New guidelines may affect banks’ earnings next year

(Published in the Star Biz 23rd November 2011 issue: page 3)

By DALJIT DHESI 

PETALING JAYA: The new lending guidelines aimed at containing household debt could put a dent on banks’ earnings next year by restricting loans growth and compressing net interest margins (NIMs), analysts said.

The guidelines, effective Jan 1, covered home and vehicle financing, credit and charge cards, overdraft facility as well as loans for the purchase of securities.

ECM Libra Capital head of research Leong Hon Sze told StarBiz he expected banks’ earnings and loans to moderate to 5% to 10% next year amid global economic uncertainties, adding that banks would also be more cautious and selective.

For the first nine months of this year, the overall banking system loans grew by 10.1% compared with 9% in the same period last year.

NIM, a measure of the difference between the interest income generated by banks and the amount of interest paid out to depositors, has been under a lot of pressure as the average lending rate of banks had been declining over the past few quarters while deposit rates had gone up due to competition in the industry.

A bank-backed brokerage analyst said the new guidelines might restrict loans growth and further squeeze NIM resulting in banks intensifying their non-interest income to boost earnings.

Malaysian Rating Corp Bhd vice-president and head of financial institutions ratings Anandakumar Jegarasasingam said that while the guidelines would affect the banking sector loan growth and revenue, the impact could be mitigated should corporate lending activities pick up.

“In the long term this regulation would help to improve the stability of the banking sector and lower household sector debt level. This regulation would also help to protect ‘stretched borrowers’ from more debt,” he added.

Dr Yeah Kim Leng, RAM Holdings Bhd’s chief economist, said the impact would vary according to the individual bank’s lending practices as well as the business segments it was targeting.

“The more prudent banks have been imposing stringent credit checks and limits on retail loans since the onset of the global financial crisis of 2008/2009. Banks which have relaxed their in-house lending and credit controls recently due to intense competition may need to refocus their lending strategy on segments other than the loans covered by the new guidelines.”

With more stringent guidelines to make lending practices more transparent, Yeah expected banks to be less pressured by delinquent loans .

The new guidelines required banks to explain clearly to the borrowers the implications of the loans they take, including how much more they would have to pay should the base lending rate go up.

Errant developers and directors can be jailed and fined from March

Thursday, 24 November 2011 07:48

PETALING JAYA- Nearly 5,000 directors of housing development companies and over 1,000 developers have been blacklisted for various offences, including for delaying and abandoning their projects since 2007.

However, from March, those found guilty of these two offences may not only be blacklisted, but will also face jail sentences and fines.

Amendments to the Housing Development (Control and Licensing) Act 1966, which are expected to be passed by the end of the current parliament session, propose a maximum three-year jail term and RM500,000 fine for developers who abandon their projects.

As of Nov 15, 1,308 developers and 4,703 directors of the companies concerned have been blacklisted by the Housing and Local Government Ministry.

The amendments, however, will not be retrospective and only those who commit new offences will face criminal charges.

Housing and Local Government Minister Datuk Chor Chee Heung said: “We hope the amendments will be passed by the end of this parliamentary session for us to enforce them by March.

“The directors are also blacklisted to make sure they cannot set up another company and start a new project under a different name,” he told The Star yesterday.

The offences fall under four categories - failure to pay compound fines, abandoning of projects, involvement in “sick” or problematic schemes and non-compliance with the judgment of the Tribunal for Homebuyer Claims.

Chor said blacklisted developers would not be issued a licence for any other project.

“However, they will be taken off the list once they salvage their project or settle whatever issues they face,” he said, adding that the list would be constantly updated to keep housebuyers informed.

It has been reported that the ministry had revived 83 of the 167 abandoned housing projects as of Oct 31, benefiting 9,278 buyers.

Chor said efforts were underway to rescue 62 abandoned projects.

Under Budget 2012, RM63mil was allocated to revive projects involving 1,270 houses.

-TheStar

http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=23381:errant-developers-and-directors-can-be-jailed-and-fined-from-march&Itemid=3

Building with responsibility to the environment

(Published in the Star BizWeek 19th November 2011 issue: page 27)

By TEH LIP KIM 

On Oct 31 the world’s population surpassed the seven-billion mark. We have reached a significant milestone, but there was no cause for celebration.

