Malaysian property players seen to ride on the sector’s buoyant recovery

Property developers will continue to emerge as key winners in 2010, driven by rising demand and improving economic outlook, according to an analyst at MIDF Research.

Moving into 2010, players would continue to ride on the sector’s buoyant recovery based on the improving number of property sales coupled with declining number of overhang units since the first quarter of 2009, the analyst, who declined to be named, told Bernama recently.

For 2009, it was an unanticipated recovery story as the sector had outperformed expectations in becoming one of the leading segments in the stock market.

Share price of property companies, which is measured by the KL Property Index, in fact outpaced the benchmark FBM KLCI.

However, the analyst pegged a ‘neutral’ outlook for the property sector in 2010.

‘Despite encouraging sales demand and improving economic sentiment, the fear of demand sustainability, upon the withdrawal of cheap credit, absence of attractive promotions and favourable regulations, may take its toll on the property sector,’ he said.

However, the growth driver in 2010 will be, among others, the favourable regulations, continuous governmental support, a thriving property market taking its cue from an improved economy and the ability to attract foreign direct investment flow.

‘Sales demand for residential properties are expected to remain buoyant as investors continue to deem it as one of the more liquid hedging asset.

‘Speculators are also taking advantage of the current market sentiment to lock in on gains,’ he said.

A survey across key property players revealed that none was slowing down their pace of project development.

Many were, in fact, taking advantage of the current discounted valuations to replenish land banks and were not holding back new launches.

The analyst said that key players have signalled that take-up rates of residential properties have remained strong between 80 per cent and 90 per cent in the last quarter.

‘Hence, we are confident residential property sales will remain buoyant, at least within the first half of 2010. We are estimating at least 25,000 new units to be launched over the next quarter,’ he said.

On the retail/shopping complex and office front, he expected continued oversupply of units, notably in the Klang Valley, as many have been under construction over the past two to three years.

Many corporations and businesses are also holding back relocation plans until the financial crisis is over.

Meanwhile, issues that may dampen the sector’s recovery include the re-introduction of the Real Property Gains Tax (RPGT), possible pullback in sales demand due to withdrawal of cheap credit, unanticipated rise in raw material prices thus raising average selling prices and delaying launches and approvals.

‘We do not expect any immediate impact from the reintroduction of the RPGT, and it was mainly to control the secondary sales market. On the flip side, it may discourage foreign investments in commercial properties,’ he said.

He said that the tax was introduced too soon as the economy was still on the verge of recovery but understood the need for it to curb another asset bubble.

He did not expect real estate investment trusts (Reits) to be a star performer in 2010 but expected some interest in this segment.

He said that the average rental yield for offices and commercial properties was on a downtrend in 2009, with rental for offices falling 1.9 per cent, year-on-year, and 1.35 per cent, year-to-date, within the Klang Valley.

However, the recovery in the property market coupled with an exemption from RPGT and stamp duty will see rising interest in Reits which currently yield an average return of between 8 and 9 per cent in Malaysia.

On the status of Malaysia’s property market, the analyst said that he did not expect any property bubble in the immediate term.

‘Appreciation of property prices have been modest so far as demand recovered slowly as investors’ confidence returns,’ he added.

Prices of properties nationwide declined 9.8 per cent year-to-date, due to the economic crisis, but gained 1.40 per cent year-on-year, due to renewed interest emerging in the second quarter of 2009.

‘Nevertheless, assuming the presence of cheap financing, attractive promotions and favourable regulations continue into 2010, coupled with new launches and delivery in 2010, property prices may face an upsurge,’ he said.

And, despite the Dubai’s debt crisis, he said that Malaysia would still be able to attract Middle Eastern investors who still reaped positive yields from investing in the country’s property market.

The main challenges in the property market will be demand fundamentals, whether it can be sustained, and from another point of view, what else can be offered by both property players and financial institutions to support the growing demand.

‘One would be cheap cost of fund (credit). Assuming overnight policy rates are raised back to pre-2006 days of 3.50 per cent, can demand be sustained? Secondly, assuming a second dip does occur, can the property segment take it in its stride?’ he said.

The analyst said that residential properties will continue to be favourites among investors who still demanded mid-to-high-end properties.

‘We noted in the second quarter that properties priced between RM250,000 (S$102,450) and RM500,000, and between RM500,000 and RM1 million were favourites and registered sustained growth,’ he said.

Residential properties have historically proven to be good hedge instruments with attractive capital appreciation, while commercial and office properties may see a dip in demand, against a backdrop of new launches, except for those Grade A offices located in suburban areas.

Demand for properties around Kuala Lumpur City Centre is recovering as prices within the vicinity improved in the third quarter with stable rental yields.

As for industrial properties, he said that the segment would move in line with the nation’s economy.

