Commercial values and rental in KL touch new high

UNDER the Kuala Lumpur Structure Plan 2020, the city has five goals to achieve in order to assume its place as a major global city. First on the list is to enhance the role of the city as an international commercial and financial centre.

Other goals in the plan are to create an efficient and equitable city structure, enhance the city's living environment, create a distinctive identity and image for the city, and have efficient and effective governance.

Judging from the amount of property development activity going on in downtown Kuala Lumpur, especially in the construction of luxury condominiums and serviced apartments in the vicinity of the Kuala Lumpur City Centre (KLCC), at least one aspect of the plan is being implemented.

The majestic Petronas Twin Towers (Picture source from website)

However, commercial property development in the downtown area has lagged behind the feverish pace of residential property development until the past year or so. This has led to a rise in the values and rentals of commercial properties, both in the office and retail sub-segments.

Except for the KL Sentral, the Mid Valley City and Bukit Damansara commercial precinct, KL City Hall has in general discouraged the development of commercial properties, especially office towers, since the 1997 Asian financial crisis due to the number of uncompleted or untenanted properties then. City Hall had subsequently said it would only approve commercial property development on certain stringent conditions.

In the decade since the Petronas Twin Towers together with its 6-storey Suria shopping mall located in the very heart of KLCC opened its doors, there have not been many purpose-built commercial buildings in the area except for the 29-storey Menara ExxonMobil, the 49-storey Menara Maxis and the five-star Mandarin Hotel Kuala Lumpur owned by KLCC Property Holdings Bhd. Another new office building is the 36-storey Menara Public Bank, located along the corner of Jalan Ampang and Jalan Yap Kwan Seng, completed in 1994.

This has led to a situation in which there is a lack of Grade A office space in the area, noted several property consultants. This is now being remedied, as can be seen from announcements made in the past two years on the development of commercial properties, usually an office tower or two with a residential element in the form of serviced suites or apartments on a retail podium.

According to Henry Butcher Malaysia Sdn Bhd chief operating officer Tang Chee Meng, the past year was marked by strong interest from institutional buyers for Grade A office buildings, resulting in capital values of these buildings hitting benchmark prices after hovering in the RM500 to RM600 per sq ft (psf) band over the past few years.

He said office rentals had moved up in tandem with values, with Grade A office rentals located in the vicinity of KLCC ranging between RM5 and RM8 psf while occupancy rates in KL have moved up to around 83%.

Among those developing commercial properties in the neighbourhood of KLCC, KLCC Property comes easily to mind. It is developing another 59-storey office tower cum shopping podium. YNH Property Bhd, on the other hand, is developing Lot 163 Suites, a mixed development project that includes a 14-storey office tower with a gross development value (GDV) of RM322mil along Jalan Perak.

Another development that would take place along the same stretch of road is the 34-storey office building by TH Technologies Sdn Bhd, part of Lembaga Tabung Haji.

The RM150mil building is built on the build-operate-transfer model in which the Islamic pilgrims' fund would hand over the building to the Federal Territory Islamic Religious Council after 25 years. In that period, rental revenue would go to the fund, which in turn would apportion part of it to the council.

Glomac Bhd is another company that saw the need for more Grade A office space in the area. The company is the senior partner in a joint venture with the diversified Al Batha Group of the United Arab Emirates for the development of the 40-storey Glomac Tower located on the corner of Jalan Pinang and Jalan P. Ramlee.

The yet-to-be-built office tower, which has a net lettable area of 243,830 sq ft, was purchased late last year by Kuwait Finance House (M) Bhd for RM577mil or about RM1,120 psf.

Further down the road and located in a corner of Jalan Tun Razak and Jalan Ampang is Goldis Tower, which would be developed by Goldis Bhd, a company in which IGB Corp Bhd has a 27.28% equity stake. The development is actually two 30-storey towers comprising corporate suites and a boutique hotel with a GDV between RM500mil and RM600mil.

TTDI Development Sdn Bhd is the most recent of developer to enter the property development scene in the area with the announcement of the development plans of the 9.1-acre Platinum Park, an integrated development comprising both commercial and residential elements.

Located along Jalan Stonor near KL's oldest condominium, Desa Kuda Lari, the project will have three office towers of 33-, 38 and 50-storeys, one 30-storey condominium block and two 42-storey condominium blocks and a 30-storey serviced apartment tower with a total GDV of RM3.5bil. The 50-storey office tower was sold to the Federal Land Development Authority for RM640.7mil recently.

Office buildings are by no means the only type of commercial property development in the KLCC vicinity.

By The Star

KLCC magnet for local and foreign investors

In Part One of our focus on KLCC, we look at the growing interest among investors and developers in the prime real estate hotspot. Part Two will appear on Feb 18

The Kuala Lumpur City Centre (KLCC) enclave is emerging as an international real estate destination with growing local and foreign interest to develop and invest in residential and commercial properties.

The Petronas Twin Towers and the surrounding 50-acre central park have been “magnets” in attracting real estate investors and developers.

Interest in the KLCC area started in early 2000 after the Kuala Lumpur City Hall (DBKL) set out to make Kuala Lumpur a world-class city and to promote inner city living in line with the KL Structure Plan 2020.

Medium-density high quality residential developments were designated in areas around the KLCC, Jalan Yap Kwan Seng, Bukit Ceylon, Jalan Inai/Imbi and Jalan Stonor/Conlay.

The early launches in the KLCC area included the Stonor Park, Marc Service Residence, Dua Residency and Binjai Residency.

In the last few years, these apartments, which were sold for between RM500 and RM700 per sq ft (psf), have recorded price appreciation of between 70% and 120%.

