, says Lau. And this may be what is happening in some of the projects in Ampang and U-Thant area where South Korean developers have gone into niche developments.

Some of the aborted deals involve condominium projects in the city centre. With so many condominiums in the market, developers are beginning to doubt the viability of adding to the swelling numbers, hence aborting the purchase to avoid holding costs. But generally, it is not a single factor but a combination of reasons that lead to the decision to scrap the transactions.

Says Lau: “Be they locals or foreigners, because of the scenario before us today, many of them are readjusting their real estate strategy. There may be losses elsewhere and they may now want to readjust that loss. There will be opportunities, in good or bad times. Some prefer to wait and see and this is what many are doing today. They are sitting out the situation.”

“The property market is not dead. Deals are being done. It is just slow due to the various festivities and December and January are generally slow months; but this time, it is slower than usual. And compared with the past crisis, there appears to be more aborted deals.


Hong: The property market is not dead. It is just slow.

“Companies and businessmen are reassessing their position with property not being the flavour of the month. Cash is. This first half will be crucial as everybody adjusts to the situation,” says Hong.

Some of the aborted deals

Vendor: E&O Bhd unit KCB Trading Sdn Bhd

Buyer: Magna Universe Sdn Bhd

The deal: Vendor terminated an agreement to dispose of a piece of freehold land in Jalan Yap Kwan Seng, Kuala Lumpur for RM84.3mil.

Reason: Magna’s failure to make payment. Magna paid KCB RM8.43mil in damages.

Vendor: Well-Built Holdings Sdn Bhd

Buyer: Axis Real Estate Investment Trust (REIT)

The deal: Axis REIT proposed to acquire two factories in Jalan Seelong in Senai, Johor for RM27mil.

Reason: Unfulfilled conditions precedent in the sale and purchase agreement as at the expiry of the conditional period.

Vendor: Fraser & Neave Holdings Bhd subsidiary Elsinburg Holdings Sdn Bhd

The deal: F&N accepted an offer to purchase a site for Ampang Hilir 233 Condo but the offer was terminated on Nov 3, 2008.

Reason: Land Office acquired an additional 24 sq m (0.4% of total net area) of the project site and the buyer exercised the right to rescind the transaction following the acquisition notice. F&N refunded the deposit.

Vendor: DutaLand Bhd subsidiaries

Case 1:

Purchaser: Stonehage Westcity Property Fund Ltd and SWX Malaysia Ltd

The deal: Buyer to take over 8.78 acres within Kenny Heights.

Reason: Certain conditions were not fulfilled within the agreed timeframe.

Case 2:

Another letter of intent for a joint venture between DutaLand subsidiary and Merrill Lynch (Asia Pacific) Ltd to develop 16.2 acres within Kenny Heights also lapsed.

These two terminated JVs constitute two of nine parcels under the 88-acre Kenny Heights development, scheduled for completion in 15 years with residential and commercial portions accounting for 30% and 70% of the total estimated built-up area of 23 million sq ft.

An official statement from developer DutaLand said the freehold Kenny Heights projects will continue with Phase 1 having been successfully launched through private events and roadshows in Kuala Lumpur, Singapore and Hong Kong since April and the official launch in November 2008.

Vendor: Inverfin Sdn Bhd

Buyer: IOI Corp Bhd

The deal: IOI to acquire Menara Citibank for RM586.73mil

Reason : IOI Corp forfeited its deposit of RM73.36mil when it decided not to proceed with the proposed acquisition “due to the recent sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments”.

Vendor: Sunrise Bhd unit KHP Sdn Bhd

Buyer: Malaysia Commercial Development Fund Pte Ltd (MCDF)

The deal: Sunrise to sell a commercial space (comprising retail, office and car parks) and unsold serviced apartments within the project known as Mont Kiara 20.

Reason: Both vendor and buyer decided to mutually terminate the put and call option agreement which involved RM767mil worth of properties, one of the largest deal to be aborted thus far.

Vendor: SYF Resources Bhd

Buyer: AM ARA REIT Managers Sdn Bhd

The deal: To sell and lease back a shoplot in Summit City USJ (36,361 sq ft) by the AM ARA REIT group for RM8mil.

Vendor: Warta Development Sdn Bhd and Yap Khay Cheong & Sons Realty Sdn Bhd

Buyer: IJM Land unit Serenity Ace Sdn Bhd (a subsidiary of RB Land Sdn Bhd and IJM Land)

The deal: To build Laman Duta condominium to enable RB Land to expand its presence in a prime Klang Valley location without having to fork out the initial capital outlay to acquire the land

Reason: The intended objective of the joint venture was unlikely to be achieved due to a change in the conceptual plan for the proposed development.

By The Star (by Thean Lee Cheng)

More residential units in store for Nusajaya

PETALING JAYA: UEM Land Holdings Bhd has lined up a wide range of residential units this year in Nusajaya, Johor as it expects Iskandar Malaysia to continue attracting investors despite the generally cautious property market in the country.

Managing director and chief executive director Wan Abdullah Wan Ibrahim said UEM Land would develop new phases at its existing projects in Nusajaya.


