Property Monthly Review: December 2008
· Sunway City, SP Setia and Sunrise were main gainers
Sunway City, SP Setia and Sunrise were the main gainers last month with gains of 25.7%, 15.9% and 8.3% respectively. On notable shareholding filings, major shareholders of companies under coverage continued to increase their holdings. The exception was Datuk Richard Fong who reduced his holdings by 0.7% in Glomac.
· Hillside projects facing objections
Following the recent landslides in Kuala Lumpur, risks of hillside projects have been in the limelight and authorities have bowed to public pressure to review these projects. The Federal Territories Minister has reportedly issued stop work orders on 2 projects by Selangor Dredging Bhd (SDR MK, not rated) and a joint venture by United Malayan Land Bhd (UML MK, not rated) and MMC Corporation Bhd (MMC MK, not rated).
· More projects delay
Several projects have reportedly been deferred due to poor response from buyers who remain mainly on the sideline. Going forward, developers are concentrating on selling existing unsold stocks as well as executing ongoing projects to realise the huge unbilled sales locked-in prior to the economic downturn.
While the current economic downturn sees demand for properties being crimped significantly, property developers and investors continued to seize the opportunity for opportunistic acquisitions. Among the notable deals last month were the acquisition by TA Enterprise Bhd (TAE MK, not rated) of hotel assets in Australia, DRB-Hicom Bhd’s (DRB MK, not rated) acquisition of 606.8ha of development land in Iskandar Malaysia and Pelaburan Hartanah Bumiputera Bhd’s acquisition of CP Tower in Petaling Jaya.
On possible deals, EPF may buy Menara Citibank while Bandar Raya Development Bhd (BRD MK, not rated) is tipped to sign a deal with a Middle Eastern firm to sell a residential tower in CapSquare. Sunrise Bhd, on the other hand, terminated its put and call option agreement with Malaysia Commercial Development Fund Pte Ltd (MCDF) for the sale of MK20 commercial development in Mont Kiara worth RM767m.
· Maintain NEUTRAL
Although property stocks have corrected significantly, there is lack of near-term catalyst. As such, we maintain our neutral call and favour stock such as Sunway City which has significant property investment earnings.
Share price performance
KLSE Property Index ended higher in Dec, inline with the market. Sunway City, SP Setia and Sunrise were the main gainers with gains of 25.7%, 15.9% and 8.3% respectively. On notable shareholding filings, major shareholders of companies under coverage continued to increase their holdings. The exception was Datuk Richard Fong who reduced his holdings by 0.7% in Glomac.
Hillside projects facing objections
Following the recent landslides in Bukit Antarabangsa as well as in Damansara, risk of hillside projects has been in the limelight and authorities have bowed to public pressures to review these projects. The Federal Territories Minister has reportedly ordered the Damansara 21 project, which is being developed by Selangor Dredging Bhd (SDR MK, not rated), to be halted. A 34-storey serviced apartment project in Bukit Ceylon jointly developed by United Malayan Land Bhd (UML MK, not rated) and MMC Corporation Bhd (MMC MK, not rated) is another project to be affected by the freeze order. All hillside projects on Class IV slopes – with gradients above 35° – in Kuala Lumpur, Labuan and Putrajaya have been banned while those on Class II slopes – with gradients between 26° and 35° – have been temporarily frozen until a perfect planning, design and monitoring system is put in place and enforced by the government.
Furthermore, the Public Accounts Committee (PAC) has proposed that the government introduce a new act on hillside development similar to that used in Hong Kong. Its chairman Datuk Seri Azmi Khalid said the act, based on Hong Kong’s Hillside Order, would compel house owners to conduct maintenance work and evaluate the slopes once every six months.
The current knee-jerk reaction by the authorities is not something new which will results in project deferment and higher costs to ensure safety procedures are properly adhered to.
However, it is the negative public opinion on hillside developments which will hurt developers as demand for such projects may weaken going forward.
More project delays
Several projects were reportedly deferred in Penang. Hunza Properties Bhd (HPB MK, not rated) deferred its RM400m Gurney Paragon Mall which was earlier scheduled to start last September while Eastern & Oriental (EAST MK, not rated) will delay the launch of the first phase of the Seri Tanjung Pinang condominiums with gross development value of RM1bn. These condominiums were scheduled to be launched in the current financial year ending 31 March 2009 but have now been pushed to the third quarter of next year. With lower launches, developers are currently concentrating on selling existing unsold stocks as well as executing on-going projects to realise the huge unbilled sales locked-in prior to the economic downturn.
– TA Enterprise Bhd (TAE MK, not rated) is acquiring the property and business known as The Westin Melbourne in Australia for RM389.12m. The acquisition of the freehold five-star hotel, which is part of the 16-storey Regent Place Development, only included the 262 rooms and hotel amenities located on nine floors of the development.