The interest in high-end luxury residences within the KLCC enclave is driven by the changing lifestyle and the strong appeal of inner city living.

Previndran Singhe

According to Zerin Properties chief executive officer Previndran Singhe, owning a property in the KLCC area has become a status symbol for the affluent and a dream for many people.

“Malaysians are moving to the city in recent years similar to the trend in Hong Kong and Singapore a decade ago. Living in the inner city has become a choice for a growing group of people who are opting for a change in their lifestyle and the conveniences offered by city living,” Previndran said.

Besides the many amenities from shopping complexes to eateries, the worsening traffic woes in the city make walking home from work fun and time-saving.

A growing expatriate community, including diplomats and professionals from the information technology, oil and gas, and banking industries, is also opting for the KLCC address.

Their high rental budget has pushed rental rates in the surrounding residences from RM3 psf previously to RM8 psf now.

Industry observers said properties in the KLCC vicinity, including residences and office blocks, were changing hands at prices that were once thought not possible in Kuala Lumpur.

Over the years, prices of residential properties in the KLCC area have recorded strong capital appreciation, and market observers are confident that prices would continue to reach new heights as land become a scarce commodity in the KLCC area.

Zerin Properties assistant head of agency Terence Yap said KLCC properties were being traded like commodities rather than investment assets and prices had skyrocketed in the past year.

Terence Yap

Abbey Woods Sdn Bhd chairman and managing director Datuk Wong Choon Kee said the strong outlook for the KLCC market would continue, given the country's political stability, strong economic fundamentals, and the investment friendly environment, to promote greater foreign participation in real estate.

“The exemption of real property gains tax last April is a welcome start to get Malaysia on the radar screen of investors. Kuala Lumpur properties are still relatively cheaper compared to other Asian cities and there is strong upside potential,” Wong said.

“With prices breaking RM2,000 psf and fresh frontiers in luxurious living being opened with each new project, the possibility is there for residences in the KLCC enclave to be on par with world renowned residential enclaves such as the Hyde Park in London and the Central Park in New York.

“We are now looking at new levels, some new launches touching RM3,000 psf this year,” Previndran said.

Riding on the wave of the KLCC craze, Zerin Properties has recently launched a dedicated KLCC portal, http://www.klcc-living.com, to cater to the needs of those wanting to enjoy the vibrancy of KLCC living. So far, more than 55,000 hits with about RM4mil worth of transactions have been recorded.

By The Star (Stories by Angie Ng, Fintan Ng and Shannen Wong)

More than 6,000 new apartments in the next three years

The growing attractiveness of Kuala Lumpur City Centre (KLCC) continues to lure developers to the city to introduce their brand of tastefully designed projects.

From less than 1,000 residential units in the KLCC enclave in the late 1990s, there are now more than 2,000.

By 2010, there will be more than 7,000 residences completed.

The total approved projects (including those under construction and completed) as of end of last year will see more than 6,000 new apartments added in the area in the next three years.

KLCC is certainly in the spotlight these days with more than 30 property projects either completed or at various stages of construction.

Several niche players continue to purchase land in the vicinity despite the current high land price of RM1,500 to RM2,000 per sq ft (psf). In 2000, land in the area was only going for RM200 to RM300 psf but by 2003, the price has doubled to between RM500 and RM600 psf.

Among the projects to be rolled out this year are Four Seasons Residence by Venus Assets Sdn Bhd, Panaroma by UOL Group, The Binjai by KLCC Property Holdings Bhd, Platinum Park by TTDI Development Sdn Bhd and K-Residence phase 2 by Olympia Industries Bhd. The Binjai, which offers unobstructed views of the KLCC Park and Petronas Twin Towers, is expected to have price tags from RM2,500 psf.

Given their proximity to the twin towers and going by the new prices fetched by recent project launches in the area, real estate consultants concurred that the upcoming projects should also be priced RM2,000 psf onwards.

Teh Boon Ghee

DTZ Nawawi Tie Leung executive director Brian Koh said iconic buildings such as Park Seven, Stonor Park, Troika, Four Seasons Residence and The Avare, with their own unique features, would further raise the bar of design excellence for high-rise apartments in the KLCC enclave.

“These buildings adopt the latest building and design technology resulting in eye-catching architecture designs, layout and optimum space usage. The use of a lot of glass also offers good unobstructed views of the surrounding KLCC neighbourhood,” Koh said.

He said these iconic buildings would place the KLCC on the map as an internationally acclaimed address.

Meanwhile, the presence of world-class players like Singaporean tycoon Datuk Ong Beng Seng of Hotel Properties Ltd, Quek Leng Chan of Hong Leong Group, Tan Sri David Chu of Mayland Group and Singapore's CapitaLand will add more value and depth to the KLCC enclave as a well-sought after address.

Ong, the name behind luxury residential developments such as Nassim Jade and Cuscaden Residences as well as the Four Seasons, Hilton and Hard Rock Café hotel properties, will be undertaking the Four Seasons development on 2.6 acres next to the Petronas Twin Towers.

According to Tan & Tan Developments Bhd executive director Teh Boon Ghee, the KLCC enclave, where the rate of appreciation in capital values had been much faster than most other areas in the country, will remain the focal point of real estate development for many years to come.

“In the long term, only projects with good location, quality construction and finishes, facilities and property management, would stand the onslaught of the growing competition,” Teh said.

Abbey Woods Sdn Bhd chairman and managing director Datuk Wong Choon Kee said: “The KLCC Twin Towers, which had proven to be Kuala Lumpur's most memorable buildings that matched other world's best, would continue to attract developers and investors.

“The stainless steel-clad twin towers stand out as one of the more unique structures in the world and remain one of the largest real estate developments in the world today.

