DESPITE the soft property market largely due to the Covid-19 pandemic, there has not been a slowdown in mega land reclaimation projects in the country.
At end-March, Widad Business Group Sdn Bhd (WBG) announced a RM40bil mixed development known as Widad@Langkasuka in Langkawi where the centrepiece will be a 1,000-acre, man-made island. The project is a 50:50 collaboration with Bin Zayed International LLC (BZI), and will be developed over 15 to 20 years.
WBG said currently, almost 90% of the 1,979-acre site consists of the ocean, and the joint venture intends to build a man-made island which will eventually span 50% of the entire area.
It is envisaged that Widad@Langkasuka will comprise tourism components such as five and six-star hotel and resorts, an international golf course located beside the Marina Yacht Club, an international business and office complex, shopping malls, higher learning institutions, healthcare facilities and luxury residences.
Meanwhile, Gamuda Bhd aims to start the first reclamation works on the massive Penang South Island (PSI) project this month.
The PSI project consists of three islands located at the south of Penang Island, which is next to the Bayan Lepas airport.
Gamuda deputy group managing director Mohammed Rashdan Yusof has said the first phase of the PSI project would involve the reclamation of 1,200 acres of land spanning over five years at an estimated cost of RM6bil to RM7bil, including road and bridge development.
Also, more mega land reclaimation works will continue in Melaka, with the recent annoucement of a new Melaka Waterfront Economic Zone (M-WEZ).
On April 8,2021, LBS Bina Group Bhd inked a deal with the Melaka state government to reclaim and develop land spanning 1,200 acres in Tanjung Bruas – as part of the 25,000-acre M-WEZ.
Following the reclamation works, LBS said it intends to develop an industry hub with port facilities for logistics and warehousing, manufacturing, liquefied natural gas, port-related business on the site.
For the rights granted, LBS said the state government will be paid RM94.86mil cash. LBS will be entitled to 80% of the reclaimed land, with the state government entitled to 20%.
The Melaka government had in late 2020 terminated KAJ Development Sdn Bhd’s three-year concession for land reclamation of islands that would form the foundation of the multi-billion-ringgit Melaka Gateway project.
The new M-WEZ will be a 33-km stretch running from northern Melaka near Sungai Udang to the south in Umbai. Among its aims are to encourage the development of container and general cargo ports, cruise and ferry terminals, free-trade zones, a logistics hub, oil and gas terminals, and ship repair yards.
Melaka Chief Minister Datuk Seri Dr Sulaiman Md Ali has said the new economic zone targets to attract more than RM100bil in high-impact, high-value investments over a 15-year period, and create over 20,000 new jobs annually.
M-WEZ will have five distinct clusters consisting of the Melaka Harbourfront, Smart Logistic Nucleus, Digital Satellite Township, Central Eco Business Park and Trade Nucleus New Township.
The economic zone will also have new areas dedicated to tourism products, duty-free zones, shopping malls, offices, hotels, residences and Fourth Industrial Revolution (IR 4.0) industries.
Meanwhile, research analysts are positive about LBS Bina’s land reclaimation deal in the M-WEZ. RHB Research said the deal opens up opportunities for LBS Bina to further strengthen its ties with China on a long-term basis, and potentially bring in foreign investments to the new development.
According to LBS Bina management, 40% of the net area will be used for port-related and industrial developments, and the balance for mixed development.
“LBS Bina’s management indicated that the potential foreign partner will likely take charge of the port-related developments, while LBS Bina will handle the mixed development portion, ” said the RHB Research report.
The research unit estimates that funding for reclamation and infrastructure will cost RM3.4bil to RM3.5bil (assuming a gross reclamation cost of RM50 per sq ft).
However, RHB Research notes that the project has an extensive timeline – encompassing 18 months of approvals, five years of reclamation, and 15 years for development.
JF Apex Securities Research also does not see any immediate earnings impact to LBS Bina as the reclamation and development of Melaka project involves a long gestation period.
The research unit is also positive on the deal, saying it renders a golden opportunity for LBS Bina to procure sizeable tracts of land on the coastal area of the Straits of Melaka, one of the busiest shipping lanes in the world.
“Also, this will enable LBS Bina to establish a dominant presence in this growth area with access to a new market catchment particularly the industrial and commercial segment, ” says JF Apex Securities Research.
The deal would also indirectly benefit LBS Bina’s listed subsidiary, MGB Bhd, for future construction works which are related to the project in respect of infrastructure and property development, says the research unit.
Regarding the new mega land reclaimation deals, real estate consultancy Savills Malaysia group managing director Datuk Paul Khong says the success of such projects is about both timing and cashflow.