As the population grows, so does the need for more food and shelter. This will put more pressure on available resources. It is only by adopting a culture of sustainability that we can ensure the future of our children is not compromised.

Just like in any other industry, the building sector will have to adopt new approaches that take into consideration the need to protect the environment and ensure sustainable development.

I am pleased to note that builders are already taking the first steps in that direction. The industry is already taking a serious view of “green building”. The term refers to an environmentally-responsible process that covers the entire life-cycle of a building, from siting, design, construction, operation and maintenance to renovation and even demolition.

Similar steps are being taken by builders in Malaysia. Efforts made by industry players, who have become more conscious of the need for sustainable development, have helped to put in place various guidelines to ensure new properties are developed using a more environmentally-friendly process.

For the industry, there is the Green Building Index (GBI), which was introduced in 2009 to assess and accredit a development along sustainable or “green” criteria. The Government had, in its Budget 2010, even given priority to the procurement of goods and services that are environmentally friendly.

One of the most pertinent objectives of the GBI environmental rating system is to transform the built environment to reduce its impact on its surroundings. Its other objectives include ensuring that new buildings remain relevant in the future and existing buildings are refurbished and upgraded properly to remain relevant.

Under the GBI, buildings are rated based on six criteria – energy efficiency, indoor environment quality, sustainable site planning and management, materials and resources, water efficiency as well as innovation.

More recently, the government has taken this initiative another step further by requiring that builders of commercial buildings now ensure that their projects meet GBI standards.

At the same time, owners of bungalow and semi-detached residential units are required to put in place a system for harvesting rain water.

These are baby steps, yet, but they certainly show that there now is a desire in the industry as well as the government to ensure a more sustainable future for the benefit of the next generation.

The bottom line is that whatever we build now to provide a roof over our heads, it must not only not have a negative impact on the environment, it must also be able to enhance our surroundings and ensure we have a better quality of life.

While the environmental benefits of such efforts may not be immediately visible, they can also have a positive effect on corporate image, as well as the rental and resale value of buildings.

The BGI is based on Singapore’s Building and Construction Authority (BCA) Green Mark that incorporates internationally recognised best practices in environmental design and performance. Among the benefits of the BCA Green Mark are reduction in water and energy bills, reduction in potential environmental impact, improvement of indoor environmental quality for a healthy and productive workplace and clear direction for continual improvement.

However, like most things, efforts towards sustainable development come at a cost. In some areas, the additional cost may be low enough to be manageable, but in other areas, it may seem exceedingly high.

For instance, an apartment designed with large doors and windows will be more airy and thus require less energy to keep its interior cool. At the same time, it will not require a hefty increase in costs.

However, in other areas, ensuring sustainability could add substantially to the cost of development. For instance, builders could ensure that production methods of the materials used in their projects are also environmentally friendly. But that would entail verifying the entire supply chain for sustainability, and that may turn out to be a costly exercise.

At the same time, the returns from such efforts may still not be attractive enough for many of us. It has been estimated that even the most basic efforts at ensuring sustainability could add 5% to 6% to the building cost. In some cases, the cost could rise by up to 15%.

Even if such efforts eventually result in savings in energy use, it could take 15 to 20 years before such savings actually begin to offset the additional costs that have to be incurred initially. And that is only the ringgit and sen part of it.

There are other costs too. To illustrate, let us take a look at the compact fluorescent bulb or “green” bulb. It uses 75% less energy than a traditional incandescent bulb but it also contains mercury that, if not disposed of properly, could cause contamination in the environment.

Builders will be hard-pressed to keep costs down and ensure sustainability in the procurement of raw materials and construction process at the same time. It, after all, does not make good business sense to build something that people are not prepared to pay for.

One would be tempted to argue for a balance between sustainability efforts and managing the costs. Strictly speaking, that would mean compromising on the need to ensure sustainability so we can save some money, and that’s certainly not a long-term solution.

Perhaps a more comprehensive and concerted joint effort by the industry and government could be a start.

Teh Lip Kim is the MD of SDB Properties Sdn Bhd, a lifestyle property company. Bouquets and brickbats are welcomed. Send by email tomd@sdb.com.my.

Banyan Tree comes to KL

(Published in the Star BizWeek 19th November 2011 issue: page 26)

By ANGIE NG 

The collaboration between local developer Lumayan Indah Sdn Bhd and Singapore-based Banyan Tree Holdings Ltd will see the opening of the luxurious Banyan Tree Signatures Pavilion Kuala Lumpur hotel in 2016.

