Sales forecast for Magna City slashed

MAGNA Prima Bhd, whose luxury homes fetched record prices in Malaysia last year, slashed by almost half projected revenue from its biggest development as the global recession cuts demand for retail property.

Magna Prima will remove a mall and hotel from its Magna City project in northern Kuala Lumpur and focus on apartments, shops and offices, chief executive officer Lim Ching Choy said. He cut his sales forecast from the development to RM600 million (US$165 million) from RM1.1 billion.

“We have to reposition our direction,” Lim, 47, said in an interview yesterday in Petaling Jaya, outside Kuala Lumpur. The “downscaling” will help Magna Prima “manage sales according to market conditions.”

A worldwide recession has triggered real-estate slumps from the Netherlands to New Zealand, and IJM Corp and Berjaya Land Bhd are among Malaysian developers reported to have shelved projects. The Southeast Asian nation’s government expects the slowest growth in eight years in 2009, and Lim said it may be 18 months before the economy rebounds.
“The whole market is bearish on property stocks,” said Ang Kok Heng, who oversees US$156 million as chief investment officer at Phillip Capital Management in Kuala Lumpur. “They have a few choices, either you delay the launches, hold or scale them down to suit the conditions.”

Yesterday, Malaysia’s central bank cut interest rates for the first time since 2003 and lowered the amount lenders need to set aside as reserves to help shield the Southeast Asian economy from the global recession.

Shares of Magna Prima, based in the Kuala Lumpur suburb of Damansara, have fallen 59 per cent this year, outpacing a 41 per cent slide in the benchmark Kuala Lumpur Composite Index.

Still Profitable

Lim said the profitability of the Magna City project, scheduled to be introduced in the first quarter of 2009, won’t be affected by the cutback. He’s seeking a profit margin of between 25 per cent and 30 per cent from the development.

The recession might also offer takeover opportunities because valuations have fallen, he said. The company plans to double its cash reserves to RM100 million in the next 1 1/2 years for property acquisitions that can be injected into a real-estate investment trust, Lim said.

A slump is the “best time to make more money,” he said. “Land cost is reasonable if you have money.”

With the Magna City project scaled back, Lim plans to focus on building higher-priced homes. Demand for low-priced homes has been “drastically affected” by the slowdown, he said.

Bank loans approved for Malaysian home purchases in September fell to a seventh-month low, according to the central bank.

Economic growth in 2009 is expected to slow to 3.5 per cent from about 5 per cent this year.

Magna Prima will roll out two high-end residential projects worth as much as RM300 million each next year, and is in talks to acquire 2.5 acres (1 hectare) in Kuala Lumpur near the Petronas Twin Towers to construct an office building, he said.

Last year, Magna Prima sold the last unit in a luxury residential block in the center of Kuala Lumpur for a record RM2,100 per square foot. Space now goes for an average RM1,300 per square foot and above, according to Mervin Chow Yan Hoong, an analyst at OSK Research Sdn Bhd.

Magna Prima last week said third-quarter profit tumbled 85 per cent to RM1.1 million.

By Bloomberg