By The Star

Rising population puts stress on infrastructure

INFRASTRUCTURE around the KLCC area has seen much improvement over the years with better road accessibility and public transport facilities such as the light rail transit and the monorail.

There is an increasing number of people commuting by public transport in the KLCC area.

However, many have voiced concern that the infrastructure is still inadequate.

Real estate consultants are urging the Government to improve the infrastructure and amenities to meet the rising population and workers in the area.

“The number of new property projects in the KLCC vicinity in the next few years will overwhelm the road and public transportation infrastructure in the KLCC and its immediate environs,” Reapfield Properties Sdn Bhd president David Ong told StarBiz.

He said Kuala Lumpur's commercial hub was struggling under the overwhelming number of vehicles, including passenger cars, taxis and buses.

Stretches that are currently facing major congestions include Jalan Tun Razak, Jalan Yap Kwan Seng and Jalan Ampang, which serve as the major link roads in the KLCC enclave.

The current LRT line that serves the locality is facing significant stress during peak hours, with commuters having to bear with long queues and cramped trains on a daily basis, he said.

Henry Butcher Malaysia Sdn Bhd chief operating officer Tang Chee Meng said the increase in residential units would lead to traffic congestion especially in bottleneck areas such as Jalan Pinang, Jalan Perak and Lorong P. Ramlee.

PPC International Sdn Bhd executive director Thiruselvam Arumugam said: “In the long term, the current infrastructure would not be able to sustain and accommodate the increase in the number of high-end condominiums, office buildings and retail spaces.”

By The Star - StarBiz

Nam Fatt to tap high-end market

PROPERTY developer Nam Fatt Corp Bhd wants to launch high-end properties in prime locations in the Klang Valley and in Malaysia's growth corridors, to build its property division and profile.

Nam Fatt, which predominantly develops properties in Selangor, is scouting for land in Mont' Kiara, Bangsar, the Kuala Lumpur City Centre, Johor, Penang and Sabah.

"We are eager to talk to landowners and form joint ventures to develop high-end properties. We will not deny the opportunity to go into any locations if the price is right," said Frankie Tan, manager, sales and marketing, for the property division.

Tan told Business Times in an interview that the company's future direction is towards niche developments, which are exceptional and stand out, showcasing its strength in the industry.

"As a company, we are extremely successful in the construction and infrastructure sectors. We now plan to raise our profile in the property segment by offering quality products," he said.

Nam Fatt's foray into the Kuala Lumpur City Centre was through Gallery, a low-density, high-end boutique complex at Jalan U-Thant.

It comprises two condominium towers with 50 units, priced from RM3 million to RM7 million each.

Tan said more than 95 per cent of the units were snapped up within three months of its launch.

Nam Fatt has 162ha of undeveloped land, which will keep it busy for the next five years.

It also has land at its Sultan Abdul Aziz Shah Golf Club (KGSAAS) development in Shah Alam.

At KGSAAS, Nam Fatt plans to build 15 luxury bungalows, priced from RM4.5 million to RM6 million, on a 8ha site. Dubbed Avante, the bungalows, which will be build for RM80 million, will be launched by year-end.

KGSAAS is a gated and guarded community sprawled over 171ha. It started in 1992 and includes a 27-hole golf course and 1,000 bungalows and semi-detached homes built year-to-date.

Esente, comprising 12 units of semi-detached modern contemporary homes and a 4,744 sq ft bungalow, is another project in KGSAAS, which is being developed currently. The units are priced between RM1.4 million and RM2.2 million.

"We've had a soft launch on Esente but have not registered sales. We are confident Avante and Esente will sell, looking at sales of previous components at KGSAAS," Tan said.

Nam Fatt has plans to build a high-end condominium tower with 80 units, adjacent to KGSAAS. The yet-to-be priced units will have built-up areas of between 1,000 sq ft and 1,200 sq ft.

"We may launch it this year or early next year," Tan said.

Tan said Nam Fatt will also launch two new phases of double-storey semi-detached homes, priced at RM400,000 and above, and terrace houses, ranging from RM150,000 to RM250,000, at its existing township in Semenyih this year. The company commenced work on the RM1 billion township in 1996, which is 70 per cent developed.

By New Straits Times (by Sharen Kaur)

Asiatic aims to build RM35b of properties at Indahpura

ASIATIC Development Bhd, a subsidiary of gaming group Genting Bhd, expects to build properties worth more than RM35 billion at its township in Johor, beating its earlier forecast by 17 per cent.

Dubbed Asiatic Indahpura, the project is sprawled over 3,200ha of plantation land in Kulaijaya which is part of the Iskandar Development Region (Iskandar).

The 30-year project, which started in 1997, is being developed by Asiatic's property arm, Asiatic Land Development Sdn Bhd.

"We were targeting a GDV (gross development value) of RM30 billion when we launched the project. But since Iskandar took shape, we expect to beat initial forecast," a company official who declined to be named told Business Times.

"We expect a higher GDV now also because we have added new components in the project to attract local and foreign investments," he said.

On January 22, Genting, Asiatic's 54.8 per cent parent, signed a preliminary pact with the Chelsea Property Group. They will study the feasibility of setting up Premium Outlets stores in Kulai as well as other locations in Malaysia.

Indahpura is conceptualised as a fully-integrated development, complementing the state's plan to upgrade the Kulai town into a sub-regional centre.

It has residential and commercial properties comprising shophouses, semi-detached and terrace homes, condominiums and apartments, and light industrial units.

It will also have schools. Some 37 public and private schools, and a vocational and boarding school will be built.

Asiatic has so far developed 800ha or about a quarter of the township. It has built 5,000 homes, a commercial centre, a sports complex, car city for showrooms, and four schools.