The Banyan Tree Signatures Pavilion Kuala Lumpur project with a gross development value (GDV) of RM1.4bil comprises a 55-storey block of 441 private residences, 51 service residences, and 50 hotel suites.

It is located on 1.46 acres at the junction of Jalan Conlay and Jalan Raja Chulan, and is scheduled for completion in 2015.

According to 1 Pavilion Property sales and marketing director Tracey Lai, buyers draw comfort and confidence from the brand collaboration of Banyan Tree, a respected global hotel brand and Pavilion, an iconic award winning premier shopping mall.

Banyan Tree, listed on the Singapore Stock Exchange, is a leading manager and developer of premium resorts, hotels and spas around the world.

Lai says Banyan Tree will operate the 50 hotel suites and manage the private and service residences, while 1 Pavilion Property Consultancy Sdn Bhd is the sales and marketing consultant of the Banyan Tree Signatures private residences.

“With this collaboration, the Banyan Tree trademark can be used to promote, market and sell the Banyan Tree Private Residences. Since the sales preview of the project in July, the response has been good with a take up rate of 80% mainly from local buyers,” Lai discloses.

With average sizes of 1,076 sq ft to 2,174 sq ft, the residences are priced at an average RM2,000 per sq ft, with vacant possession of the residences in 2015.

At 55 stories, she says the project will be one of the tallest residential buildings in the country, and a private link bridge to the Pavilion Kuala Lumpur shopping mall allows exclusive access to the mall.

 More Banyan offshoots

Banyan Tree executive chairman Ho Kwon Ping hopes the company’s entry in Kuala Lumpur’s hospitality market will pave the way for more hospitality projects in Malaysia.

“We are on the look out for other opportunities in East and West Malaysia, and hope to be able to make some announcements in due course,” he discloses to StarBizWeek in an email response.

Ho says Banyan Tree typically opts for stunning locations and also gateway cities for its resorts, with the hope of creating unforgettable holiday and travel experiences for its guests.

“Banyan Tree Signatures Pavilion Kuala Lumpur will be a new and innovative product concept offering a suite of diverse and complementary facilities and services – spa, a retail gallery and a destination roof-top restaurant – anchored by an iconic hotel and primary luxury residences.

“We look to offer a holistic lifestyle encompassing dining, shopping and relaxation delivered with the signature Banyan Tree service standards,” he explains.

On its expansion plans, Ho says there will be more hotels and resorts, integrated resorts, as well as property development projects where appropriate.

“Next year, we look forward to the opening of Banyan Tree Tianjin, Banyan Tree Riverside and Banyan Tree North Bund in Shanghai; the integrated resort of Banyan Tree and Angsana Lang Co in Vietnam; and Banyan Tree Kerala, to name a few. Further afield, we have projects lined up in Europe, particularly in the Mediterranean region.”

Ho believes Banyan Tree’s pioneering and can-do spirit has steered the company to many uncharted territories to earn its place as one of the industry leaders.

The group’s first resort Banyan Tree Phuket, which opened in 1994, was the result of the successful rehabilitation of an abandoned tin mine in Laguna Phuket.

Today, Banyan Tree has over 30 hotels and resorts, close to 70 spas and 80 retail galleries and two golf courses.

As of end-2010, the total equity value of its investments around the world is in the region of US$1bil net of any debt.

The net asset value of Banyan Tree Holdings is around US$540mil and the total cash equity in the two Banyan Tree Hospitality Funds (for Indochina and China) is around US$450mil.

Ho discloses that Banyan Tree has around 30 projects in the pipeline and singles out China as the strongest growth region. It has a strong presence and pipeline of projects in China.

“Given the general economic climate in the world, our investments in the core regions of the Asia Pacific, including China, are performing reasonably well. Much of the downturn in our traditional European and Japanese markets has been mitigated by strong performance from China, where our brand is strong. We have around 10 marketing offices in China now,” he adds.

Ho says growth in the Asia Pacific is still quite stable and the new markets for the company include Vietnam, the Indian Ocean and India.

Malaysia property sector remains buoyant

Despite talk of a recession, the Malaysia property scene is still buoyant with many people wanting to buy homes, especially in the city centre and in Johor.