The analyst was also of the opinion that the property market needed a boost in the form of incentives, that included tax reduction for suburban developments, cheap credit, continuous efforts to draw foreign direct investments and for local small players to have joint-venture opportunities with state governments.

Source : Business Times – 31 Dec 2009

It can provide new business opportunities, better value by tapping private sector skills and resources

The 55,000-seat Olympic stadium with extendable tiers was billed as the largest ultra-lightweight tropical dome in the sporting world, with a sliding roof that lights up at night and doubles as a projection screen to create dramatic effects for night events.

It’s to be the centrepiece of the envisaged 35-hectare Sports Hub that will see, coming up at the Kallang waterfront alongside the existing Singapore Indoor Stadium, an indoor aquatic centre, a multi-purpose arena, a water sports venue for dragon boat rowing and kayaking, plus loads of commercial space. A top-rate sports, entertainment and recreation hub where Singapore will stage various international events.

But repeated delays in getting the Sports Hub off the ground – indeed, off the drawing board – has not only cost Singapore its turn to host the 2013 Southeast Asian Games, it has also raised questions about the viability and wisdom of the PPP approach for the $1.9 billion mega-project.

PPP – or public-private partnership – is an alternative means of procurement or sourcing for the government. Instead of engaging the private sector merely to construct facilities or supply equipment, it gets the private sector into the driving seat, from conception, for the turnkey project. A leading role by the private sector, it’s believed, will result in greater innovation across key stages of the project – from design and specification to financing, construction and management.

Well established

The public sector will typically still own and operate the facilities, or engage separate firms to do so to deliver the services to the public. PPP is also known as private finance initiative (PFI) in the United Kingdom, where the concept was born in the early 1990s and where, as of September this year, some 570 PFI infrastructure projects are in operation. PPPs are also well established in Australia.

In the case of the Sports Hub here, the Singapore Sports Hub Consortium led by Dragages Singapore Pte Ltd beat two other contenders to win the bid in January last year to design, finance, build, operate and run a calendar of programmes and events in what would be the Republic’s first fully integrated sports, entertainment and lifestyle hub, for a period of 25 years.

When the facilities are up and running – originally scheduled for end-2011 – the Singapore government will, in exchange for the contracted services, pay the consortium a pre-agreed sum every year for 25 years.

The project, unfortunately, ran into a steep rise in construction costs right from the start. Add to that the global financial crisis from October last year that more than threw a spanner in the works, scuttling all efforts to raise funds for the project. As a result, the completion date for the Sports Hub has been repeatedly pushed back – from end-2011 to end-2012, now to 2013 or early-2014.

Last month, the consortium announced that it was going again to the market to raise financing, and expected to receive offers before year-end. In a statement shortly after, the Singapore government noted that liquidity was gradually returning to the market and banks have started to extend long-term loans again.

‘We have chosen to continue with the PPP model not because the government is short of funds, but because we believe in the benefits that a PPP arrangement can bring,’ it said.

As the Ministry of Finance says on its website, the government believes that PPP offers a win-win deal for all parties: better business opportunities for the private sector and, for the public sector, better value for money in the delivery of public services by reaping efficiency gains and enterprise innovation.

Specifically in the case of the Sports Hub, the government has chosen a PPP approach as having the same consortium undertake all functions will help to optimise life-cycle costs and operations efficiency, it says.

‘For example, the consortium will design and build the facilities in a way that enables efficient programming while keeping operating costs as low as possible.’

The consortium is also spurred to complete construction early, as it will start getting paid only when the facilities are built and available.

The Sports Hub – when completed – will be the world’s first PPP sports infrastructure project, as well as Singapore’s biggest and flagship PPP venture, if hardly its first. Since January 2003, the public sector here has awarded eight PPP jobs, with the Public Utilities Board pioneering with the first two projects: a desalination plant designed, built and operated by Hyflux Ltd, and the Ulu Pandan NEWater plant by Keppel Integrated Engineering Ltd.

Business opportunities

The government sees in PPPs new business opportunities for firms to develop multi-disciplinary skills and form consortiums. Expertise would also develop in areas such as life-cycle costing, integrated design and construction methods to meet future needs in service delivery, operation and maintenance of the facilities, and risk management. Such skills and expertise will also come in handy when firms venture overseas, the government points out.

A 2007 study by Allen Consulting comparing traditional procurement and PPP delivery in Australia concluded that PPPs provide superior performance in both cost and time, and that the PPP advantage increases, in absolute terms, with the size and complexity of projects.

The study also found, going by the availability of public data for its analysis, PPP ventures to be ‘far more transparent’ than traditional projects.

A more recent October 2009 paper by UK’s National Audit Office that looked at the impact of more than 100 private finance projects across the public sector is not as acquiescent. ‘Our view is that private finance can deliver benefits, but it is not suitable at any price or in every circumstance,’ it says.