Wan Abdullah Wan Ibrahim

“These include 450 bungalows and semi-detached (houses) in East Ledang, 300 mid-market housing units in Nusa Idaman and Horizon Hills. We also expect to launch high-end condominiums near East Ledang, commercial units in Nusajaya Industrial Park Phase 2, and the commercial and canal homes units in Puteri Harbour,” he said in an interview.

Wan Abdullah said despite the current economic situation, he expected the company to record reasonable sales.

He said the group was looking to acquire more land in well-established areas such as the Klang Valley and Penang.

In December, UEM Land had proposed to acquire 98.04 acres in Sepang, Selangor for RM102.5mil from Cyberview Sdn Bhd and Setia Haruman Sdn Bhd.

The proposed acquisition would be funded entirely by internal funds,

“We have close to 10,000 acres in Nusajaya and this gives us the flexibility to adapt as demand changes. Because of our strategic location, we (our development) can cater to both regional and local markets,” said Wan Abdullah.

Wan Abdullah said UEM Land, being the master developer of Nusajaya, could reach out to many different target segments, including strategic partners and property investors. “The strategic partners can add value and excitement to the development,” he said.

Nusajaya also benefited from excellent infrastructure while the company had strong balance sheet with low leverage, he added.

UEM Land had also undertaken a corporate exercise to raise RM1.25bil and this was expected to be completed by March.

Wan Abdullah said the RM1.25bil would be used to develop the 688-acre Puteri Harbour and Phase 2 of the 1,300-acre Southern Industrial and Logistics Clusters.

“We are not facing any difficulty (in financing) yet due to our low gearing ratio and being part of UEM Group Bhd,” he said.

Nusajaya spans over 23,875 acres and has been identified by the Government as one of the five zones of Iskandar Malaysia. Upon its completion in 2030, Nusajaya would comprise a range of high quality development including Federal and State Government offices, residential, industrial park, medical park and resort.

By The Star (by K.C.Law)

TH Properties to build 4-star hotel in Bandar Enstek

KUALA LUMPUR: TH Properties Sdn Bhd is building a new RM50mil four-star hotel in Bandar Enstek to benefit from the proposed low-cost carrier terminal (LCCT) in Labu, Negri Sembilan.

Chief executive officer Zaharuddin Saidon said the hotel, near the KL International Airport (KLIA), would cater for foreigners and transit passengers that come through KLIA and the new LCCT at Labu.

“The hotel will be an ideal destination for them as a pit-stop as it only takes about a few minutes from the hotel to the airports,” he said yesterday at the signing of two memoranda of understanding (MOU) and a joint venture (JV) agreement between the company, the developer of Bandar Enstek in Nilai and Seri Pajam Development Sdn Bhd.

The MOUs were for building the new hotel and and for the implementation of the industrialised building system (IBS) for the construction of future buildings at Bandar Enstek. The IBS is a construction process that involves pre-fabricated and on-site installations.

“The construction of the 400-room four-star hotel will commence around August and will take about 16 months for completion,” Zaharuddin said.

The signing of the JV was for the development of the second phase of Bandar Warisan Puteri near Seremban.

“The construction works of Vila Suria (at Bandar Warisan Puteri) using the IBS (in the first phase) has enabled us to complete the project in 12 months and ensure the delivery of high-quality finished products,” said Seri Pajam managing director Lai Suit Choong.

He said the second phase of Bandar Warisan Puteri had a gross development value of RM160mil and would see the development of some 1,000 residential units of various types, over a period of five years.

By The Star

TH Properties to build hotel at Bandar Enstek

TH Properties Sdn Bhd is to build a four-star, 400-hundred room hotel at Bandar Enstek in Nilai, Negeri Sembilan.

The property developer today signed a memorandum of understanding (MoU) with Seri Pajam Development Sdn Bhd for the project.

TH Properties chief executive officer Zaharuddin Saidon said the hotel was a RM50 million investment.

He said the first phase of construction would commence in August this year and is expected to be competed in early 2011.
“With its close proximity to the KL International Airport and the present LCCT or Low Cost Carrier Terminal, we expect the hotel to be well received,” he told reporters after the signing ceremony.

He added that with the proposed construction of the new LCCT at Labu, Negeri Sembilan, the company expects the traffic towards Bandar Enstek to increase significantly.

TH Properties is a wholly-owned subsidiary of Lembaga Tabung Haji and is the developer of Bandar Enstek, a joint venture effort with the Negeri Sembilan Development Corporation via TH-NSTC Sdn Bhd.

At the event, TH Properties also signed another MoU with Seri Pajam Development to implement the industrialised building systems (IBS) in the construction of buildings at Bandar Enstek.

Apart from the MoUs, TH Properties also entered into another joint venture agreement with Seri Pajam Development for the second phase of development of Bandar Warisan Puteri, Negeri Sembilan.

By Bernama

Financials lift S'pore, property boosts Thailand

BANGKOK: Most Southeast Asian stock markets gained on Jan 16, with financials such as DBS Group and UOB pushing Singapore higher and Thai property firms like Land & Houses and Asian Property getting a boost from tax break hopes.

A rise in Wall Street stock futures after Washington pumped US$20 billion (RM72 billion) into Bank of America buoyed Asian sentiment and encouraged investors to put money into equities, even though dismal economic data has made market players wary again.