HomeGuru.com.my country manager Steven Tan said there is a lot of interest among overseas investors to buy homes in Malaysia via the Malaysia My Second Home programme, especially in places like Sabah, Kuala Lumpur and Johor.

“As for Penang, the trend is different as many locals are snapping up properties there, mostly luxury condos,” Tan said in an interview with Business Times.

He added that another emerging trend in the Penang property market was that in recent months, there has been a lot of interest among Singapore investors to snap up heritage buildings on the island.

“You will be surprised that after Malaysians and Singaporeans, the third most visits we get for our website are the Europeans,”

he said.

On HomeGuru’s recently concluded survey, in which some 2,800 people were interviewed on the local property market, Tan said 63 per cent of the respondents felt that properties across the board in Malaysia were expensive.

The survey also revealed that 78 per cent of the respondents felt that bungalows were the most expensive type of property.

Tan added that some 18 per cent of the respondents also indicated that they were planning to invest overseas in the coming months.

HomeGuru is a Singapore company which has been in Malaysia for slightly under a year. Its 11-month-old website has about three

million visitors a month, Tan said, adding the Malaysian HomeGuru website has over 10,000 agents with more than 70,000 properties to buy and sell.

HomeGuru is the second most popular property portal in the country, but it holds pole position in three other countries,

namely Indonesia, Thailand and Singapore.

-Business Times

http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=23238:malaysia-property-sector-remains-buoyant&Itemid=3

Q3 GDP up by a surprising 5.8%

(Published in the Star BizWeek 19th November 2011 issue: page 10)

By FINTAN NG 

KUALA LUMPUR: The country’s gross domestic product (GDP) expanded by 5.8% in the third quarter ended Sept 30 on a year-on-year basis as domestic demand remained resilient while private and public sector spending expanded amid uncertainty and volatility in the external front.

The growth in the economy was unexpected as the median in a Bloomberg survey of economists was for a 4.8% rise while the expansion of the economy was largely supported by higher commodity prices and firm regional demand for non-electric and electronic manufactured goods.

GDP grew a revised 4.3% in the previous quarter while the economy grew 5.2% in the first quarter.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said in a media briefing that the outlook for the fourth quarter would depend on how much developments in recent months would impact trade.

“The risks to global economic growth has increased following developments in the third quarter and very likely this will impact exports, however, we expect our domestic demand to remain resilient and to continue sustaining growth,” she said.

Zeti added that due to the uncertainty and volatility in the external front, the outlook for the fourth quarter was uncertain at this point. “It remains to be seen as to what extent the uncertainty and volatility would impact overall economic growth,” she said.

“Given the recent developments, 5% growth or even in the high region of 4% would be considered very good,” Zeti said, adding that the volatility in the financial markets were destabilising to economic growth.

AmResearch Sdn Bhd director of economic research Manokaran Mottain told StarBizWeek that the economy would still achieve a decent growth of 5% for the full-year even if GDP was to slow down to between 4% and 5% in the fourth quarter.

Zeti said the third quarter’s economic performance was also due to the receding impact from the supply chain disruption stemming from the Japanese tsunami and earthquake disaster in March while income growth was supported by higher commodity prices, bonuses and public spending, which contributed to domestic demand.

Overall consumption rose 9.9% from a year ago with public sector spending growing a significant 21.7% as funds were distributed for various infrastructure projects and other Economic Transformation Programme initiatives.

Private sector spending grew 7.3% from an expansion in private consumption and continued expansion in capital spending.

Growth strengthened in most economic sectors except mining which declined 6.1%. The agriculture sector expanded by 8.2%. The services sector grew 7% while the manufacturing sector expanded by 5.1% as supply-chain disruptions were reduced and following higher output of domestic-related industries.

The construction sector grew by 3% led by a turnaround in the civil engineering sub-sector.

Meanwhile, Zeti said the central bank would continue to intervene in the currency markets just as central banks in the region have done in order to damp daily volatility in currency movements.

“Most central banks in the region had intervened, and Bank Negara will do so in the event of excessive volatility in any one paticular day and we don’t influence the underlying trend of the exchange rate,” she said.

Zeti added that interest rates remained supportive of growth unless there were significant developments that heightened growth risks or where inflation rose significantly.

She said the overnight policy rate (OPR) was reduced to 2% in early 2009 due to major economic risks on the horizon, which was not the case this time around as the economy was not contracting.

