Two roads to become one-way street

TWO roads on Penang island will be turned into a one-way street soon to alleviate traffic congestion in the areas.

Penang Municipal Council councillor Muhammad Sabri Md Osman said the service road off Jalan Paya Terubong (next to Taman Bendera Apartments) and part of Jalan Irrawadi (between Service Road and Chow Thye Road) would be converted into one-way streets as part of an initiative to ease worsening daily traffic congestions on the island.

“We are giving it a three-month trial.

“We hope the system will help ease traffic congestion, as vehicles usually parked on both sides of the road are causing a jam.”

Muhammad Sabri said the council had also approved the installation of a pedestrian light in Lintang Macallum 1 for the safety of the pedestrians there.

“SJK (C) Li Tek’s pupils will be able to cross the road safely once the pedestrian light is installed,” he said after the full council meeting at the City Hall in the Esplanade, Penang.

“We expect to call for open tender within the three months.

“The project covers the laying of electric cables, setting up of the pedestrian light and the installation of electricity and road signs,” he said, adding that the estimated cost of the project would be RM70,000. - The Star

Slated for redevelopment

RESIDENTS living in the century-old settlement in Gat Lebuh Sandilands off Jalan C.Y. Choy can look forward to better living conditions as a redevelopment proposal for the area has been put in place.

Housewife Loh Bee Luan, 67, said the place was always infested with mosquitoes which breed in stagnant water.

“There is no proper drainage system here and rubbish would clog up the drains too.

“We also encounter snakes and monitor lizards,” she said when met at her home during a visit by Penang Chief Minister Lim Guan Eng recently.

Loh added that the place was smelly as it had no proper sewerage system as well.

“We are happy to know that the state government is planning to redevelop this place,” she said.

State Local Government and Traffic Management Committee chairman Chow Kon Yeow, who also visited the place, said the state is planning to redevelop the 1.85ha of land which has 60 residential houses, 14 small factories and three Chinese temples.

“We are here to listen to the residents’ views. This settlement, which has been around for close to 100 years, has been without proper roads as well as drainage and sewerage systems.

“It is located on the fringe of the city. If the state government does not develop such areas, it will continue to be like this for the next 50 years.

“The land office will be doing a detailed survey to know the needs of the occupants, made up of 60 families and their extended families,” he said.

He added that there was a proposal to build a flat for the residents.

“It is under the affordable housing programme,” he said.

Lim said the redevelopment project for public housing was to build better living facilities for the people and improve their quality of life.

“Since the majority of the residents here want redevelopment for public housing, we, as a people-centric government, have decided to visit them to gather more feedback,” he said, adding that the Penang Development Corporation would do the planning for the public housing project. - The Star

Heritage at crossroads

Over 800 heritage buildings have been sold since George Town was inscribed on Unesco's World Heritage List. But are they being properly restored?

AFTER living and working abroad for 15 years, Wei Fen returned to Penang two years ago to spend more time with her parents.

While her contemporaries invested in modern condominiums in the suburbs with spectacular sea or hill views, the heritage lover decided to put her money in a century-old building in inner George Town.

“I've always liked the idea of owning an old shophouse for its unique architecture. It also makes more financial sense to buy one as it costs almost the same as a house in the suburbs,” says the 43-year-old writer who has resided in the United States, England and Singapore.

Since George Town received World Heritage Site (WHS) status in 2008, interest in pre-war houses has spiked, not just among locals but also the Malaysian diaspora and foreigners. In just four years, more than 800 old buildings in the World Heritage Site (WHS) of George Town have exchanged hands.

Citing statistics from the Valuation Department, state Local Government and Traffic Management Committee chairman Chow Kon Yeow says that between 2008 and May this year, 882 transactions were recorded in the George Town WHS, which has 3,643 heritage buildings. During this period, the Penang Municipal Council approved applications to restore 428 such buildings.

Wei Fen admits it has not been easy getting a heritage property that suits her budget and desired location.

“It's not like old houses are a dime a dozen. Most are owned by the kongsi which do not sell their properties anyway. It took me nine months before I found an old three-storey shophouse in Dato Koyah Road with a willing seller. At RM600,000, it was still cheaper than a terrace house in Island Glades or Tanjung Bungah, at that time,” she shares.

With the sale and purchase agreement inked, Wei Fen was all set to restore the building based on the council's heritage guidelines. But she soon realised that it can be a long, tedious process. This, she believes, is one reason why many building owners carry out renovations without getting clearance from the authorities.

Therein lies the problem, one that conservationists fear may jeopardise George Town's Unesco listing.

According to Penang Heritage Trust (PHT)president Khoo Salma Nasution, the main threat within the WHS today is illegal and unsympathetic renovations.

“We do not have statistics, but a lot of illegal renovations are taking place,” she says.

