Hot new game in town


THE Government's decision to abolish real property gains tax (RPGT), after its application for 30 years, is a landmark event for the property sector.  

RPGT appears to have worked well in reducing speculative activities in the housing market. The rest of the region, however, had decided that on balance, RPGT worked against the benefits of a vibrant property sector on the overall economy.  

It is understood that at one time, there was RPGT in Singapore and Hong Kong too, but this was removed in both these places.  

The removal of RPGT would lead to an increase in the number of investors who buy properties with a view to a sale within two or three years.  

In the past, experienced investors could make good gains in selling their houses or condominiums as soon as construction was completed. In their sales, they would pay the RPGT, keep the rest of their profit and move on to other purchases.  

This would become more profitable without the cost of RPGT. It can be very lucrative due to high financial leverage. Typically, buyers need put up only 10% of the price of a house, with the rest financed by a loan. There are not many assets in which investors can readily obtain financing nine times the cash that they pay in.  

The experience of those who obtained appreciation of 100% on their houses by the time construction was completed, after having paid just a 10% down payment, is the stuff of urban legends.  

IJM is jointly developing some of Talam’s projects

Although the overall property market does not go up by 100% or even 50% in any given year, a high double-digit rise in value can be found in properties in the right location. This is sometimes found in the early launches of township developments where developers seek to entice buyers to ensure the projects take off.  

High leverage is obviously a double-edged sword, although property prices tend to rise every year except in a recession, and certainly far less volatile than the stock market.  

As in any investment, the right asset has to be picked. In the case of properties, besides price, the obvious criterion is location.  

Investors have a record of rewarding investments in the luxury condominiums of Sunrise Bhd, where its condominiums and shares will continue to be assets of value.  

SP Setia Bhd and Mah Sing Group Bhd are also savvy at marketing and in their choice of location. They are also likely to find more buyers who will invest in their offerings.  

The waiver of RPGT would also help in the revival of Talam Corp Bhd, which fell into Bursa Malaysia's Practice Note (PN) 17 category for companies with financial difficulties. The process of reconstruction is already under way.  

As a PN17 company, it is difficult for Talam to conduct business and be given credit terms by suppliers. Construction at its projects would now be restarted through joint development with IJM Corp Bhd.  

“There are several parcels of land owned by Talam, that we're jointly developing. There are some that IJM has bought and there are some projects where IJM is the contractor,” IJM's managing director Datuk Krishnan Tan told StarBiz. IJM is waiting for conditions to be fulfilled for an acquisition of Kumpulan Europlus Bhd, a major shareholder of Talam.  

 

Red China 

 

It's still red China but nowadays; it's red hot in its economic development. Over here, there will be an additional company with exposure to the China market.  

Antah Holdings Bhd is delisted from Bursa and in its place, Sino Hua-An International Bhd is listed today, following a reverse takeover (RTO) of the former.  

This is the first RTO by a Chinese company, which is a large producer of coking coal in Shandong Province for the steel industry. 

Hua-An comes to the market with a value of at least RM1.1bil, based on its issued share capital of which 33% was placed out at RM1.00 a share. Kenanga Research last week set a 12-month target price of RM1.71 for the stock.  

The company is forecast to achieve a net profit of RM128mil this year, and Kenanga's target price is based on a 25% discount to the average price/earnings ratio (PE) of Hua-An's Chinese peers of almost 20 times.  

The listing couldn't have come at a better time when the steel cycle is on an uptrend, and so are the earnings of most steel companies.  

Parkson Retail Group Ltd's share price rose to a record HK$53.20, up HK$5.50 on Friday after announcing the purchase of 100% of Golden Village Group Ltd which owns one of the biggest department stores in Nanchang City, Jiangxi Province. In tandem with that, parent company Lion Diversified Holdings Bhd rose 50 sen to RM7.10 on the same day.  

This is a smart move by Parkson, which is valued at a PE of about 60 times its net profit last year, to acquire Golden Village at a PE of about 15 times its earnings last year. Such acquisitions improve Parkson's earnings per share, and further acquisitions would be well received by the market.  

LBS Bina Group Bhd also holds a valuable asset in China, where its value has yet to be realised. The group owns almost 200 acres of land in Zhuhai, next door to Macau, the booming casino centre of China. Dealers who visited Zhuhai recently said the city was also booming, but then so was every other city in the coastal provinces.  

Latest reports are foreign investors have joined their Hong Kong counterparts in Zhuhai. South China Morning Post reported in January that Wachovia Corp, the fourth largest US banking group, had bought a 50% stake in a housing project in Zhuhai.  

This followed a similar move by RREEF, the real estate and infrastructure investment division of Deutsche Bank, into a residential property project, also in Zhuhai.  

LBS' launch of its Zhuhai project was delayed several times by various factors including transfer of land titles, land acquisition by the local government for a light rail transit line, and transfer of part of the golf course to flat land from undulating ground that would be used for property development.  

Its managing director Datuk Lim Hock San told StarBiz that a marketing launch of the Zhuhai project could be done this year, which he scheduled for the fourth quarter. 

The delays are not entirely adverse, as the land value has probably increased every year, if not every month.  

Elsewhere in China, Talam owns a four-star hotel in Changchun, Jilin Province, with a book value of RM123.7mil at the end of January last year. Considering the buoyant tourism sector there, the hotel should be easy to dispose of, which would ease Talam's cash flow situation and enable it to complete its projects here. 

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