On the other hand, Manokaran said the prospects for a cut in the OPR would increase since the economy might just hit the lower end of the Government’s 5% to 5.5% target this year and faced slower growth in 2012.

Possibility of a rate cut in the first quarter of 2012

(Published in the Star Biz 15th November 2011 issue: page 1)

By FINTAN NG 

PETALING JAYA: A cut in the benchmark interest rate may come as early as next January if domestic economic conditions deteriorate in the face of global economic uncertainties in the coming months.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said in a report that an early rate cut in the first quarter of 2012 was still a possibility.

The monetary policy committee (MPC) meets twice in the first quarter on Jan 31 and March 9. The last time Bank Negara cut the overnight policy rate (OPR) was in early 2009 as part of measures to stimulate the economy in the wake of the global financial crisis.

“The tone of the policy statement suggests that growth is more of a worry than inflation, signalling the central bank's readiness to reverse its monetary course if domestic conditions deteriorate,” Lee said, revising the OPR for end-2012 to 2.50%-2.75% from 3%.

The central bank last Friday kept the OPR unchanged at 3% following the last MPC meeting of the year in a move not entirely unexpected by the market as the global outlook continued to weaken and international financial market conditions remained highly uncertain and volatile.

The dim prospects have prompted Bank Indonesia to cut benchmark rates by a larger-than-expected 50 basis points to 6% last Thursday while the Bank of Thailand may cut rates at the end of the month to support the flood-hit economy.

While economists expect a rate cut in the first half of next year, Citigroup Inc's Singapore-based senior economist Kit Wei Zheng described the absence of explicit guidance on the OPR outlook as reflecting heightened uncertainties in the coming months.

He expects the OPR to be maintained in January contingent upon the central bank's baseline scenario of stable domestic demand materialising. “Conversely, any indications in the fourth quarter that domestic demand and/or financial conditions are deteriorating will open the door on 25 basis points to 50 basis points (cuts in the OPR) in the first quarter, especially since hurdles from inflation risks have receded,” Kit said in a Nov 11 report.

Third-quarter gross domestic product, which would be released this Friday would show an improvement, as Bank Negara indicated in the MPC statement while inflation, despite an uptick to 3.4% in September due to a rise in the prices of food and non-alcoholic beverages as well as transport, would continue to stabilise for the rest of the year and moderate in 2012.

Affin Investment Bank Bhd economist Alan Tan said the cautious wording of the latest MPC statement on the economic outlook signalled possible cuts of up to 50 basis points in two meetings.

He added that this would be consistent with a dual mandate of ensuring a balance between inflation and economic growth, where the country's monetary policy would be shifting back to the slowdown in economic growth rather than focusing on inflation pressure.

In contrast, Hong Leong Investment Bank Bhd research head Low Yee Huap expects the OPR to hold steady until the end of next year as the central bank leaned towards a growth agenda given the recent external developments and moderating inflation trends.

“Bank Negara is going to buy time for the Economic Transformation Programme to be implemented and its impact to work through the system while staying vigilant on inflation,” he said.

A Bloomberg report noted that the ringgit advanced the most since Nov 4 to close at 3.135 versus the greenback following last Friday's policy statement and after weakening 1.9% this month as investors pulled out of emerging market assets due to continued uncertainty in the eurozone.

Banks offering more attractive home loans

(Published in the StarBiz news, 14th November 2011 issue: page 2)

By DALJIT DHESI 

PETALING JAYA: With razor thin margins due to rising competition in the home loans market, banks are now aggressively value-adding their home loans to stay competitive and boost their market share.

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling said banks must value-add to their generic home loan offerings in order to not just survive but thrive, especially in this competitive climate.

“What separates those who thrive from the others today is how much they have moved from price to innovation. It is heartening to see a greater emphasis today on enhancements to loans products, rather than mere reliance on price cutting previously.

“This is where banks are getting even more creative by adding in the necessary finer details to a product that otherwise appears bland. Home loans with features and benefits that are tailored specifically to complement customers' lifestyles often serve to compel them to look beyond price and into a more holistic perspective,'' she told StarBiz.

Thoo said customers were nowlooking for more than just a home loan as purchasing a house was simply the beginning.

Banks would also need to cater to their immediate follow-on needs like renovations and furnishing, for example, and this was where additional financing that came with the home loan would be helpful, she reckoned.