In any case, despite the stall in the Sports Hub, PPP consultants say that there is good scope to develop the concept here, though it has to be refined in the Singapore context. Specifically, for PPPs to thrive here, there has to be a comprehensive PPP framework and a strong pipeline of projects, say R Satyanarayan, executive director and head of corporate finance at KPMG Singapore, and David Ng, director of global infrastructure and projects at KPMG.

‘Where Singapore has an advantage, which it needs to capitalise on, is its strong rule of law, which is central to the development of a quality PPP environment,’ says Mr Satya, noting that several Asian countries are pressing ahead with infrastructure PPPs in one form or another.

‘Roads are the biggest opportunity staring the region in the face . . . globally, roads are probably one of the most successful PPP sectors,’ he says. ‘But Singapore’s road system is quite good; we have reasonably good quality infrastructure. Where do you build the next PPP road? We are hitting the limits in terms of what new road projects we can get.’

Or hospitals, for that matter. While Mr Ng would like to see Singapore roll out PPPs in social infrastructure – ‘relatively simple’ projects such as hospitals, schools and student hostels are ‘one of the easiest PPP projects to get up and running, and usually the projects that deliver the government best value for money proposition’ – there is the question of just how many more hospitals are there to build in Singapore.

Dealflow is crucial for PPPs as it is very costly to mount a bid.

Says Mr Ng: ‘The reason why bidders want to see a pipeline is that if you get a one-in-two or one-in-three chances of winning, you’d like to see that eventually, there will be a chance with some project down the track.’

Mr Satya says that Singapore should approach PPPs as a regional business. Develop Singapore as a hub for infrastructure financing, for instance.

‘By doing that, we essentially create a pipeline of projects; so the region is our playing field,’ he says.

‘The governments in the region need financing for their infrastructure. We act as a conduit where we help capital formation because we’re a great place where capital pools, and then, in the countries, if the regulatory environment is right, there are good projects and good sponsors, these all come together with the capital flowing out of here to make infrastructure projects happen. This pipeline then makes it more viable for big players to set up regional hubs in Singapore.’

The second strategy, Mr Satya says, is to go for sectors with critical mass.

‘So, for example, water has been a great sector (for PPPs). Identify sectors where Singapore can itself be almost like a deal generator and centre of excellence.’

Apart from a dealflow, the other key issue, in Mr Ng’s view, is a comprehensive PPP framework.

PPP framework

‘So that the private sector knows where it stands when it comes to PPP – (they want to) know how the government selects projects deemed to be suitable for PPPs; know how the government is going to tender out these projects, the processes involved; and what the contracts would eventually look like. Also, knowing what the government’s position is on various allocated risks, and also making sure that the bidding process is kept within a specified best practice timeframe.’

There needs to be a bit more transparency and accountability in adhering to a timeframe so that the private sector isn’t left waiting and wondering on the side about the status of their bids, Mr Ng says.

Compared with traditional government projects, PPP jobs have greater transparency and accountability, and spur decisions geared to the long-term. ‘The question is to apply it to projects that are easier to implement, where you can show clear benefits in terms of delivery, and where the costs of not doing it in government from a social and political point of view are not very high,’ says Mr Satya.

‘I think the jury will be out for a long time, because these are long-term projects. The value for money argument can only be proven when the project is finished. Till then, it’s a bit of a leap of faith. But, from a philosophical point of view, from the fact that it provides the government with a great way of harnessing private sector initiative, we must continue to embrace it in appropriate areas.’

Source : Business Times – 31 Dec 2009

THE Government launched its industrial land sales programme for the first half of 2010 yesterday with clear signs that it feels the market has turned.

The Ministry of Trade and Industry has reinstated two sites on the confirmed list and placed eight on the reserve list.

It had suspended the confirmed list earlier this year in the light of the downturn but yesterday’s announcement reflects the recent turnaround in the property sector.

The total land area on the sales list is 21.85ha.

DTZ’s head of South-east Asian research Chua Chor Hoon added: ‘The Government’s release of the two confirmed sites reflects that the property market is past the worst stage and is getting back on its feet.’

Confirmed sites are put up for tender regardless of a developer’s prior expression of interest.

The confirmed sites are a 5ha lot at Tampines Industrial Avenue 4 and 3.39ha at Ubi Road 1.

Tender details for the Tampines site will be released in March while the Ubi Road details will be out in June.

The eight sites on the reserved list are in Pioneer Road North/Soon Lee Road, Woodlands Avenue 2, Kaki Bukit Avenue 4, Ubi Road 1/Ubi Avenue 4, Serangoon North Avenue 4, Toh Tuck Avenue and two parcels in Yishun Avenue 6.

Sale conditions for Pioneer Road North/Soon Lee Road will be out around May while details for the other sites are already available and applications can be submitted.