The official said it will soon build a district police headquarters and an education department.

"There will be other government institutions in Indahpura. The deals with the relevant departments are under negotiations," added the official.

Also in the pipeline is a shopping mall, to be built by the end of the year, and an 18-hole golf course.

"We want Indahpura to be a complete township equipped with lifestyle and infrastructure facilities and amenities, and entertainment. We will add more components to complement the development as the township matures," the official said.

Meanwhile, the official said property sales have improved by 20 per cent since the launch of IDR in 2006.

He said 95 per cent of sales are from locals while five per cent are foreigners buying commercial assets.

"There has been price movements. Earlier, a house here would sell for RM198,000. Now, the same unit is selling for RM248,000," the official said.

By New Straits Times (by Sharen Kaur)

Buyers snap up Legend Water Chalets phase 2

ABOUT 70 per cent of the Legend International Water Homes in Port Dickson, a prestigious project undertaken by the Kuala Lumpur Metro Group, has been sold even before completion.

Located at Tanjung Gemok, about 2km from Port Dickson town, the project is the second phase of the Legend Water Chalets, and is scheduled for completion in the first quarter of 2009.

The first phase, opened to the public in 2006, saw all 392 units sold with the majority opting for the rental payment scheme. The scheme allows owners to lease back their property to KL Metro for six per cent rental income per annum in return.

The second phase was recently launched by the Yang di-Pertuan Besar of Negri Sembilan, Tuanku Ja'afar Tuanku Abdul Rahman.

A majority of the buyers are from the Klang Valley while overseas buyers, who make up about 30 per cent, are mostly from North America, Western Europe, the Gulf region and Asia Pacific.

Almost 70 per cent of the 249 units on offer for the second phase, which offers a more high-end concept, have been snapped up.

The units include 166 water chalets, 44 garden chalets and 39 sky pool villas. Prices range from RM300,000 to RM1 million.

As in the first project, the second phase will also be managed by the Legend Group of Hotels and Resorts.

The Legend Water Chalets is designed with a Tropical Balinese touch, offering choices of tumble stone and tropical hard wood floorings and elevated bedrooms. One unique feature, and a selling plus point, is that each unit has its own private pool and open air garden.

KL Metro is now working on developing another resort project on a joint venture basis with the Malacca state government.

By New Straits Times (by Ridzwan Abdullah)

Building material prices going up in H2

Industry players see higher prices for steel bars and cement

SPECULATION is rife that the prices of controlled building materials like steel bars and cement are set to increase further in the second half of this year.

Late last month, the Economic Planning Unit (EPU) held its first special committee meeting with cement and steel industry players to get feedback on their escalating raw material and operational costs.

It is believed that the Government will review the ceiling price of major building materials given the serious “pricing” issue especially in the domestic cement and steel markets.

The Government has also set up the National Price Council to review and evaluate the price control regime to ensure fair prices based on domestic and global markets and supply and demand situations.

It will also monitor, review and recommend measures to rationalise government subsidies and price support activities covering the production and supply, including imports, of all price-controlled items.

Industry players contacted by StarBiz are projecting higher steel bar and cement prices this year, given the Government's increasing concern over the worries of cement and steel manufacturers, particularly with the roll out of projects under the Ninth Malaysia Plan (9MP).

For steel, the Government had increased the ceiling prices of steel bars and billets effective Dec 1, 2007.

Alain Crouy

The 12% price hike was the third in 2007, after a 20% adjustment for both billets and bars in April and a second increase of about 7% to 9% in June.

Billet prices now range from RM1,907 to RM2,035 per tonne depending on the type and size, while prices for steel bars are from RM2,225 to RM2,419.

With this latest increase, the price gaps between the local ceiling prices and international prices have narrowed. But the new ceiling prices for both billets and bars are still below the international prices.

Ann Joo Resources Bhd executive director Datuk Lim Hong Thye believed that there was room for price hikes (for steel bars and billets) this year.

Since December last year, he said, the price of scrap (main raw material for steel) had jumped by 29% to about US$490 per tonne from US$380 per tonne previously.

Datuk Lim Hong Thye

This resulted in the prices of finished steel and billets rising to US$740 per tonne from US$630 per tonne previously.

“Millers are not asking for artificially higher steel prices but they want to see local steel prices closely tracking international steel prices,” Lim said.

He added that the proposed automatic pricing mechanism (APM) on steel or the lifting of the ceiling price on steel and billets would not stop steel prices from increasing further, given current strong global demand and high raw material costs.

As for cement, the implementation of the APM took effect on Jan 1 this year.

Lafarge Malayan Cement Bhd group managing director Alain Crouy said: “The drivers for the growth in demand for cement will be the implementation of the 9MP, stronger private investments and consumption. We hope to see a growth of 4% to 5% in the domestic cement market for the next two to three years,” he said.

Crouy said that due to the strong increases of cost factors of cement, it was also important to review the ceiling price of cement and to implement the APM.

CIMB Equities Research, in a recent note, said local demand for building materials would enjoy strong growth, given anticipation that construction activities would pick up and grow by 6%, which is the highest since 1997.

It has estimated a 6% growth in demand for long steel products and about 5% growth in cement demand in 2008.

In terms of supply, CIMB Research said across the board, utilisation rates in the steel industry were still low at about 60%, which would ensure sufficient supply.

However, utilisation in the cement industry is significantly higher at about 80%.

“In the event of tight supply, manufacturers are likely to switch from supplying to the export markets to supplying locally where margins are better. We expect local prices for both cement and steel to remain firm, if not trend higher,” the brokerage said.