A walking tour around the George Town WHS reveals a different picture from four years ago a large number of crumbling pre-war buildings have been restored or are under renovation. Several architectural gems have emerged but there are also dozens of buildings that stand out like sore thumbs, the result of bad makeovers.

The PHT is concerned that many owners renovate their properties without seeking advice from George Town World Heritage Incorporated (GTWHI), whose main role is to manage, monitor and promote the city's heritage. GTWHI works with the Penang Municipal Council (MPPP), which sends its enforcement officers out to check when there are complaints.

Salma feels there is a need to expand the capacity for enforcement, adding that monitoring should be done around the clock .

“When contractors want to do things illegally, they will work after (office) hours and on weekends and public holidays,” Salma laments.

“We at PHT are helping to monitor. Members of the public report to us whenever they see any renovations without the proper signage, and we will alert the GTWHI. In the last few cases, response has been quick and the illegal work stopped.”

Chow stresses that action to monitor non-compliance is ongoing, adding that stop-work orders have been issued to errant building owners. Under the Town and Country Planning Act and Street, Building and Drainage Act, the local council is empowered to enforce control over building and rebuilding works.

GTWHI, he adds, is instrumental in ensuring stakeholders are aware of the heritage guidelines and has conducted several workshops to educate building contractors.

“The education programme has been useful. We feel it is better for owners to work on the compliance issue with the respective government agencies before going ahead with restoration work. They stand to lose out on time if a stop-work order is issued,” he adds.

GTWI consultative panel member Tan Yeow Wooi says there have been many cases of non-complying renovation works such as owners altering the roof height of old buildings, laying inappropriate roofs or floor tiles, installing windows with fixed shutters and illegal extension of buildings. The conservation architect is particularly irked by the garish colours painted over some old shop fronts.

Admitting that there is a lack conservation architects in Penang, Tan says that in numerous cases, building owners just engage contractors to renovate their properties without submitting plans.

“Some contractors try to modernise old buildings and in the process, damage their historical features,” he points out.

Non-compliance, Tan believes, could be due to ignorance and red tape.

“In the WHS, applications for renovations or restorations can take between four and six months to be approved,” he observes.

Tan himself has been involved in restoring several historical buildings such as the Hock Teik Cheng Sin Temple in Armenian Street, the gateway of Yeng Kheng Boutique Hotel in Chulia Street and the famous Carpenters' Guild in Muntri Street.

Salma advises owners to seek advice from GTWHI before submitting their plans.

In Wei Fen's case, renovation has been ongoing for seven months.

“It should be completed in another month, fingers crossed,” she says, somewhat optimistically.

While Tan thinks the council guidelines are not strict enough, Wei Fen believes otherwise.

“I wrote to the council to complain about the lack of choice in their flooring specifications and I'm convinced that cost me another three months of waiting for approval,” she gripes. “After that, I didn't write back in protest any more. In all, I had to wait nine months for approval!”

Part of the challenge in renovating an old house, she says, is getting the right contractor.

“I found two contractors who wanted to charge over RM200,000, and one who quoted me RM100,000. I chose the latter as I intended to do only the basics and make the building liveable.”

Despite the obstacles and long restoration process, Wei Fen has no regrets buying an inner city home.

“All George Town shophouses have appreciated in prices, some tremendously. In Muntri Street, for instance, prices have doubled. A dilapidated house there used to be priced at RM1mil, now it's over RM2mil. And one newly restored house has just been put up in the market for RM3.8mil!”

It is interesting to note that many old kopi tiamand budget hotels in the inner city are slowly being replaced by fashionable cafes and boutique hotels. One reason is soaring rentals.

A retired town planner notes that except for a few, locals may not enjoy the new heritage site.

“Penangites are basically stingy,” he remarks wryly. But he believes the new upmarket businesses may be sustainable due to the influx of visitors to the George Town WHS.

Chow acknowledges that George Town is changing but says that heritage tourism has rejuvenated the area, with many buildings being restored and put into new usage. New boutique hotels and cafes have opened to cater to the demand of a new breed of tourists.

“There are also new art galleries, bicycle rental outlets and tourism-related business opportunities. Now, you can see longer queues at the Penang Road cendol stall and the Line Clear nasi kandar. This is the dynamics of change,” he adds.

The PHT, meanwhile, is concerned over dwindling population in the WHS.

Since the repeal of the Rent Control Act in 2000, more than 10,000 inner city dwellers, mostly poor tenants of pre-war buildings, have had to move out to low and low-medium cost flats in the outskirts.

Salma says more properties should be used for affordable housing and there should be some policy research and recommendations on this matter. “We need more people to live in the city.”

As for the mushrooming of upmarket cafes and hotels, Salma points out that if it keeps expanding at this rate, it may not be sustainable.

“If we are going to have more eating places, we need to upgrade the drainage and infrastructure, but without damaging the historic elements of the public infrastructure.”

