A DAY after the government signed an agreement to develop 486 acres of land in Kuala Lumpur, former Finance Minister Tun Daim Zainuddin poured cold water on the deal, stating that it would contribute to the property overhang.
Daim is not really saying anything new.
It’s true that we have a property glut. But that has been the situation for the last three years. Bank Negara started pulling the brakes since 2014 by restricting lending to the property sector. The stringent criteria to approve loans are still in place.
According to Bank Negara, the biggest segments of unsold properties are the high-end apartments, service apartments and small office home office (Soho) units. It would take a few years before the unsold properties, estimated at RM20bil, can be cleared.
The overbuilt situation is worse for office space and retail malls. According to Bank Negara, by 2021 Klang Valley will have an incoming supply of 38 million sq ft of office space. As for retail malls, some 140 new malls are coming up across the Klang Valley, Johor and Penang.
Should the property overhang situation prevent the development of Bandar Malaysia? Certainly not because the project is for the long haul and probably go on for another 50 years.
One only needs to look at the development of KL Sentral to get an idea of how long it would take for Bandar Malaysia to take shape. The development of KL Sentral, which is over 72 acres, started the early 1990s and is still ongoing. MALAYSIAN RESOURCES CORPoration Bhd (MRCB) has another two parcels of land to be developed.
If a development such as KL Sentral takes more than 20 years for it to be built up, how long will it be before the landscape of the 486 acres in Bandar Malaysia transforms the KL skyline?
Bandar Malaysia is a controlled development and not something that can be easily put up for sale in the market.
The chief executive of Zerin Properties, Previndran Singhe estimates that it will take at least another six or seven years before the first commercial block will be put up for sale in Bandar Malaysia.
He feels that the 10,000 units of affordable homes would come up earlier and the two Mass Rapid Transit (MRT) stations would service the residents well.
Hence, the question is will the property overhang continue to fester for another seven years? It should ease up then.
The High Speed Rail is due to be located at Bandar Malaysia. That is another project that would take years before its come to fruition. But it will add value to the development as the HSR project takes shape.
Considering the long-term nature of the Bandar Malaysia development, why the concerns that it will only make worse the overbuilt situation in Malaysia?
The Bandar Malaysia land will be developed some day. The last single largest piece of large land in the city will not be left to idle for long. It‘s only a question of time.
Unless, the government had decided to shelve the project for many years until the property overhang is over, which clearly is not the case.
The key issue is how much returns would the government get from the development and over which period.
While the development is over a long haul, the consortium of Iskandar Waterfront Holdings and China Railway Engineering Corporation (IWH-CREC) cannot waste time in coming up with a plan to monetise a portion of the development.
This is because it has to fork out some RM6.17bil, which is the balance from the purchase price of the 60% stake to the government within three years. It does not have the luxury of seven years, as stipulated under the old contract.
The three years sync with the period when the Pakatan Harapan government goes back to the voters to seek another mandate. By then, IWH-CREC should have met their obligations, which the government can showcase to the people.
To meet the obligations, Tan Sri Lim Kang Hoo, the majorshareholder of IWH, and his partners would probably go into joint ventures with large property developers from overseas to develop parcels of land within Bandar Malaysia. The exercise should result in the disposal of some parcels of land of which the proceeds would go towards making good the obligations towards the government.
IWH-CREC’s purchase price of RM7.41bil for the 60% stake translates to about RM583 per sq ft. It is about the current price of land in the surroundings areas of Bandar Malaysia.
Bandar Malaysia is in the vicinity of Taman Desa, Taman Seputeh and Jalan Chan Sow Lin.
According to a property agent, the price of bungalow land in Taman Desa is less than RM400 per sq ft and it is much lower in the Chan Sow Lin area. The price of land is a little higher at the Seputeh area but only small parcels are available.
For such a big parcel, the price IWH-CREC is paying is considered fair, say Previndran of Zerin Properties.
Whether the price tag of RM583 per sq ft is fair or otherwise, is not the issue really.
The question that should be asked is how much would the government be making from its 40% stake in the development? And whether the proceeds would be enough to repay the debts amassed by the scandal fraught 1Malaysia Development Bhd and more?
In the new agreement, the government gets 50% of the proceeds from any land sale. It is silent of the portion of profits, which would come only in the later stages of development.
One would assume that when the consortium makes a profit, the government would get its share based on the equity holding of 40%.
The way the deal is structured seems to suggest that there is likely to be some land sales in Bandar Malaysia of which the government wants to take advantage by having half of the proceeds.
If the government decides to develop Bandar Malaysia on its own, it would certainly make billions. But the government is not capable of property development and should not be in the business of development.
It’s best left to the private sector and people like Lim must be prepared for the long haul. It is a development that would likely keep going beyond his generation.
The views expressed are the writer’s own.
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