By The Star (by Hanim Adnan)

Cautious optimism on property sector

Property consultants say the property sector is more resilient compared to 10 years ago

Property consultants are cautiously optimistic that the local property sector would remain healthy despite a possible recession in the United States.

DTZ Debenham Tie Lung (M) Sdn Bhd executive director Brian Koh said the property sector was more resilient than 10 years ago.

He noted that when the 1997 economic crisis occurred, the Malaysian economy, including the stock market, took a massive plunge.

“All stocks, including property stocks, were severely affected and there was a glut in the property sector,” he said.

However, Koh said, the current situation was very different.

“We don't have a glut in properties, the economy is strong and there's a lot more foreign interest in Malaysian properties which experts say are generally attractive or undervalued,” he said, adding that there was no property overhang and no oversupply of properties currently.

Brian Koh

Koh said: “We believe the property sector and market should not be significantly affected if a recession occurs in the US.”

Regroup Associates Sdn Bhd managing director Allan Soo concurred that the property sector should be able to weather the storm should there be a fallout from the US economic slowdown.

According to him, demand for office and retail space in Malaysia is generally still strong, and demand for residential properties, especially high-end ones, is good.

“Since April last year we have seen keen foreign buying interest in Malaysian properties, particularly in the inner city such as Kuala Lumpur City Centre (KLCC),” said Soo, adding that high net worth individuals from around the world were also buying luxury condos.

Soo said there were a few foreign investors that had purchased high-end condos in the inner city on an en bloc basis.

“We believe there will be more of such large-scale property purchases this year, especially by parties from the Middle East,” he said.

Moreover, he believes Malaysian property sector would remain healthy, supported by strong local and foreign demand for residential properties and the Government's pump-priming exercise via the Ninth Malaysian Plan.

Henry Butcher (M) Sdn Bhd chief operating officer Tang Chee Meng expects the property market to remain stable this year as long as the economy and the stock market do not take a turn for the worse.

“We believe the high-end condominium market could see a period of rationalisation and consolidation as a few more condominiums in the KLCC area have been completed,” he said.

He said the ease in renting out units and the rentals they fetched would have an impact on whether strong foreign interest would continue.

“This is because actual achieved yields will determine if investors are prepared to pay the higher prices being quoted by the developers and sellers,” said Tang.

Allan Soo

However, he noted that low medium and medium-cost segments might see a slight softening as people's disposable incomes could be affected by the rising cost of living due to escalating crude oil prices.

“As for the office sector, if the economy is able to achieve the Government's projected growth of between 5% and 6%, we should continue to see improvements in the services sector which will help drive occupancy rates and rentals,” he said.

Tang also said that as capital values had moved up, some institutional investors seemed to be prepared to look at capital appreciation and long-term yields. “We think some building owners may be tempted to cash out so we might see more office buildings changing hands in 2008,” he said.

On the retail sector, Tang said it was likely to go through a period of consolidation as the market digested the new additional supply of retail space added to the market in 2007.

“Perhaps the availability of better quality shopping centres will help attract more tourists to the country,” he noted.

Tang said there were a few areas of concerns that might have a strong influence on investor sentiment.

He said the sub-prime woes in the US had not abated and the full impact of the problem appeared to be still unfolding. Coupled with a significant jump in crude oil prices over the past year and the troubled US economy, this has dampened market sentiment around the world, including Malaysia.

“If an acute recession occurs, it could have a major impact on the global economy, especially for economies like China and Malaysia which depend heavily on exports to the US,” he said.

However, most economists predict that although the Malaysian economy could slow down, it would still enjoy positive growth (possibly 4% to 5%).

Being a net oil exporter and buoyed by strong prices for commodities like oil palm, the country should be able to weather any slow down in the US without being too adversely affected, according to Tang.

“Our property market will be affected to a certain extent. It could slow down but is unlikely to spin into a downturn.

“We are still receiving interest from overseas investors wanting to purchase commercial and residential properties because in their view, our property prices are still cheap compared with other countries in the region. They expect that there could be room for further upward price adjustments in the future,” he noted.

Would the Government's pump-priming activities under the Ninth Malaysian Plan (9MP) be sufficient to support the local property from an acute recession?

Tang said the Government had launched initiatives such as the Iskandar Development Region, Northern Corridor Economic Region, Eastern Corridor Economic Region and most recently, Sabah Development Corridor.

“If the Government's budget allocation under the 9MP is speeded up, it might help offset a severe fall to a certain extent. However, our domestic demand may not be big enough to mop up the excess properties and Malaysia would still need to turn to other countries in the more prosperous Asian region to help boost the economy,” he said.

What other measures are needed to boost the property sector?

Tang said the Government could come up with more incentives to attract foreign investments in the Malaysian property market such as reducing withholding tax for real estate investment trusts (REITs) and introducing more incentives for the REIT industry so that it would be able to compete with countries like Singapore.

“Although foreign investors do not need to apply to the Foreign Investment Committee (FIC) for approval, they still need to apply to the relevant state authorities. The Government can help to streamline the process and make it more convenient and faster to secure the state authority's approval,” he said.

Tang said market sentiment towards the property sector as well as the market had improved substantially because of the measures taken.

“For instance, with real property gains tax and FIC exemptions, high-end residential properties in KLCC, Bangsar and Damansara Heights areas have experienced a significant jump in sales, especially from April to August 2007,” he noted.

Tan said projects struggling with slow sales in 2006 saw a dramatic improvement in sales take-up as there was an influx of foreign investors attracted by the lower prices of residential properties in Malaysia compared with other major cities in the region.

By The Star (by Danny Yap)

Groundbreaking incentives put sector on firmer footing

StarBiz talks to property consultant Henry Butcher (M) Sdn Bhd chief operating officer Tang Chee Meng

How will the property sector perform going forward? Are the measures taken by the Government and the private sector sufficient to boost the sector especially in such a challenging environment globally?