"The equity market's risk/return profile has improved because it is already reflecting an exceptionally dismal scenario," Swiss Clariden Leu bank said in a strategy report for January.

Singapore's Straits Times index gained 1.6%, recovering from a 3.4% fall on Jan 15, with DBS Group rising 3.4%, and United-Overseas Bank and Oversea-Chinese Banking both up 3.1%.

Data on Jan 16 showed Singapore's exports fell sharply in December, hammered by recession in the United States and Europe, but UBS said in a report on Singapore's banks that their share prices could rebound significantly once a GDP trough was reached.

That is not in sight: the broker expected the first quarter to record a 6% contraction in the economy.

In Bangkok, the index climbed 2.1% to close at its highest level of the day in thin turnover of US$204 million, with property outperforming. Top housing firm Land & Houses surged 4.4% and Asian Property jumped 7.1%.

Investors were hopeful that the Thai Cabinet would approve more property tax measures next Tuesday, including a tax deduction for home mortgage payments, analysts said.

"Part of the buying was from punters who looked for sectors with a good future," said Chaiyaporn Nompitakcharoen, head of research of Bualuang Securities. "Property is a good play, with more tax incentives and falling interest rates."

In Kuala Lumpur, the index slid 0.11%, extending losses into a fourth day ahead of a key by-election at the weekend. Market heavyweight Tenaga Nasional fell 1.6% ahead of its first-quarter results on Monday.

In Jakarta, shares climbed 1.5%, recouping part of a 3.1% loss on Jan 15, with advancers led by Bumi Resources, which rose 20.0%, and Telkom Indonesia, which gained 1.6%.

By Reuters

Timber prices fall on global housing slump

PETALING JAYA: Timber prices in the United States had fallen to their lowest levels since early 1990s, as the worldwide housing slump dries up wood demand for use in construction.

The drop in timber prices was less severe for tropical hardwoods, local players said, but prices were expected to head lower as key markets the US, Europe and Japan fell into recesssion.

“We are still getting good volume from Japanese buyers, but prices had gone down quite substantially compared with a year ago,’’ a company official at Sarawak-based Ta Ann Holdings Bhd said.

Ta Ann exports timber logs mostly to India, while Japan is its biggest market for plywood products.



The official said bad weather in Sarawak in the past few weeks had somewhat limited logging activities in the country’s biggest timber-producing state and this might help keep prices in check in the coming months.

Lumber prices, however, are worst hit in the US. On the Chicago Mercantile Exchange, lumber contract for March delivery fell US$3.40 on Tuesday to close at US$172.30 per 1,000 board feet.



The contract had dropped 32% over the past six months and is now down to its worst level since 1991.

Home prices in 20 major cities in the US declined at their sharpest rate on record in October, depressed by rising foreclosures and weak sales. Bloomberg, quoting a Morgan Stanley report, on Monday said house prices in the US were likely to drop until mid-2010 because of growing unemployment, an excess of unsold homes and low levels of lending.

The US is Malaysia’s top timber export market, behind Japan and Europe.

Dwindling demand from traditional export destinations was compounded by the loss in new export markets. Eksons Corp Bhd said exports of plywood to the Middle East had almost dried up, as the construction boom in the oil-rich region came to a sudden halt as crude oil price tumbled.

Analysts said local plywood prices were likely to head lower this year from mid-November levels after an uninterupted gain in the past nine consecutive months.

The downturn had already prompted some timber firms, especially the smaller ones, to curb logging activities - at least in their own timber concession areas.

Recent filings on Bursa Malaysia showed that Perak-based Leweko Resources Bhd’s log production in November was zero. This was due to the company’s shift in strategy to log in forest areas belonging to third parties to supply its sawmills.

“We will start logging in our own area when prices recover,’’ a company official said.

By The Star (by Izwan Idris)

TA Ent on lookout for distressed assets

MALAYSIAN financial-to-property group TA Enterprise is still in talks to place shares of its TA Global unit despite weak markets, and is also looking to buy distressed property assets overseas, its deputy chief executive said.

“We are currently talking to underwriters for the placement of our (TA Global) shares and exploring the best way to structure the IPO so that the market will be able to absorb the listing,” Deputy CEO Tiah Joo Kim said today.

“In the event we do have to delay the IPO due to whatever reasons, we can always apply for an extension,” Tiah said in an email interview to Reuters.

TA Enterprise said last September it would spin off its property assets for a separate listing on the local bourse.
The property business will be housed under TA Global, a newly formed company to facilitate the listing. TA Enterprise, which houses the stockbroking and unit trust businesses, will remain listed on the exchange.

Tiah said TA is still on the lookout to buy more property assets after a string of acquisitions last year.

TA Enterprise’s cash and short-term investments stood at RM822.8 million (US$230.5 million) by the end of October, according to Thomson Reuters data.

“The current economic downturn presents many great opportunities to acquire assets. We are on the lookout to acquire prime assets that are undervalued or distressed,” said Tiah.

But the company will focus on markets outside Malaysia such as the hospitality industry in Australia, Canada and Hong Kong.