At OCBC Bank, she said there were bespoke home loans that were tied in with study loans, renovation loans and even overseas property financing schemes, adding that each of these took into consideration things that went beyond mere property purchase.

She said it was undeniable that investing in a product to bring in customers and then introduce them to other products remained a good strategy for growing the business, but banks would still need to strengthen their range of offerings to become a one-stop shop for their customers.

Outstanding home loans, valued at RM261bil, accounted for about 27% of the total banking system's loans as at end-September 2011. Although there has been strong expansion in home loans in the last couple of years, the proportion of home loans has been hovering at 27% in the past five years.

Commenting on home loans, RAM Ratings' head of financial institution ratings Wong Yin Ching said competition among banks in the home loan market had been rife, resulting in razor thin margins in recent years.

This stemmed from the homogeneity of the home loan products, whereby any innovation in product features and price competition (by lowering rates) were quickly replicated and matched by market players, she said.

Wong added: “While some banks have instilled more discipline in its risk-reward pricing, aggressive pricing is still seen in the market and this is unhealthy and unsustainable in the long run.

“Going forward, we think that personalised services and quicker turnaround times by banks would be key to stay relevant in the home loan market.”

Alliance Bank Malaysia Bhd executive vice president and head of consumer banking Ronnie Lim said competitive pricing aside, Malaysian banks were now re-inventing the mortgage landscape by extending superior customer experience at every customer touch point.

For the bank, he said having mortgage specialists, who also acted as advisory consultants, among others, had enabled Alliance Bank to become one of the key mortgage players in the market.

He said the bank has been growing its mortgage specialists force extensively to not only engage customers effectively but also deepen its relationship with developers, lawyers and real estate agents.

Lim added the bank was also able to provide fast “approval in principle” service to assist customers looking for home financing solutions to make informed decisions before committing to their choice property.

For mortgage players, he said one of the key challenges was about overcoming margin compression and the bank was able to achieve this by introducing new systems and processes to help staff increase their productivity.

This had since yielded results: “For the year under review, sales productivity has increased threefold compared to a year ago,” he said.

Dijaya, Ivory rise on Penang property tie-up

By JOHN LOH 

PETALING JAYA: Dijaya Corp Bhd and Ivory Properties Group Bhd shares were up after the companies announced a tie-up for a mixed-property project with a gross development value of RM10bil in Bayan Mutiara, Penang.

Dijaya rose 3.6%, or 5 sen, to RM1.44 while its warrants advanced 6.5%, or 3 sen, to 49 sen. Ivory Properties added 7%, or 7 sen, to RM1.07.

Dubbed Penang World City, the project will be undertaken by joint-venture vehicle Tropicana Ivory Sdn Bhd (TISB), which is 49% owned by Dijaya and 51% by Ivory Properties. TISB was set up on Oct 14.

Penang World City will be built on a 102.56 acre site, of which 35 acres is to be reclaimed. It will comprise residential units, a shopping mall, office suites, office towers, a hotel, retail spaces and an open mall with a boulevard.

The land is being bought for RM1.08bil from state-owned Penang Development Corp.

Bayan Mutiara is a new development hub in the eastern part of the Tun Dr Lim Chong Eu Expressway and is in the vicinity of Sungai Nibong.

Ivory Properties has proposed to finance the project via a renounceable rights issue of 186,000,000 new ordinary shares of 50 sen each as well as 186,000,000 new free detachable warrants.

Dijaya, meanwhile, will extend financial assistance to TISB in the form of shareholder advances, guarantee, indemnity or collateral of up to RM525.4mil, or 49% of the total consideration of the development land.

Analysts contacted by StarBiz have a positive view of the project, citing its prime location as a major plus factor.

“Land in Penang is scarce and the outlook for housing in the Bayan Mutiara area is booming,” an analyst said.

“It is not easy to get land in Penang for that price. Property developers prefer Johor Baru because land is much cheaper there.”

Another local bank-backed analyst said although he liked the land, he considered it pricey. At RM240 per sq ft, it was comparably higher than IJM Land Bhd’s land further north of the island that was purchased at RM50 per sq ft. IJM Land has a 150.24-acre mixed-development called Light Waterfront Penang.

The analyst also said the upside for Ivory Properties’ stock would be capped at around 30% as its share base would be diluted by two to three times following the rights issue.