The property sector has witnessed a slew of groundbreaking developments last year, which had placed the sector on a more competitive footing going forward, especially in terms of government policies.

For instance, in the residential sector, foreigners are now allowed to buy properties costing above RM250,000 without Foreign Investment Committee (FIC) approval and they benefit from the exemption of real property gains tax (RPGT).

Moreover, the authorities allowed the set up of one-stop centres to streamline procedures to hasten approval process.

Tan Chee Meng

Contributors of the Employees Provident Fund can now make withdrawals to pay for monthly mortgage repayments and a 50% discount on stamp duty for properties valued below RM250,000.

Furthermore, there's a special fund set up to guarantee housing loans for those without fixed regular income.

These proactive measures, coupled with the Government’s setting up of various growth zones such as the Iskandar Development Region, Northern Corridor Economic Region, Eastern Corridor Economic Region and Sabah Development Corridor, augur well for the growth of the property sector.

But there's always room for improvement, and we feel the speed of delivery of the mega projects under the Ninth Malaysia Plan (9MP) would help support the property sector cushion an acute recession in the US.

Can you be more specific to show the buoyancy of the property sector by market segment?

For the office sector, the year was marked by the continued strong interest from institutional buyers for prime office buildings. This resulted in capital values of offices hitting new benchmark prices. After hovering around the RM500 to RM650 per sq ft (psf) level for the past few years, capital values of offices rose above RM700 psf for the first time, with Mah Sing achieving a landmark price of RM715 psf for the first wing of its Icon office tower at Jalan Tun Razak.

Just when the market was wondering whether the price would go up, Glomac was reported to have received an offer for its office tower near KLCC for RM1,150 psf

Mah Sing also announced that the second wing of its Icon at Tun Razak was sold at an even higher price of RM969 psf.

It was also reported that Mah Sing had managed to sell its Icon Mont' Kiara office tower for RM802 psf. Even in Bangsar, it was reported that UOA Bangsar was asking for RM600 to RM 900 psf for the office space in the building whilst the asking rental is RM5 psf.

The upward trend has continued with YNH announcing that it had sold half of its new office development along Jalan Sultan Ismail for a record price of RM1,250 psf, while TTDI announced the sale of its office tower at Platinum Park near KLCC for RM929 psf.

These transactions have certainly set new benchmarks for the office sector, and it is perhaps a clear indication that there is currently a lack of good quality, grade A office buildings in Kuala Lumpur, and as such, investors are prepared to snap up available buildings even off the plan in anticipation that capital values will rise further in the years ahead.

At the same time, office rentals have moved up to between RM5 and RM8 psf for grade A office buildings located within the vicinity of KLCC, while office occupancy rates in KL have moved up to around 83%.

Nevertheless, older office buildings located even in the prime spots in the city centre which have not carried out any refurbishment exercises have not enjoyed the same level of occupancies and rentals as tenants have a choice to shift to newer buildings with better quality infrastructure and facilities.

In line with the trend started a few years ago, companies are also more willing to relocate to areas outside the traditional office centres like the Golden Triangle and central business district. Areas like KL Sentral, Damansara Heights and PJ have become popular choices for companies and in line with the increased demand, rentals have moved up and this has attracted more developers to embark on the building of new office buildings in these areas, especially PJ.

As for the retail sector, the excitement was in the opening of three new shopping centres in the Klang Valley, one after another, within a period of a month (two are expansions of existing shopping centres - The Gardens and Sunway Pyramid - while the third is a new shopping centre, Pavilion). Shoppers now not only have more choices, and are able to enjoy better class shopping centres that can rival the best in the region.

These new shopping centres are now going through the normal initial teething problems and have yet to see the expected crowds, but it should only be a matter of time before they build up a regular following. For example, 1 Utama Phase 2 is now much more well patronised compared to when it first opened.

Most property analysts say Malaysian properties generally are undervalued or very attractive in terms of valuation, especially commercial properties. Is that true?

The most expensive condo unit in Malaysia is likely to be at the KLCC area, which is only about one fifth or one sixth of the price of the most expensive condos in Singapore.

Also, Malaysian properties in recent years have attracted many foreigners.

Traditionally they came from Singapore, Hong Kong and Indonesia but this time round we see the entry of investors from the Middle East, South Korea, Britain and the US, and they came in to buy condos on an en bloc basis.

In fact, the strong interest resulted in the condo benchmark price hitting above the RM2,000 psf mark, setting a precedent for that segment.

It is also interesting to note that, bucking tradition, in some cases residential prices were higher than the value of commercial properties such as offices.

However, the low medium and medium-cost segments of the residential sector remain stable but not as exciting as buyers in the condo category as they are quite cautious in view of the rising cost of living.

The rise in toll rates, cost of food items and transportation would likely eat into the disposable income of this group of purchasers and many are less willing to commit on big ticket items like property.

By The Star - StarBiz

Solidly structured corridor

The Sabah Development Corridor (SDC), launched last week, follows a smart partnership model that has occasionally been adopted in the peninsula.

This model involves the participation of private sector companies - industry leaders – in government projects.

This is a premium partnership because private sector companies are market-driven, that is, they develop projects that would attract customers whereas government agencies often develop properties that are rebuffed by the public.

It was announced last week that a major component in the SDC – Suria Capital Holdings Bhd's Jesselton Waterfront project – would be jointly developed with partners such as the IJM and Glomac groups.

Suria, controlled by the state government, had planned to develop its large land bank on the waterfront from the time that Sabah's ports were acquired by the company five years ago.