“Local property prices haven’t fallen enough to excite us, Tiah added.

The company’s earnings are unlikely to fall this year despite a weak operating environment, he said.

By Reuters

CIMB: Mah Sing’s sell call largely due to bearish property outlook

CIMB Research has downgraded Mah Sing Group Bhd to a sell (previously a hold) at RM1.55 as the counter had been a big performer and earnings growth had been gradually revised to single digit only.

The research house said while the sell call was largely driven by its bearish outlook for the property sector, it still had the highest regard for the company and might upgrade it sometime later when prospects for the overall sector improve.

It said the derating catalysts included continued delays in wrapping up the en bloc sale of Icon Mont’Kiara and the overall weak market sentiment on properties.

CIMB Research said it made no changes to its earnings forecast but had lowered Mah Sing’s RNAV (revised net asset value) to RM1.66 from RM2.10 after accounting for the gradual exhaustion of its landbank and stripping out the development value of Icon Mont’Kiara as a result of the delay in the completion of the en bloc sale.

“As a result, we have lowered our target price from RM1.78 to RM1.41 based on an unchanged 15% discount to RNAV,” it said.

The research house said Mah Sing was the best performer in the property sector last year as it fell 17% compared to the sector’s plunge of 50%.

CIMB Research, however, said the fundamental outlook for the property sector for 2009 remained tricky and this could weigh down the stock.

“While it is true that construction costs have eased due to the fall in steel prices and transport costs, our overriding concern is demand which will remain soft due to weak sentiment. 2008 was mostly a washout year for property sales, particularly after the March 2008 general elections.

“But earnings may come under even more pressure as another year of depressed sales in 2009 will gradually exhaust unbilled sales,” it said.

The research house said while prices of physical properties had held up relatively well, developers’ sales continued to deteriorate, adding that many builders had postponed launches in 2009 while some have offered discounts to clear unsold stock.

“The strategy adopted by many property companies is clearly a defensive one aimed at conserving cash in order to snap up bargains offloaded by weak landowners.

“Although we believe prices of physical landed properties will remain firm, we are concerned about the condo glut in KLCC and Mont’Kiara. Mah Sing is fortunate to have locked in gains for its KLCC office buildings but it still has exposure to Mont’Kiara,” it said.

On the outlook for the company, CIMB Research said Mah Sing’s prospects remained better than for most other developers due to its strong management and marketing savvy.

The research house said despite the tough conditions in 2008, Mah Sing managed to chalk up respectable sales of RM367 million in the nine months to September 2008, adding that its Southgate commercial project was also a success and the group was close to securing an en bloc sale there.

“Mah Sing has been consistently adding to its landbank, acquiring three parcels of land last year — one in Johor and two in the Klang Valley. It is eyeing more plots of land in Malaysia and is dipping its toes in Vietnam and China. That said, it is not in a hurry and will buy carefully,” it said.

Mah Sing ended yesterday’s trading unchanged at RM1.55.

By The EDGE Malaysia

BCorp partners Ritz-Carlton to woo the rich

Berjaya Corp Bhd and The Ritz-Carlton Hotel Company plan to develop luxury condominiums that would sell for RM2 billion, as they bet that the rich will continue to splash on high-end property.

Berjaya will build some 300 condominiums, to be managed and sold by Ritz-Carlton. A standard 3,000-sq-ft condominium unit could be sold for RM7 million.

"With Ritz-Carlton's expertise in luxury hospitality and management of high-valued real estates, we're confident of attracting well-heeled customers. We're looking at offering these units at between RM2,000 and RM2,500 per sq ft," said Berjaya Corp Bhd chairman and chief executive officer Tan Sri Vincent Tan Chee Yioun.

Kuala Lumpur's current most expensive address is The Binjai by KLCC Holdings, located along the intersection of Persiaran KLCC and Jalan Binjai. It was reported that the indicative selling price is at RM3,000 per sq ft.

Troika, a project by Bandar Raya Development Bhd, also along Jalan Binjai, had recently seen transaction almost doubling to RM1,800 per sq ft, from its launch price of RM1,000 per sq ft three years ago.
Tan said he would be happy if Ritz-Carlton could sell half of the units and BCorp will keep the rest for rental.

BCorp and Ritz-Carlton expect to start marketing these luxury units in September 2009.

So far, BCorp has invested some RM200 million in the sub-structure of this development. Another RM800 million worth of job packages will be tendered out.

"We hope to complete construction by 2011," Tan told reporters in Kuala Lumpur yesterday.

Housing & Local Government Minister Datuk Seri Ong Ka Chuan witnessed the signing of the management agreement of the new Ritz-Carlton Residences Kuala Lumpur at Jalan Sultan Ismail.

The new Ritz-Carlton Residences Kuala Lumpur at Jalan Sultan Ismail will be built on a 1.216ha site beside the Concorde Hotel and opposite Renaissance Hotel in Kuala Lumpur.

It replaces the RM700 million Berjaya Central Park, launched in 2005 with the small-office-home-office concept in mind. It was to consist of a 51-storey services suites with hotel blocks and three levels of basement car park.

