Winning strategy

MRCB securing land for future development at today’s price is a good deal for the company

BEING able to lock in current prices for future land transactions is certainly a good strategy. That is what Malaysian Resources Corp Bhd (MRCB) has secured when it undertook a deal RM1.6bil to refurbish and build new infrastructure in Bukit Jalail for the government in return for land.

The land that MRCB will get in return for the RM1.6bil work is valued at 2% premium.

But property consultants say that the three parcels of vacant land in Bukit Jalil could be worth much more several years down the road when they get transferred to MRCB.

Previndran: ‘I’d say that at the price that MRCB is paying for the land, the group is not only getting a fair deal, but it is getting an excellent deal.’

With exposure to comprehensive infrastructure development, such as rail transportation, the value of the three parcels of land that MRCB has secured around the National Sports Complex (NSC) area in Bukit Jalil will certainly increase over time, says Zerin Properties CEO Previndran Singhe.

“Appreciation in the value of the land is certain, considering the infrastructure development that’s happening there right now, as well as the centrality of its location,” he says.

“So, I’d say that at the price that MRCB is paying for the land, the group is not only getting a fair deal, but it is getting an excellent deal,” he tells StarBizWeek.

At RM1.6bil to refurbish and upgrade the NSC in two phases over the next five years in exchange for three parcels of land measuring a total of 92.5 acres within the vicinity of the project, MRCB is effectively getting prime development land at average price of around RM397 per square foot (psf).

That’s a 2% premium over the current market value for the land, MRCB says in its filings with Bursa Malaysia.

The contract was secured at the end of last month by MRCB’s 85%-owned subsidiary Rukun Juang Sdn Bhd after coming tops in a competitive tender exercise.

According to the deal, MRCB will only get the first parcel of the land, measuring 28.13 acres, around June 2017, when it is expected to complete the first phase of the project valued at RM499mil.

The remaining two parcels of land measuring a total of 64.37 acres will be transferred to the group’s ownership at the completion of the final phase of the project, valued at RM1.1bil, by the end of 2020.

At a recent press briefing, MRCB executive director Imran Salim says the group could afford to wait for the land in Bukit Jalil to be transferred to its ownership.

“We are land banking at the current stage, so we have time to wait for the land to be allocated to us,” he says.

Imran adds that MRCB is familiar with the process of land-ownership transfer from the Government, hence it is confident of a smooth process in due time.

In total, MRCB’s effective stake in the three parcels of government land in Bukit Jalil is 78.6 acres by virtue of its 85% stake in Rukun Juang.

Along with the recently acquired 53.3 acres land in Cyberjaya City Centre via a joint-venture agreement, in which MRCB has a 70% stake, the three plots of land in Bukit Jalil will boost the group’s land bank to 302.3 acres.

Bukit Jalil beckons

The three parcels of unconverted land in Bukit Jalil that have been set apart for MRCB are expected to be subsequently converted to commercial status, with a leasehold period of 99 years, when they get transferred to the group’s ownership in the next two to five years.

Industry observers say they do not foresee any hiccups during the process of land conversion.

“Conversion of the land and getting good plot ratios for the development should not be a problem for MRCB,” Previndran says.

Another property developer with a project in Bukit Jalil concurs, saying that it is after all the Government’s intention to see the vicinity of the area being turned into a comprehensive development.

While MRCB has earlier noted its intention to develop the land into a mixed development, comprising residential and commercial properties, the group has stressed that the final plan will be dependent on the market conditions and consumer sentiment at that point in time when it is closer to the actual development plan.

According to Imran, the actual development of the Bukit Jalil land is expected to start only when MRCB completes the bulk of its obligations to the Government in upgrading the NSC and turning the area into a fully integrated sports hub, called the KL Sports City. And that would likely be in the next four to five years.

Hence, it is still early days to talk about land margins or proposed gross development value. In any case, industry observers reckon that Bukit Jalil is growing to be a “sought-after” area. “The location is strategic and it is easily accessible,” said a developer who declined to be named.

Noting that land in the area, especially near the NSC, is very hard to come by, the property developer, who has a project in Bukit Jalil, points out that not many parcels are available for sale.

Past deals

A major land acquisition in the area in recent memory is that by construction and property development group WCT Bhd about three years ago.

In March 2012, WCT acquired plots of converted and unconverted land in Bukit Jalil from the Eng Lian family at various prices. The vacant and unconverted land was then transacted at RM150 psf, while the converted land already approved for residential and condominium development was then transacted at RM258 psf. Notably, land approved for commercial development would have fetched a much higher price.

The implied RM397 psf that MRCB is paying for the three plots of unconverted land in the vicinity under its RM1.6bil deal with the Government represents a price appreciation of 2.6 times of what WCT paid for its unconverted land three years ago.

At present, among the companies with land bank near the Bukit Jalil sports complex area is Berjaya Land Bhd, which has developed a golf course with bungalows. The bungalow parcels are going for about RM350 per sq ft.

Within the vicinity, Malton Bhd is one of the biggest developers. The group has 50 acres to be jointly developed with Ho Hup Construction Bhd into a large shopping mall called Pavilion 2.

This followed a joint development agreement signed in 2010 between Malton’s wholly owned subsidiary Pioneer Haven Sdn Bhd (PHSB) and Ho Hup’s 70%-owned unit Bukit Jalil Development Sdn Bhd (BJD). The deal was to develop the freehold land into a mixed commercial and residential project that carries billions of ringgit in gross development value (then estimated at RM2.5bil) of which PHSB’s entitlement would be 83%, while that for BJD would be 17%. Development cost would be borne by PHSB.

Separately, in the same year, Ho Hup entered a deal to sell 3.32 acres of freehold land for RM9.55mil, or RM66 psf, to Bayu Melati Sdn Bhd, a subsidiary of Melati Ehsan Holdings Bhd. The agreed price for the land, which had already been approved for residential development, represented a 38% premium over the market value then.

With a foothold in the rapidly developing Bukit Jalil, MRCB can join in the party in the future.