Developers still gung ho on landbanking

KUALA LUMPUR: Coming into 2012, the property market has seen softening demand after blistering growth in 2010 and the first half of 2011. However, this does not deter property developers from acquiring more landbank, as they prepare to ride through the current cycle and launch more developments in the years to come. Developers such as Mah Sing Group Bhd, Paramount Corp Bhd, OSK Property Holdings Bhd, Dijaya Corp Bhd and WCT Bhd have of late been aggressive in their landbanking. In recent weeks WCT, with a market cap of RM2.1 billion, has just inked a deal to acquire 22.8ha of freehold land in Old Klang Road for a whopping RM450 million cash, and Paramount is acquiring 12ha of industrial land in Shah Alam for RM125 million cash, a major purchase for the group with a market capitalisation of RM544 million. Paramount director of corporate affairs Chris Tay said landbanking is an important activity to sustain group operations. “We continue to identify and buy land in strategic locations with good development potential, despite fears of a softening market,” she added. Tay said even though the Malaysian economy is expected to post weaker growth this year, which is likely to affect the appetite for certain asset classes in the property segment, the industrial sector is positive. On March 12, Paramount announced that it acquired a 12ha site in the Hicom Industrial Park in Shah Alam, fronting the Proton manufacturing plant, for RM125 million or RM95.60 psf. “We believe the price of RM95.60 psf is reasonable based on our feasibility study. We plan to apply our strategy of quick-turnaround development, repeating our Surian Industrial Park success at Kota Damansara,” said Tay. While there are concerns that Proton may relocate its Shah Alam plant to Tanjung Malim, she said, such a move would only unlock the value of the surrounding land. “If it materialises, it can only enhance the value of our land. With the recent upgrading of Persiaran Kuala Selangor and our land having a frontage exposure to the Proton plant, there will be synergistic benefits once we are able to convert the front portion of our land to commercial usage,” said Tay. Locality is the key in acquiring land, she said. Land in strategic locations in the Klang Valley, Penang and Iskandar Malaysia is fetching high rates per sq ft due to high demand for its economic importance. “Land prices will hardly come down, except if there is a huge market crash or economic crisis, then everything will come down. Land prices have not come down yet after the rally in property prices since 2010,” said RHB Research analyst Loong Kok Wen. She said if developers bought their land at a high price, they would go for high density projects and sell the units at a lower price relatively, if their balance sheet is tight and there is an urgency to “turn” the land quickly. Alternatively, they could just hold the land for a longer period and plan for future development and launch it when demand starts to pick up again. Loong added that demand for industrial properties, which Paramount is developing, is still high because there is a shortage of supply of industrial land. OSK Property, with a market cap of RM231 million, has acquired two parcels of adjoining industrial land in Taman Perindustrian Subang Utama, measuring 5.49ha for RM45.42 million or RM75.90 psf. Despite Paramount paying RM95.60 psf for the land, which is considered high compared with similar transactions by other developers, Loong said judging from the success of its Surian Industrial Park in Kota Damansara, she believes the price  is fair. “The Surian Industrial Park was launched at the height of the global financial crisis in 2008, after the collapse of Lehmann Brothers. Although sales were slow initially, they picked up quickly and gave good margins to Paramount,” said Loong. Mah Sing acquired two parcels measuring 62.8ha in Rawang which are adjacent to its existing township development there called M Residence. The land was bought for RM40.95 million cash or RM6 psf, with a potential gross development value (GDV) of RM650 million. It will be developed into another residential township, which will be named M Residence 2. “The purchase price is reasonable, but more importantly, the land is attractive as it fits our business model and allows us to  add value with a good master plan,” Mah Sing group managing director and chief executive Tan Sri Leong Hoy Kum told The Edge Financial Daily. “With prime land getting scarcer, home buyers are looking at new townships approximately 30 to 40 minutes from the town centre, offering a well-planned mixed development,” he said. Leong stressed that the development of M Residence and M Residence 2 in Rawang will challenge the public’s perception that Rawang is far. He reiterated that with the opening of the new access road from the KL-Kuala Selangor Expressway (Latar), the ongoing construction to upgrade the road connecting the highway to M Residence into a dual carriageway will shorten the travel time between Kuala Lumpur and Rawang. “It only takes 20 minutes to get to the Rawang toll from Kuala Lumpur (Jalan Duta toll) and Petaling Jaya (Damansara toll). In terms of distance, it is only 28km from both tolls. From the Rawang toll, it is less than 10 minutes or 10km to the project,” said Leong. Nevertheless, another analyst who covers the property sector said good developers will not deliberately pay any kind of price  for the sake of replenishing landbank, especially when the market has soured. The analyst said even though the recent property market upcycle has left developers flush with cash from strong progress billings that had started to kick in, they should only acquire land which is strategically located and at a reasonable price. “We have seen several big developers that had failed during the financial crisis by making wrong bets at the wrong time. But now most developers’ balance sheets are stronger with huge unbilled sales, thus they can still shop for good landbank and perhaps clinch better land deals when the market is softening,” he said. - The Edge Property