By Business Times (by Ooi Tee Ching)

Mall retailers keen to expand, but cautious

RETAILERS still want to expand their businesses despite the challenging economic outlook this year, said a property consultant.

"They are cautious, but are pursuing expansion. The main concern is whether the (mall) developer has the capability to complete the project," DTZ Nawawi Tie Leung Property Consultants senior director Adzman Shah Mohd Ariffin said.

DTZ has been appointed the leasing agent and retail mall manager by Pramerica's Asian Retail Mall Fund (ARMF), the investor of four malls managed by DTZ.

The malls are SSTwo and Ampang in the Klang Valley and two malls in Penang, 1st Avenue and Island Plaza, which are currently undergoing refurbishment. All four malls offer a total net lettable area of about 1.8 million sq ft.
ARMF is an investment arm of US-based Prudential Financial Inc. As at June 30 2008, it has managed US$5.1 billion (RM18.21 billion) of group assets throughout Asia.

"Retailers are well prepared to expand despite the economic downturn. They want fresh loca-tions, which is the advantage we have with the four malls. So far, during our roadshow, we have received overwhelming response," he said in an interview recently.

Malls today are no longer just a shopping destination. The upcoming malls are adopting the edutainment and entertainment features by offering a wide variety of eatery outlets, karaoke centre, cinema and bowling alley, among others.

"This trend encourages people to spend a much longer time in the mall and browse around the shopping area," said Adzman.

"Edutainment and entertainment-trend malls attract shoppers from all walks of life. Thus, it's crucial for us to ensure the setting offers the right mix of products at every corner of the building."

SSTwo and Ampang are located within a residential and commercial area. Aimed at upper and middle class families and those with children under the age of 12, the malls offer 462,800 sq ft and 580,000 sq ft of nett lettable area, respectively.

Targeted to open by the fourth quarter of this year, SSTwo offers a dedicated kid's loft with children's fashion and toys and maternity goods in addition to other merchandise. Ampang key anchor tenants, meanwhile, include a department store, hypermarket and cineplex. The mall will be ready in the first quarter 2011.

The 1st Avenue mall in Penang offers 428,000 sq ft of nett lettable area with a dedicated youth level. The mall should be completed by fourth quarter this year. Its main target markets are young adults aged between 20 and 35 years old and middle to upper middle class professionals.

Established in 1996, the Island Plaza has an occupancy rate of about 70 per cent with Metrojaya and Cold Storage as anchor tenants. Since Penang draws huge tourist arrivals with many expatriates, Adzman said, both malls in Penang hope to cater to this market.

By Business Times (by Zurinna Raja Adam)

Ritz-Carlton Residences to be completed on time

KUALA LUMPUR: Berjaya Corp Bhd (BCorp) is confident of completing The Ritz-Carlton Residences on time despite the current economic slowdown, says chairman/CEO Tan Sri Vincent Tan.

“With our experience during the economic crisis in 1997, we are ready to face the current crisis and go through with our project,” he said yesterday during the signing ceremony between BCorp subsidiary Wangsa Tegap Sdn Bhd and the Ritz-Carlton Hotel Co LLC.

Tan said the 300 luxury residences would be launched in August or September, targeting the high-end market.

“We expect more than half of the potential buyers to be foreigners and, with the collaboration of leader of luxury lifestyle company Ritz-Carlton, it may help boost sales,” Tan said.

The Ritz-Carlton Residences is located at the junction of Jalan Sultan Ismail and Jalan Ampang. It will comprise two high rise towers with 150 units each priced at RM6mil to RM7mil.

The gross development value of the project is RM2bil while completion is expected in two years.

By The Star

Bull run over for Singapore property

SINGAPORE: The Year of the Ox begins later this month but the bull run is already over for Singapore's property sector, described as the world's hottest market just two years ago.

Prices of private homes fell 5.7 per cent in the fourth quarter, following a 2.4 per cent drop in the preceding period, according to the latest data from the Urban Redevelopment Authority (URA), the state agency responsible for land use planning.

The fourth quarter marked the sharpest drop in home prices in a decade, the URA said.

"Further contraction is on the way," analysts from the Hong Kong-based CLSA brokerage and investment group said in their outlook for the property sector. "We continue to expect the URA in-dex to see an accelerated fall in the next quarter."

Local home prices have not fallen so far since 1998 when Singapore was stung by the Asian financial crisis that pushed the local property sector into a slump lasting until 2005, when the government approved the construction of two multi-billion-dollar casino complexes.

By 2007, real estate giant Jones Lang LaSalle was describing Singapore's market as the world's hottest, and the city-state's property prices surged 31 per cent overall.

Rents at condominium units favoured by the many expatriates here also dramatically increased, and in some cases doubled.

While fourth-quarter data is preliminary, analysts say the casino-inspired property boom is history now that the economy is in recession.

Analysts said the duration of the current property slump was difficult to predict but they agreed it will hinge on when Singapore pulls out of the recession.

"A lot of it depends on the economy," said Ong Choon Fah, executive director for consulting and research with DTZ real estate consultancy.

"The economy really underpins the market... People have to feel safe about their jobs. That is the first thing," she said.

Serious buyers see pockets of opportunity in the current slump but are being unusually cautious because of the recession, Ong added.

