PETALING JAYA: The proposed move to allow the conversion of properties under a Private Lease Scheme (PLS) to freehold in Medini, in Iskandar Puteri, Johor Bahru will benefit Sunway Bhd
given its huge landbank in the area, says Hong Leong Investment Bank (HLIB) Research.
"It was reported that Iskandar Investment Bhd (IIB) is offering buyers and developers
in Medini the option to convert properties under the PLS to freehold status, with premiums of RM8 per gross floor area (GFA) for undeveloped land and RM10,000 per unit for completed properties.
"Sunway benefits significantly from this development as its Medini landbank, comprising 691 acres, which is 60%-owned via a joint-venture with Khazanah Nasional Bhd, is currently under PLS.
The group has an effective remaining landbank and gross development value (GDV) of 130 acres and RM6.2bil, respectively." HLIB Research said in a note to clients.
According to the research firm, the conversion will enhance land value and GDV as demonstrated by the 25% price differential between Sunway’s freehold Maple Residence and PLS Sunway Aviana projects.
"Maintain forecasts and our Buy recommendation with with an unchanged target price of RM5.75." Sunway currently holds 1,770-acre of landbank in Sunway City Iskandar Puteri (SCIP), which is divided into two key areas, one being via the joint-venture with Khazanah.
This and is currently under a PLS and to 30% of the Medini land has been developed.
The remaining effective landbank stands at 130 acres, said HLIB Research. Sunway also has 1,079 acres of land in Pendas, which the group fully-owns and is freehold status.
The PLS is a property ownership structure where the landowner (lessor) leases land to a developer for a fixed tenure.
"In the case of Sunway Medini, the land is owned by IIB and leased to Sunway for an initial tenure of 99 years, with an option to extend for an additional 30 years.
Sunway, as the developer, is the first lessee under the PLS. Once Sunway develops and sells properties, the homebuyer becomes the second lessee."
The PLS in Medini was initially introduced to restrict foreigners from owning properties in perpetuity. However, several drawbacks of this scheme have since emerged, pointed out the research firm. Firstly, since the PLS structure is the first of its kind in Malaysia, there is no established legal framework specifically governing it.
This is in contrast with the more conventional freehold and leasehold land statuses, which are backed by well-defined national and state land laws. The absence of clear legislation creates uncertainties for both developers and property buyers.
Secondly, homebuyers often face difficulties in obtaining bank financing due to the lack of clarity and regulation around the PLS structure.
According to the research firm, banks are hesitant to finance PLS properties, perceiving them as higher risk compared to properties with leasehold or freehold status.
Thirdly, the lack of a well-developed governance framework could also deter potential buyers, who may be concerned on the long-term security of ownership and the conditions for lease renewal. HLIB Research noted that discussion on converting PLS to freehold in Medini had began in 2020.
"The timing is ideal, aligning with the recent formalisation of the Johor-Singapore Special Economic Zone (JS-SEZ). As SCIP is located within the SEZ, the area’s appeal to buyers is set to increase significantly."
The requirements for the Malaysia My Second Home (MM2H) in the SEZ has been relaxed. "Crucially, it mandates that properties must be purchased directly from developers, driving demand in the primary market and boosting sales for developers like Sunway."
Another positive is that Medini Iskandar stands out for having no minimum price threshold for foreign property buyers. This is a significant advantage compared to other parts of Johor, where foreigners face a minimum threshold of RM1mil for high-rise properties and RM2mil for landed properties.
HLIB Research said this is a catalyst to accelerate development in Sunway's SCIP.