“Coming into a reclamation project is attractive as it means a low entry price upfront where the developer is able to phase the reclamation works, in accordance to market demand, ” Khong tells StarBiz.
He explains that the current Covid-19 pandemic market conditions could mean that the developer is buying in a recessionary market at a very attractive price. “However, the developer must have the financial muscle or have deep pockets to see this long-term project through, ” says Khong.
He points out that the current market difficulties can allow the developer more time to carefully prepare the sites ready for development and time it close to the next market uptrend.
Property consultancy firm PPC International Sdn Bhd managing director Datuk Siders Sittampalam also points out that developers going into land reclamation are taking a long-term view of the market prospects.
“Land reclamation and development generally are mega projects built over the years in phases. The Covid-19 pandemic has a negative transitional impact on property which will not have a long-lasting impact on the future growth and performance of the property market, ” says Siders.
Siders adds that the cost of reclamation is high and any development on reclaimed land has to cater for luxury and high-end purchasers to justify the cost.
“As such, the development components have to be priced high which would be beyond the affordable range for the local population. In most cases, the features and design of the development have to be of international standards to attract foreign buyers, ” says Siders.
Khong explains that a reclamation exercise is just another methodology of acquiring a large piece of development land or rights which is usually in a prime location, possibly just outside a prominent part of the city.
“If the project is large enough, the developer gets to pace the reclamation works based on market demand and in phases. To a developer, this basically equates to the cost of doing the business – buying land or the rights for development, ” he says.
Khong adds that to reclaim a parcel, the developer has to look at acquiring and paying for the rights to reclaim, go through the due diligence process, and study and estimate the costings and feasibility of this project.
He notes that brief reclamation works include associated works such as revetment walls, sheet pile and soil, and site improvement works, as well as the use of filling material that must be suitable for purpose and uncontaminated.
Khong also says there must be sufficient time for site settlement, and the finished levels of the reclaimed land must be at a sufficient height above sea level to enable development.
“The project also needs to look at providing basic infrastructure facilities for the sites and getting ready for immediate construction, and also issuance of subdivided titles to the land, ” he says.
Regarding market demand for new industrial and commercial properties on reclaimed land, Khong says completed reclaimed sites are usually super prime sites for development, as they are at strategic locations such as near the city limits or ports.
He explains that for these projects to be feasible, the land values in the project vicinity must be pricey enough to give a developer some premium to warrant any reclamation work unless it is specifically undertaken or designated for a purpose.
“However, any good land with a direct seafront irrespective of whether it’s residential, commercial or industrial, will enjoy a strong premium in capital value. With prime location and seafront factors in place, there will be attraction for these reclamation sites, ” says Khong.
However, on the flip side, he points out that new reclamation projects will take some lead time and subsequently join the development land market – meaning a longer gestation period for land creation.
Siders also notes that although the National Physical Plan (2010) forbids coastal land reclamation for any purpose other than port development, there are still many reclamation projects in the coastal line of Malaysia such as Seri Tanjung Pinang in Penang, Pulau Upeh in Melaka, Bukit Chagar (Tambak Johor) in Johor Bahru, and Widad @ Langkasuka in Langkawi that are sanctioned by state governments.
“In Penang, the scarcity of development land justifies a continuing land reclamation policy. The Penang state government provides incentives to create a leading digitalisation and strong manufacturing base to attract investors, ” says Siders.
However, Siders points out that land reclamation negatively impacts the environment, and disrupts marine life and the natural ecosystem, thus affecting the income of fishermen and their livelihood.
“As a result of marine life disruption, the price of seafood increases due to short supply, affecting mainly the B40 group, ” he says.
As for Chinese property giant Country Garden Holdings’ US$100bil Forest City in Johor, a Nikkei Asia report in July 2020 noted that sales and development at the project had slowed dramatically due to the Covid-19 economic uncertainty.
Built on the southern tip of Johor, Forest City consists of four man-made islands totalling 1,740ha.
Siders points out that Forest City is a very ambitious development plan to house 700,000 residents and mainly catered to buyers from China who are attracted by luxury apartments at lower and attractive prices, not to mention the likely prospects of capital appreciation.
“However, the over-reliance on the China market along with capital controls imposed by the Chinese government led to a slowdown and poor sales performance, ” says Siders.
Khong says demand for residential development in Johor is currently affected by border closures and the existing overhang of properties. He adds that Forest City will have to ride through the current recessionary market conditions.
“Forest City is backed by a big developer. In fulfilling its potential, it will be more of a timing issue, supported by a healthy cashflow for now, ” says Khong.