Property agents at a show flat for a yet-to-be built condominium, located less than 20 minutes' drive from the main Orchard Road shopping belt, said they were hopeful, despite the dismal market.

"There will always be buyers even in a tough market and our prices are rather attractive," said one agent, who did not want to be named.

A two-bedroom unit at the condominium, which will come with a heated swimming pool and a gym, sells for about S$860,000 (S$1 = RM2.40).

In good times, the 915 sq ft apartment could fetch at least US$915,000 (US$1 = RM3.54), the agent said.

Until the economy recovers, prospective property buyers are likely to hold out in hope of better bargains, said Song Seng Wun, a regional economist with CIMB-GK brokerage.

By AFP

Metro Kajang plans RM1.6b projects

METRO Kajang Holdings Bhd (6114) plans to launch at least three new projects with a gross development value (GDV) of RM1.6 billion this year.

Group managing director Datuk Eddy Chen Lok Loi said the company will focus on the medium-to-high-end properties that are resilient even in recession.



The company is the biggest property developer in Kajang and Semenyih and is keen to strengthen its position.

It bought a 110ha of prime freehold land close to the Kajang town centre for a mixed development project. The land will be turned into a high-end integrated township with a GDV of RM1.4 billion.
"This new township project will have six phases and will keep us busy over the next eight years," Chen told reporters after receiving the QLASSIC award for quality construction from the Construction Industry Development Board Malaysia in Semenyih on Saturday.

Metro Kajang will launch a new housing project in June this year, spread over 47.2ha in Bandar Teknologi Kajang.

The gated and guarded community will comprise 500 units of landed properties with a GDV of over RM100 million.

It also hopes to launch semi-detached homes and bungalows at its Sentosa Villas project The total GDV for the Sentosa Vilas project will come to RM83 million when combined with the launched three-storey link houses.

Plans to build 523 units of serviced apartment at Desa Melawati worth RM140 million project are also put on hold.

"We will assess the economic situation first before deciding to launch the project," Chen said.

Nevertheless, Chen is optimistic on the property market and is scouting for more land.

At present, the company holds 200ha of undeveloped land in the Klang Valley.

On the award, Chen said Metro Kajang will not cut corners in its projects although the economic condition may be tough.

By Business Times (by Rupinder Singh)

Metrojaya: New stores will drive up sales

RETAILER Metrojaya Bhd expects sales to grow by five per cent this year, driven by new stores and ongoing marketing and promotion activities.

Last year, it made some RM400 million in sales.

The group operates seven department stores which account for 60 per cent of its revenue, three specialty stores and a new venture called MJ Outlet, which sells off-the-season products from its department and specialty stores.

"The idea to operate MJ Outlet is to provide a proper avenue to market our off-the-season products instead of having a warehouse sale all the time," chief executive officer Robert Heng said.

Metrojaya had launched an MJ Outlet and a Reject Shop at Brem Mall in Kepong on Saturday. Covering 46,000 sq ft of retail space, the stores offer men, ladies and children apparels and household items.

Well-known brands like Somerset Bay, East India and household items from Laura Ashley and Living Quarters are all available at MJ Outlet where prices are reduced by up to 70 per cent.

Heng said since its soft launch on December 20 last year, MJ Outlet has received positive feedback from customers who shop for quality products at lower prices.

"Our customers appreciate the move especially during challenging times like now," he adds.

Metrojaya has signed an 18-year lease with Brem Holdings Bhd and spent a total of RM4 million or RM2 million each to open MJ Outlet and Reject Shop.

Depending on the response, Heng said the group may open more MJ Outlets but it has not set any targets or budgets.

"It depends, as we move along, since our main focus is still department stores. If we do open more MJ Outlets, it will be at the edge of town," he said.

Meanwhile, Metrojaya will open a 125,000 sq ft department store in Sabah by the third quarter this year.

By Business Times (by Zurinna Raja Adam)

RM200mil projects lined up

Artist’s impression of OSK Property’s condominium project in Jalan Yap Kwan Seng, Kuala Lumpur.

OSK Property Holdings Bhd has lined up a few residential property and commercial projects worth RM200mil for launch in the Klang Valley, Seremban and Sungei Petani this year.

For the current financial year ending Dec 31, the company hopes to clinch sales of between RM120mil and RM130mil. Last year, it launched RM180mil worth of properties and recorded sales of RM153mil.

OSK Property executive director and chief operating officer Gerard Tan says that amid the current market slowdown, house buyers comprise mainly owner occupiers who are looking to upgrade into more prestigious addresses. “Developers have lowered their profit margin from 25% to 30% previously to about 20% now and it is certainly a good time to buy property for their good value. The onus is on developers to ensure their projects are properly planned and meet the needs of the buyers,” he tells StarBizweek.


Gerard Tan in front of a Sutera Damansara show house

OSK Property’s latest project in the Klang Valley is the 100-acre Sutera Damansara in Bandar Sri Damansara, Petaling Jaya. Scheduled for launch around March for completion in seven years, the project comprises 617 landed residences, 936 apartments and 24 shop houses with a total gross development value (GDV) of RM800mil. Tan says only 80 acres of the 100-acre project will be developed initially and the remaining 20 acres, for high-rise dwellings, will be undertaken after five years.