He added that the choice of office towers in the development mix was surprising as the demand for office space in Penang was tepid.

Nonetheless, he said the project was still at its early stage and was subject to change.

“We haven’t seen a detailed breakdown of the development components yet but the residential portion is likely to be larger,” he said.

Penang World City is scheduled to be completed in eight years. Work on the first phase is scheduled to begin at the end of next year.

http://www.starproperty.my/PropertyScene/PropertyNews/16635/0/0

Mixed feelings over mixed-development projects

(Published in Star BizWeek, 12th November 2011, page 25)

By EDY SARIF 

Concerns rising over the possibility of an oversupply of office and retail space

As a new line of mixed large-scale property developments go on stream to spur economic growth, market observers and those involved in the property sector are cautious. Their main concern: an oversupply of officespace.

Reports and data coming from think tanks suggest there are concerns about the situation, despite some assurances that the Government has already done proper studies and planning.

Among the projects are the KL Metropolis by Naza TTDI Sdn Bhd that will add millions of square feet space of office, retail and residential space, in addition to the ongoing KL Sentral project and the recent launch of the KL International Financial District (KLIFD).

Property consultant Rahim & Co, through an e-mail, tells StarBizWeek that as for the first quarter, occupancy rates of prime offices in Kuala Lumpur and Petaling Jaya range between 60% and 97% and a healthier 75% and 98% respectively.

“We are in the opinion that the oversupply cannot be solely attributed to these mega-projects but also other stand alone purpose-built offices in the city centre,” the statement says.

Excluding the upcoming mega-projects, a total of 6.69 million sq ft of new office space will be completed in Kuala Lumpur by 2015. Based on an average annual take up of 1.8 million sq ft of office space in Kuala Lumpur, Rahim & Co estimates the occupancy rate of prime office building to be between 82% and 85%.

However, with the effort and incentives put forward by the Government, it believes more multi-national companies will be operating in Kuala Lumpur, and will subsequently occupy the available office space.

“We expect rental rates to stabilise in the next few years, especially with the completion of new office buildings by 2015 in Kuala Lumpur. Average rental rates of prime office buildings in Kuala Lumpur is expected to moderate around RM7 per sq ft by 2015 compared with current rates averaging at RM6 per sq ft,” it says.

Rahim & Co adds that due to locational factors, for example, integration with rail network and image branding, the mega-projects will be able to command higher rental rates; potentially 5% to 10% more than the average rate.

To date, it says the total net lettable area of prime office space in Kuala Lumpur stood at 40.88 million sq ft. By the end of 2011 and 2015, an estimated 6.69 million sq ft of new office space will be completed in Kuala Lumpur (excluding KL Metropolis and KLIFD) and most of these projects are currently under construction; contributed largely by stand-alone purpose built office towers and a few form part of a mixed development project. 50% of the new supply will be located in the Golden Triangle Area and are purely driven by private initiatives.

“Meanwhile, KL Metropolis, KLIFD and KL Sentral are Government initiatives, with strong synergies with the private sector, to propel Kuala Lumpur towards world class status. Prime components will be office space supported by retail, serviced apartments, hotels and a convention centre,” it says.

With total gross development value of RM15bil, KL Metropolis covers a total land area of 75.5 acres located near Matrade Jalan Duta. The key development component (apart from ratail, hotels and apartments) is the 1.07 million sq ft convention centre which aims to strengthen Kuala Lumpur as the preferred meeting, incentive, convention and exhibition destination over its regional competitors that include Singapore and Guangzhou.

“KLIFD is another national mega-project located near Imbi area fronting Jalan Tun Razak. This 75 acres integrated mixed development project aims to establish Kuala Lumpur as the regional financial centre.

KL Sentral, on the other hand, is a world class transportation hub valued at RM8bil and has been divided into 14 land parcels, each representing a different function. Some of these lots have been fully developed and are already in use, while others remain under construction or are still waiting for work to commence,” it says.

Upon completion, KL Sentral will comprise Stesen Sentral, corporate office towers and business suites, five-star international hotels, luxury condominiums, a retail mall, services apartments and, an international entertainment and exhibition centre.

The opening of The Hilton and Le Meridien hotels in September and October 2004 respectively has added a new dimension to KL, providing a myriad of prestigious lifestyle amenities at an international level.