– DRB-Hicom Bhd (DRB MK, not rated) will acquire 3 parcels of freehold development land spanning 606.8ha within the Economic Zone E Senai-Skudai of Iskandar Malaysia for a total purchase consideration of RM722.463m.
– Pelaburan Hartanah Bumiputera Bhd is buying CP Tower in Section 16, Petaling Jaya, from CIMB-Mapletree Management Sdn Bhd for RM200m, sources said. CP Tower is a 22-storey commercial office building with three levels of basement parking. It has some 314,000 sq ft of net lettable space.
– Following the cancellation of the acquisition of Menara Citibank by IOI Corporation (IOI MK, Buy, TP: RM4.00), the Employees Provident Fund (EPF) may bid for it according to news reports.
– Bandar Raya Development Bhd (BRD MK, not rated) is tipped to sign a deal with a Middle Eastern firm to sell a residential tower at its RM2bn CapSquare development in Kuala Lumpur. According to a source, the two parties are negotiating on the price but are expected to conclude a deal by the first quarter of next year. The pricing is expected to be between RM600 to RM700 per square feet.
Other notable property news
– Sunrise Bhd has terminated its put and call option agreement with Malaysia Commercial Development Fund Pte Ltd (MCDF) for the sale of MK20 commercial development in Mont Kiara worth RM767m. The cancellation of the deal however will not have any impact on our earnings estimate as the option was previously expected to be exercised in FY2013. On a positive note, the cancellation of this deal will ease cash flow concern arising from this build-then-sell project.
– Property prices will fall by 5-10% across the board from the first quarter of next year as a slower economy cools demand, according to Association of Valuers & Property Consultants in Private Practice Malaysia (PEPS) president James Wong Kwong Onn. He said properties below RM300,000 and luxury condominiums tagged at above RM750,000 are already hit from a slower economy. But Wong said a housing bubble is unlikely as the Malaysia’s real estate is resilient enough to withstand the onslaught of the economic turmoil.
– MK Land Holdings Bhd (MKL MK, not rated) aims to sell non-core assets worth up to RM400m to fund new projects that will be launched from next year. The developer also plans to sell 9.2ha at its Damansara Perdana township in Petaling Jaya for RM200m and pockets of land elsewhere to pare debt.
– I-Bhd (IBHD MK, not rated) may sign a definitive partnership agreement with Singapore’s CapitaLand Limited (CAPL SP, not rated) for a RM500m shopping complex early next year. The project, with gross lettable area of 1m square feet, forms part of i-City and is expected to be ready by the end of 2011.
– Work on the RM750m Legoland theme park at Bandar Nusajaya in Iskandar Malaysia will start in 2010 and the opening slated for 2013. The park, to be built in the city centre of Nusajaya, will have a 5.5m sq ft of gross floor area within the 58.679ha land dedicated for the lifestyle-theme development.
– Despite a slowing property market, Sime Darby Bhd will be launching a massive development project at the Negri Sembilan-Selangor border covering some 12,120ha, with the first launch expected next year.
– YTL Land & Development Bhd (YTLL MK, not rated) will launch Pantai Peak next year, which is the last phase of its Pantai Hillpark development in Kuala Lumpur. The RM500m project features a 16-ha gated community with 233 units of luxury 3-storey hillside semi-detached homes and bungalows. However, with the current negative public opinion of hillside projects, the prospect of this project may be in doubt in the near term.
SP Setia achieved record revenue of RM1.3bn for FY2008 but core net profit declined by 28.3% y-o-y to RM186.6m due to higher building materials prices, delay in construction progress and timing mismatch of operating costs for new projects. FY2009 will remain a challenging year and SP Setia will focus on mass housing products for middle income segment where demand fundamentals are still strong and less speculative.
Glomac’s 1HFY09 results were below house and market expectation due to (1) RM2.2m provision for impairment of subordinated bonds which were subscribed as part of the group’s participation in primary collateralised loan obligations (CLO), (2) 1HFY08’s profit boosted by RM9m gain from land sale, and (3) continued losses sustained by its construction division.
Entry filed under: Business, Finance, Stock Market. Tags: 2008, Bandar Raya Development Bhd, Bukit Antarabangsa, CapSquare, CP Tower, December, DRB-Hicom Bhd, EPF, Gurney Paragon Mall, Hillside projects facing objections, Hunza Properties Bhd, Iskandar Malaysia, KLSE Property Index, Malaysia Commercial Development Fund Pte Ltd, Menara Citibank, MMC Corporation Bhd, mont kiara, Monthly Review, PAC, Pelaburan Hartanah Bumiputera Bhd, property, Public Accounts Committee, Selangor Dredging Bhd, Seri Tanjung Pinang condominiums, SP Setia, sunrise, Sunrise Bhd, Sunway City, TA Enterprise Bhd, United Malayan Land Bhd.