The initial phase will comprise terrace houses of around 2,305 sq ft priced from RM478,000. Since the project’s soft launch last month, RM52mil sales have been recorded.

In Kuala Lumpur, OSK Property is looking to launch a high-end condominium project in Jalan Yap Kwan Seng in October. The 108 condominiums, ranging from 703 sq ft to 4,152 sq ft, would be priced from RM1,000 per sq ft. The project with GDV of RM150mil is targeted for completion in three years.

The company also owns a 0.65-acre plot in Jalan Raja Abdullah and hopes to tie up with the adjoining land owner to develop the land into a condominium project later this year.

Tan says the company’s 12-acre plot in Bangi will be developed into 74 units of 2- and 2½-storey Bangi Lake Hill Villa. The building plans for the project have been approved and it will be launched in May. The units will be priced from RM880,000 to RM1mil.

In Seremban, the Mont Jade residential enclave comprising 243 semi-detached houses and bungalows will be launched in March.

The semi-detached houses will be priced from RM450,000 and bungalows from RM500,000.

OSK Property’s joint venture with Menang Development Sdn Bhd to develop 80 acres in Seremban 3 is at its tail end with a total of 547 units built to-date and another 147 units remaining units.

In Sungei Petani, the company has completed half of the 2,500 acres of land it owns in Bandar Puteri Jaya. A total 25.000 housing units worth a GDV of RM1bil have been completed. The balance RM1bil in property units will be undertaken over the next five years.

Meanwhile, on the company’s plans for Atria Damansara in Damansara Jaya, Tan said: “Our plan is to redevelop the property into a more upmarket retail and commercial destination for Petaling Jaya folks. The modern shopping mall will have gross lettable area of 1.3 milion sq ft and also some low-rise shop offices.

“The development order has been obtained last year and the redevelopment is expected to kick off late next year. The potential GDV of some RM1bil will be realised by 2012,” he adds.

Last February, OSK Property sealed the deal to purchase Atria Damansara shopping complex located on 5.48 acres for RM75mil.

Currently some 68% of the space in the complex have been leased out for a monthly rental income of more than RM8mil.

“We will retain some of the property for lease to generate recurring income while the rest will be for sale. The oroject is expected to revive the vibrancy of the Damansara Jaya commercial area into a more happening destination,” Tan says.

By The Star (StarBizweek - by Angie Ng)

Analysts mixed on cement price outlook this year

Although major construction material costs have come down recently, analysts are mixed on the outlook for the price of cement this year.

An analyst said that theoretically, the cement price in 2009 should increase given that the prices of coal and electricity, which are vital for cement production, would be higher than last year.

“But we expect cement price to remain the same this year, as the global economic uncertainty and external factors were pressuring the local manufacturers from increasing the price,” she tells StarBizWeek.

However, another analyst from a multinational firm predicted otherwise. He opines that cement price will fall because its raw material costs had come down.

He says the price has not declined like other products because the cement industry is more localised and, therefore, domestic manufacturers have more control.

After the cement price liberalisation on June 5 last year, he says import volumes have remained small due to the high logistic costs.

Currently, he adds, the local price has risen about 27% to RM280 per tonne from RM220 early last year.

Cement Industries of Malaysia Bhd chief financial officer Rozahan Osman says demand for cement in the region will grow 1% to 2% this year if major infrastructure projects progress as planned and residential projects recover as predicted.

“Cement demand contracted in the second half of 2008, while the full year growth rate is expected to be around 3% compared with 8% growth in the first half. We expect demand to recover in the second half of 2009.

“Cement price could only be lowered when prices for major production input, such as coal and production consumable prices, are lower,” he says.

Meanwhile, Cement and Concrete Association of Malaysia executive director Grace Okuda says market forces of supply and demand will determine the price of cement.


Grace Okuda

She says unless the government speed up the implementation of the stimulus packages, especially on infrastructure projects, cement demand will continue to slow down.

“However, we expect demand to recover latest by the fourth quarter. Currently, there is no cut in production yet and as there is no retrenchment in the cement industry. Manufacturers are looking for new markets to mitigate the domestic slowdown,” she says, adding that presently, only a small percentage of the domestic production is for export.

According to Okuda, cement price had not risen from 1995 to late 2006. In December 2006, it rose only 10% although production costs had risen by 31%.

Since then, its price had gone up twice - 15% to 20% in June and about 8% in August last year. The increases were due to an unprecedented 63% hike in diesel price and 26% rise in electricity tariffs.

She says the association has informed the Government of the industry’s concern and hopes it will reduce electricity tariffs.

By The Star (by K.C.Law)

REITs’ high yields and risks

Investors are spoilt for choice in their search for yield as many shares and most of the real estate investment trusts (REITs) offer dividend yields in the high single digit to low teens.

Like their counterparts in the developed markets, however, they are also scared and uncertain if both the yield and capital value of REITs will hold.

A sell-down in REITs that intensified in December have pushed their unit prices lower and, therefore, lifted their yields. Axis REIT, for instance, fell from a 52-week high of RM2.00 and from RM1.20 in late November to RM1.00 less than two weeks later. It has since recovered to around the RM1.20 level.