By 2015, a total of approximately 6.3 million sq ft of office space will be available within KL Sentral. “In general, we are in the opinion that these mega-projects will act as a development catalyst which will then help to spur growth in the immediate locality. For instance, Brickfields enjoys a spill over effect from KL Sentral,” it says.

Over the last eight years, the profile of Brickfields has slowly morphed and there has been hardly any new land in Brickfields for further development over the last several years. Property prices there have shot up after KL Sentral opened in 2001 and have been going up steadily over the years. A 4½-storey shoplot, with good frontage and in good condition, that was sold for RM1.7mil in 2002 can now command around RM2.8mil. The rent of a ground-floor space can go up to RM10,000 a month while the upper floors can command RM1,500 to RM2,000 a month.

“We believe KLIFD will eventually change the landscape of its surroundings. The prime challenge will be to establish the anchor tenant of the office tower. For instance, the establishment of Petronas in KLCC has raised the demand for office space surrounding KLCC which is mainly generated by oil and gas related companies. Similarly, KLIFD will need to identify the anchor tenant that will help to augur growth in its surrounding areas. In general, with more office space, more office population will be attracted. With higher influx of professionals, both local and international, demand for other components such as serviced apartments and retail will increase accordingly,” says the property consultant.

Connectivity to a rail network is also pertinent in ensuring the success of these mega-projects. It is learnt that KL Sentral and KLIFD will be connected to the proposed MRT line.

“This transit-oriented development will eventually create a new development corridor along the rail line similar to the Rossyln-Ballston Corridor in Arlington, Virginia served by Washington Metro Line and Burnaby, Vancouver served by Sky Train line. Upon completion of KLIFD, the surrounding areas which are currently occupied primarily by old retail businesses and offices will be transformed into a more modern, vibrant and liveable area,” says Rahim & Co.

Meanwhile, the development of KL Metropolis will help to disperse the concentration of office space to the outskirts of the Kuala Lumpur city centre.

Generally, it will be similar to Mid Valley City as being a self contained integrated commercial centre outside the city centre. While Mid Valley City is acting as the southern Kuala Lumpur commercial hub serving areas such as Bangsar, Seputeh, and Petaling Jaya, KL Metropolis will function as the northern Kuala Lumpur commercial hub with prime coverage areas including Mont Kiara, Damansara Heights and Sentul. The availability of a major convention centre will position the locality as an international trade and exhibition district in Kuala Lumpur.

“Notwithstanding the fact that these mega-projects will bring a positive impact to the nation’s economy, we still need to be cautiously optimistic on its success. As these projects are highly dependent on private investments, both local and international, the uncertainty in the global economy may pose investment worries,” it says.

In addition, there has been a trend developing. Companies are shifting their operations outside the city centredue to bad traffic and higher operating costs in the city. Companies are also drawn to the larger and modern office space on offer in buildings outside the city area .Petaling Jaya is currently the focal point of new supply of office space and has gradually seen a higher influx of multi-national companies.

Property consultancy CB Richard Ellis (M) Sdn Bhd says the Klang Valley will face an oversupply of office and retail space within the next two to three years while capital values for residential units would see some increases in 2012, but at slower rates compared with the past 18 months.

Its executive chairman Christopher Boyd, in a recent briefing, says that while 2011 is a strong year in terms of demand for office space in the Klang Valley, rental values might succumb to the oversupply within the next 18 months.

The total office space supply in the Klang Valley stands at 80.8 million sq ft at the end of the first half of 2011 (compared with 80 million sq ft at the end of 2010).

However, Boyd says it is estimated that an additional 25 million sq ft of office space will come on stream in the Klang Valley by 2015 (excluding mega projects such as the Naza group’s KL Metropolis development and the KLIFD).

He says that vacancy rates in Kuala Lumpur are under 13% and though this is not an alarming number, the vacancy rates are expected to increase in tandem with supply.

A report by CB Richard Ellis notes that prime gross asking rentals were flat at RM7 per sq ft with only a handful of buildings above this level.

Since rising steadily from 2002 to 2008, rentals at top city centre buildings have remained mostly flat for the past two years.

Boyd says recent average transaction prices of Grade A office space generally ranges between RM800 and RM900 per sq ft. However, there are higher prices than these being achieved in the market like the RM1,100 per sq ft or more in KL Sentral and SP Setia Bhd’s KL Eco City.