Sites on the reserve list will be triggered for tender only when an initial offer that meets the minimum purchase price is made.

Three reserve list sites – at Kaki Bukit Road 2, Woodlands Industrial Park E5/Woodlands Avenue 4 and Pioneer Road North/Soon Lee Drive – were sold this year.

Knight Frank’s business space industrial director Lim Kien Kim said the launch is in line with growing expectations as the economy is improving.

Source : Straits Times – 31 Dec 2009

THE improving property market has prompted owners at Green Lodge Condominium in Toh Tuck Road to put their estate up for collective sale.

They want $135 million for the freehold estate in Toh Tuck Road, an asking price of $683 per sq ft per plot ratio, including development charge.

That will give owners about $1.55 million to $1.58 million per unit – about 40 per cent more than the open market price, said Mr Jeffrey Goh, head of investment sales at the estate’s marketing agent, Newman & Goh.

Like other sales launched in the latter half of this year, the Green Lodge owners voted for the en bloc sale many months ago but have held off until the market looked more promising.

The majority agreed to sell their property as early as April but the market was very weak then, said Mr Goh.

Green Lodge condo sits on a site of 151,075 sq ft near the Toh Tuck campus of the Canadian International School.

With a plot ratio of 1.4, it can be redeveloped to about 211 units of boutique apartments of about 1,000 sq ft, said Mr Goh. The new development could sell for at least $1,250 per sq ft (psf) on average, he added.

Other residential developments in the vicinity include The Beverly – which was launched earlier this year at an average price of $750 psf – Signature Park and Goodluck Garden.

More owners are now working towards launching their properties for collective sale in the wake of the improving market.

There will be more collective sale launches in the first and second quarters of next year, Mr Goh said.

But the success rate is still up in the air as there remains a mismatch of price expectations between sellers and buyers, he said.

There have been several collective sale launches this year but only one of them – Dragon Mansion – was sold.

The tender for Green Lodge closes on Jan 13, a day before the close of another collective sale tender – Mayfair Gardens in Rifle Range Road.

Source : Straits Times – 31 Dec 2009

Considerable interest expected in two sites on H1 list; MTI to also replenish reserve list which will have one new site and seven brought over from 2009

The government will bring back the confirmed list for industrial land sales in H1 next year, providing further evidence of an economy on the mend.

Market watchers have welcomed the move and expect to see considerable interest in sites on the upcoming list.

The Ministry of Trade and Industry (MTI) said yesterday that it will reinstate the confirmed list and replenish the reserve list ‘in view of the improved economic conditions, and to continue to meet demand for industrial land’.

The confirmed list will comprise two sites. One is a new 60-year leasehold parcel in Ubi Road 1, with a gross plot ratio of 2.5 and zoned for Business 1 development.

Details of this site could be released in June next year.

The other site, transferred from the H2 2009 reserve list, is in Tampines Industrial Ave 4. Details on the 30-year leasehold parcel could be out in March.

MTI launches sites on the confirmed list for tender based on a schedule. It suspended this arrangement for the whole of 2009 as the economy tanked and put a dampener on manufacturing.

The industrial property market also softened, with rents sliding and vacancies rising.

The Urban Redevelopment Authority’s industrial space rental index lost 8.5 points between Q1 and Q3 this year.

Demand for state industrial land started showing up some time in May. Three sites on the reserve list have been triggered for sale this year and developers competed intensely for them, reflecting a shift in sentiment.

The keen bidding got some market observers wondering if the confirmed list would make a comeback in H1 next year – which it will.

Knight Frank’s head of industrial business space Lim Kien Kim said that with the improving economic outlook, space requirement expectations will rise.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said that there is a need ‘to prepare for medium-term demand’, as plots released next year will probably not be ready for occupation until after 2011.

Unlike sites on the confirmed list, those on the reserve list are put up for sale only if interested parties submit applications and undertake to bid a minimum amount acceptable to the government.

The upcoming reserve list will have eight sites. There is a new one at Pioneer Road North and Soon Lee Road, which has a 30-year lease and could be made available in May next year.

There are also seven others carried over from the H2 2009 reserve list, spread across areas such as Woodlands, Kaki Bukit and Yishun.

Together, the 10 sites amount to 21.85 hectares.

Market watchers believe that there will be demand for sites on the confirmed list, especially the one in Tampines Industrial Ave 4. Tampines is a growing industrial area and has attracted high value-added industries, said Mr Lim.

Colliers International director (Industrial) Tan Boon Leong notes that the parcels on the confirmed list happen to be two of the largest in the land sales programme – the Tampines site is 5 ha and the Ubi site 3.39 ha.

He suggests that the government could be testing the market’s reaction to large sites, given the strong interest that developers have shown in state industrial land in the past few months.

Source : Business Times – 31 Dec 2009