From the start, there were concerns, rather than anticipation, over the property plans. It was questioned whether Suria might lose its focus on port operations, especially when it was not clear if management was experienced in the commercial property sector.

Those questions have now been addressed. IJM and Glomac have a track record of profitably developing properties that people want to buy or rent.

Suria, which had previously housed the failed Sabah Bank Bhd, has shown it is managing its ports in a financially responsible way, and the business model it has now adopted for its property business should give comfort to investors.

Suria's structure for property development is a model for other state agencies, in particular the various state economic development corporations or SEDCs.

It has long been shown that governments tend to be successful in developing and operating infrastructure where they do not face competition, and their projects that are exposed to competition produce overcapacities and losses.

Increasingly, it has also been shown that infrastructure can also be better developed by the private sector, leaving the Government to a role of capital allocation.

Cheaper plants
The falling markets last month showed that stocks on the Singapore Exchange (SGX) were far more volatile than their peers on Bursa Malaysia. One factor could be the larger presence of foreign portfolio funds in Singapore, and their sudden absence.

Plantation stocks also came under heavier selling pressure across the causeway than those over here. The plantation stocks on the SGX mainly have their assets in Indonesia, and these stocks, valued at a discount to Malaysian plantations stocks, became even cheaper last month.

The share price of Indofood Agri Resources Ltd, for instance, fell 28% from early last month compared with a drop of just 6% for Kuala Lumpur Kepong Bhd (KLK) during the same period.

As a result, Indofood Agri traded at a price/earnings ratio (PE) of about 13 times its forecast earnings this year compared with about 19 times for KLK, a difference of over 40%. Furthermore, Indonesian plantation companies are generally expanding their output faster than Malaysian planters due to aggressive planting by the former after the regional financial crisis.

That has made it that much more competitive for Malaysian plantation groups to attract foreign funds than before. Even so, Malaysia's plantation heavyweights such as Sime Darby Bhd, IOI Corp Bhd and KLK are expected to maintain a hefty premium over their Indonesian peers, even those listed on the SGX where they are subject to the strict accounting and regulatory environment there.

The premium is accorded for the far longer listing history of the Malaysian planters in which there are far less concerns over corporate governance. The expanded valuation gap created last month, however, could be narrowed, and provide an opportunity for investors in the region as foreigners flee.

Two relatively small plantation companies on Bursa reported surging profits last week. Glenealy Plantations Bhd earned a net profit of RM42.9mil, including an exceptional gain of RM21.6mil, for its second quarter (Q2) ended Dec 31, 2007. The exceptional gain came from the sub-lease of an area in its forest plantation.

Stripping out the exceptional gain, Glenealy's Q2 net profit was a 35% increase over its first quarter (Q1), and 173% over that of Q2 in the previous financial year.

The high performance results were mainly due to the company's sales of crude palm oil (CPO) at RM2,845 a tonne in Q2, which is close to the average spot price for CPO during that period. As CPO prices climbed, the company made the right call in apparently not having made forward sales.

With the strong profits, Glenealy's cash rose to RM163mil which works out to RM1.42 per share. It was commendable that it introduced an interim dividend of 10% compared with a first and final dividend of 10% in its financial year ended June 30, 2007.

Chin Teck Plantations Bhd reported a similarly robust set of results. Its net profit rose to RM19.4mil on a turnover of RM33.2mil for its first quarter ended Nov 30, 2007.

That works out to a net profit margin of 58%, the stuff of software companies that enjoy the highest margins in business.

Other results
PLUS Expressways Bhd revealed high traffic volume growth on all its highways in December last year compared with the same month in 2006.

Its North-South Expressway, for instance, registered traffic growth of 14%.

Traffic in December is seasonally higher than other months because of the school holidays. Even so, PLUS registered double-digit expansion in traffic growth over the same holiday period a year ago.

Malaysians were on the move in December.

Traffic growth rates on PLUS' other highways were 18.2% for New Klang Valley Expressway, 18.2% for Federal Highway Route 2, 16.2% for Seremban-Port Dickson Highway, 8.2% for North-South Expressway Central Link, and 16% for Malaysian-Singapore Second Crossing.

This high traffic could be due to a more dynamic demand in domestic tourism as more Malaysians travelled to local resorts during the school holidays instead of Europe or Australia due to the stronger currencies there and hefty fuel surcharges imposed by airlines.

Furniture maker Eurospan Holdings Bhd reported a 43% increase in net profit to RM1.7mil for its Q2 ended Nov 30, 2007.

With earnings per share of 10 sen in the first half year, Eurospan introduced an interim tax exempt dividend of 3 sen a share compared with a first and final dividend of 8 sen last year.

It can afford to do so as its cash rose to RM28.6mil, which works out to 71 sen per share. Theoretically, its business was valued at just 31 sen a share, stripping out its cash, based on its share price of RM1.02 on Thursday.

While some markets had bubbles in their shares and properties, Malaysia seems to have many stocks that are valued very conservatively.

By The Star (by C.S. Tan)

Hock Seng Lee eyeing RM1.5b projects

HOCK Seng Lee Bhd (HSL), a Sarawak-based builder an increasing number of analysts are recommending a buy on, is confident of securing some RM1.5 billion of projects in the near future, its top official said.

At least five local analysts like the main board company for its strong financials, steadily increasing order book and for exposure to construction play in Sabah and Sarawak.

"We are confident of more contracts flowing in as there is a strong emphasis on infrastructure development and industrialisation in Sarawak. At present, we are confident of securing some RM1.5 billion worth of projects in the near future," managing director Datuk Paul Yu Chee Hoe told Business Times in an interview.