Such price fluctuations may be the norm in these volatile markets but retail, and even institutional investors, did not expect prices for REITs to swing like that. Typically, REITs have tenancies leased for a number of years in contrast with trading businesses in which revenue varies from day to day or contract to contract.

REITs, of course, face the property market risk of tenants moving out and in the global credit crunch, the risk in rolling over their loans. Prices of REITs also fell in the general sell-off of securities by investors going into cash.

As a result, Axis REIT was carrying a historical yield of about 13% for 2008, annualising its nine-month income distribution.

REITs in Singapore and Hong Kong showed similar, or even higher, historical yields as their unit prices fell further, reflecting the greater risks in the property markets there.

Starhill Global REIT, the former Macquarie Pacific REIT, listed in Singapore, shows a historical yield of 13.6% with its units traded at 52 cents. That is still much lower than the 82 cents a unit that YTL Corp Bhd paid for a 26% stake in the REIT. Furthermore, the REIT now has the support of the very large YTL group.

On Dec 23, Starhill told the Singapore Exchange it is consulting its legal advisers to assess Future Revolution’s and Futuregement’s ability to meet their obligations to the REIT’s properties in Japan.

Future Revolution and related entities directly occupy 33% of the space in Starhill’s Japanese properties. The bulk of Starhill’s properties are, however, in Singapore.

Fortune REIT, with retail properties in Hong Kong but listed in Singapore, was yielding as high as 18% for 2008, one of the highest in the sector. The REIT is sponsored by Cheung Kong (Holdings) Ltd, the flagship company of Li Ka-shing. Interestingly, a report by Macquarie Research forecasts Fortune REIT’s high yield will be sustained this year.

A yield of even 10% is very high for any asset class and if the Malaysian REITs can sustain their current yields, this is a rich field for investors in search of income.

High yields prevent expansion

The window of expansion for real estate investment trusts (REITs) has closed for the time being as their high yields preclude the possibility of any yield-enhancing acquisitions.

When the stock market was buoyant last year, prices for the units of REITs were higher and their yields were thus lower, at around 7% and even as low as 3%.

With that, it was possible for REITs to purchase properties that yield 8% to 9% and that would increase the yield of the trust.

With current yields of about 10% in the REITs, any purchases of properties with yields below that would reduce the trust’s yield.

It appears that even where the REIT promoter thinks it will be fruitful to purchase a property with a yield lower than the trust’s, shareholders may reject it.

That happened at Atrium REIT which proposed to purchase an industrial property for RM17.8mil cash from a related party. This is not unusual because sponsors provides a pipeline of properties for many of their REITs.

However, as the property offered a yield of 8.75%, lower than Atrium’s own yield that was then about 10%, minority unitholders rejected the purchase resolution at an EGM in November.

The financing window for REITs is also, for the moment, closed. REITs need to issue new units to raise capital now and then so as to raise their borrowing capacity and to repay loans.

REITs are regulated to maintain borrowings below 50% of their total assets but they do not retain the cashflow to repay their loans. They normally pay out 90% of their income so as to qualify for tax exemption, which leaves very little for loan repayment. Some REITs have a policy of distributing 99% of their income.

With the units of some the REITs trading below their par value and a lack of institutional interest, REITs will have to wait for markets to improve before they can substantially expand their asset size.

Fundamental flaws in trusts

Real estate investment trusts (REITs) are pitched to retail investors, including moms and pops and retirees, that they are a handy alternative to owning a house or condomium for rental income.

In a REIT, maintenance and tenancies for the properties are handled by a manager whereas an individual, buying a house to rent out, has to look for a tenant, ensure rents are paid and done so on time, and he has to take care of repairs and maintenance himself. REITs are, therefore, appealing to busy investors and retirees who do not want the drudgery of that work.

The price performance of REITs last year, however, show it does not mirror that of real properties. While a house of RM500,000 has held up its value so far, the value of REITs would easily has lost 50% in the last 12 months.

The first difference is that REITs are listed in stock markets and, like all listed securities, are subject to a sell-down whenever there is fear.

Secondly, REITs in most markets finance their property purchases with short-term loans. This exposes them to risks of banks willing to refinance and higher interest rates. This is an aspect not considered by many retail investors even if the facts were made known by the REITs in their prospectuses.

Would they buy a house with a loan repayable in five years or less? Probably not, but that’s the characteristic of a REIT. In some cases, a REIT may have its borrowings due within the year.

The reason for a preference for short-term debt could be that interest costs are lower than long-term debt, which boosts the bottomline. If REIT prices move up, they can issue more units to pare down debts, or make more purchases.

Last week, investors in Singapore heaved a sigh of relief that CapitaCommercial Trust, a REIT managed by the CapitaLand Ltd group, obtained a three-year loan of S$580mil at a very favourable rate of about 4% a year to refinance a loan coming due in March. Earlier, there were concerns that banks might charge 7% or 8% which would knock off a lot of its income.

In the US, some REITs have even failed altogether. By now, retail investors are aware that investments in REITs have to be managed the same way as their equity investments, with potentially the same risks.

By The Star (by C.S.Tan)