Among these is a RM500 million pilot waste water management project for the city centre of Kuching. If successful, similar works could follow as sewage systems are put in for other major towns in Sarawak, he said.

Other projects it expects to procure are flood mitigation works in Sibu, affordable housing works, road and education facilities.

Today, HSL has RM1.2 billion worth of projects in hand, RM900 million of which is outstanding. It secured RM260 million in new contracts just in January alone.

"Even barring no new contracts, we will be kept busy through to 2010," Yu remarked.

HSL is not a typical construction company. It specialises in marine engineering, especially land reclamation, which places it in a niche market.

Analysts believe the company is a major beneficiary of substantial infrastructure budget allocations to Sabah and Sarawak under the Ninth Malaysia Plan and the Sarawak Regional Development Corridor.

Sarawak's coastline, for example, where most of the state's major centres are located, requires extensive reclamation and site preparation works before any construction can take place.

"Therefore, no matter what type of infrastructure or construction works are earmarked to take place, HSL is able to bid with strong credentials and few competitors," Yu said.

HSL also has a growing property division which last year accounted for a quarter of the group's earnings.

The group has already identified specific development plans for its existing landbank of over 240ha, with gross development value coming up to RM1.5 billion.

"Nowadays we are keen on accepting payment in kind, in the form of land. With our reclamation expertise, we can economically prepare this land for development and use it for our own projects when we feel market conditions are optimal," said Yu.

HSL, so-named after a timber dredger, has a long history in marine activities dating back to the late 1960s and 1970s when it began work as a dredging contractor.

Given that background, the company is interested in setting up ship fabrication and repair facilities at Tanjung Manis, where it is currently undertaking a RM179 million industrial estate reclamation and infrastructure project.

The idea, said Yu, is to compliment the existing facilities it has in Kuching.

Analysts from Aseambankers, OSK Research, RHB Research, Inter-Pacific Research and AmResearch all have positive recommendations on HSL's stock. Their target prices range from between RM1.25 and RM1.35.

HSL, which underwent a five-for-one share split about two weeks ago making the shares more affordable, last closed at 99 sen.

The company has had a dividend payout ratio averaging 35 per cent over the past three years.

By New Straits Times (by Adeline Paul Raj)

Malaysians prefer landed properties

A survey by real estate website network operator iPorperty.com Group shows that Malaysians favour landed properties over high-rise developments, and are more inclined towards obtaining maximum margins of financing.

Compared to most foreign buyers who prefer luxury condominiums, Malaysian respondents strongly favour landed properties, with 59 per cent and 53 per cent voting for completed and newly launched landed properties respectively.

In a statement, iProperty.com said this corresponds with their primary attraction of potential capital appreciation gains.

"It is a widely known fact that landed properties, as compared to high-rise apartments, tend to perform better in terms of long-term capital appreciation," the company said.

An overwhelming 77 per cent of respondents stated that they plan to fund their property acquisitions with loans that give them margins of financing of between 80-100 per cent.

"We now have a good reason to believe that Malaysia has a property-investing culture with a lot of domestic demand. Property values have been rising consistently over the years, and will continue to do so as the country develops. We are pleased to note that many savvy Malaysians recognise the attractiveness of the local property market and are eager to take advantage of the significant potential upside," iProperty.com Group executive chairman Patrick Grove said in the statement.

By New Straits Times

Builders to finish RM13b worth of jobs this year

BUILDERS will finish some RM13 billion worth of jobs from 47 projects in Malaysia this year, a sharp increase from RM5 billion from 20 projects completed in 2007.

The major rise both in projects and contract value signifies the return to growth for the Malaysian construction industry.

Overseas, Malaysian companies have completed 282 projects between 2002 and 2006 worth a total of RM38 billion.

"From the performance thus far, we are confident that this momentum will be sustained at least in 2008, if not the end of the Ninth Malaysia Plan (9MP) period in 2010," Construction Industry Development Board (CIDB) chairman Tan Sri Ir Jamilus Hussein told Business Times in an interview.


JAMILUS: The indication from the trend is very positive

After experiencing 10 quarters of negative growth since the second quarter of 2004 until the third quarter of 2006, the construction sector has been growing at four per cent (1Q07), 4.8 per cent (2Q07)and 4.7 per cent (3Q07).

Of the total projects awarded last year, 55 per cent came from the private sector (from 63.4 per cent in 2006).

"The indication from this trend is very positive as it indicates that the contribution of projects awarded from the government is increasing," Jamilus said.

Projects from the public sector rose to 45.1 per cent in 2007 from 36.6 per cent and expectations are high that in 2008, there would be an increase in projects awarded by the public sector, thus contributing to the growth momentum seen so far.

Jamilus said for later years during the 9MP period, contribution to construction growth would be determined by the output of construction projects not yet completed and projects to be awarded in 2008, 2009 and 2010.

Under the 9MP, construction works to be implemented will be RM280 billion, equally contributed by the private and public sectors, with an annual average of RM56 billion.

The RM140 billion private sector contribution is derived from RM120 billion from private sector plus RM20 billion more which is expected to be contributed by construction opportunities from the regional economic development corridors.

Although lower than the amount under the Eighth Malaysia Plan, the private sector can look to the regional growth corridors to spur growth momentum.

"With the volume of works generated from the 9MP, the contribution from the private sector and the economic corridors, and the trends in the award of projects, it is expected that the growth of the construction sector will be sustained amidst the external uncertainties," he said.

Jamilus said the board is also assessing financing alternatives for its members as it has been a bane for those wanting to venture overseas.

During a meeting with the central bank authorities in October, the construction business community were also keen to take up Islamic sukuk as an alternative to finance projects overseas.

By New Straits Times (by Rupa Damodaran)