The Trust, she says, advocates sustainable and responsible tourism.

“What is our carrying capacity (for WHS) and how is tourism benefiting the local community? Are there any negative impacts to community, heritage and environment?

“Improved public transport is essential if we want more tourism but not more cars and tourist buses, as this will impact negatively on the WHS environment.”

Outside the WHS, there is also another serious problem as many old buildings are being demolished, says Salma.

“Many Malaysians will be surprised to hear this, but 35 years after the Town and Country Planning Act (1976) was approved, we still do not have a Local Plan for the Penang island municipality. Many original Malay settlements like Tanjong Tokong, Batu Uban and Balik Pulau are threatened with redevelopment.

“We need to understand the fragile ecology of the island, work out the carrying capacity and impose constraints.” - The Star

Are you ready to follow Robert Kiyosaki’s advice?

I am thrilled that my last article, What Robert Kiyosaki Didn't Tell You, garnered positive feedback. It shows that many people are thinking about the impact Kiyosaki's work can have on their finances. As such, I would like to continue the discussion about investors taking on and managing risks (or investors being unable to manage such risks).

Kiyosaki is right to say that we must take an active interest in how we manage our wealth and assets. Rising inflation and the high costs of living are proof that we can no longer afford to be lackadaisical with our personal finances.

That said, in a book he co-authored with Donald Trump, Why We Want You to Be Rich: Two Men, One Message, Kiyosaki said this: “If you do not decide to become rich, the chances are you will become poor.” I feel that this is simply untrue: I don't think that if you decide not to become rich, you'll be poor.

The problem is that Kiyosaki's statement evokes fear in many people, especially the middle class. Petrified that they are going to be poor, many take a leap of faith by either investing aggressively in property or starting their own business. Many people do this in the belief that they are conforming to another of Kiyosaki's fundamental points and that is to take on a good debt.

According to Kiyosaki, there are two types of debts: bad debts and good debts. Bad debts are those taken to finance your lifestyle and enjoyment. Good debts are ones taken to fund your investments that will grow your wealth. Naturally, Kiyosaki advocates you taking on more good debts. However, remember that when you take on good debts, you are also exposing yourself to financial risks. In addition, there's no such thing as good risk or bad risk. So, when you take on good debts, how much risk are you being exposed to? Also, are you ready to manage such risks?

It is the failure to consider these questions that have led people to follow Kiyosaki's advice with disastrous consequences. Those who invest in properties are usually excited by the high possibility of becoming wealthy. However, those who fail are often the ones who rush to take out loans from banks without giving their actions careful thought. Unable to rent or sell these properties, many can't service their loans and suffer financially. In some cases, their suffering includes their mental and physical health.

I personally benefitted from Kiyosaki's advice as it gave me the assurance and encouragement to start my own business more than 10 years ago. I thought it would be smooth sailing all the way and business would pour in. After all, I had created a workable business plan, saved enough money and believed that people wanted to know the services offered by independent financial advisors. In no time, I realised that starting and managing a business wasn't going to be easy, especially when independent financial advisory services were relatively new and unknown. However, I was lucky because I had the necessary support, knowledge and experience to manage my business risks by virtue of being involved in a business that emphasises risk management. I was able to avoid some of the traps that people fall into when they don't manage their risks properly.

Let me give you a real-life example: a 28-year-old engineer is frustrated in his job. He sees his bosses driving fancy cars and going on annual holidays to exotic places and wonders if he'll ever be in the same financial position. He decides that the only way to become rich is to become his own boss. So, he quits his job and opens a restaurant. Only, he has not prepared a written business plan, has little capital, no idea how to manage cash flow or his staff and knows nothing about the food and beverage industry. After three years, he is still struggling and now borrows money from relatives and friends to keep the restaurant afloat. Two years later, his business has completely failed and he's declared a bankrupt. When he falls back on the only thing he knows, which is engineering, he's already 33-years-old and has been out of the job market for five years. He'll be hard-pressed to find an employer willing to employ him.

If this same 28-year-old engineer were to approach me, I would tell him to optimise what he has now to achieve financial freedom first. In the process, he will learn about managing and minimising the financial risks he may be exposed to. In particular, I would tell him to continue working, but not give up on his dream to become wealthy and start his own business. Then, when he's comfortable, he can take on more risks.

Planning process

The rationale behind the advice I give this 28-year-old engineer is this: the process of planning and preparing for a successful business might take a few years. What is important is that throughout this process, he continues to have a steady source of income, thereby, reducing his mental stress and any strain on his finances. He will also be able to invest his savings and accumulate his wealth. When the time comes for him to assume the risk of running a business, at the very least, he will be financially secure. It may appear to be a slower and more conservative approach than Kiyosaki's, but it is, by far, a safer way to achieve wealth.

So, are you ready to follow Kiyosaki's advice? In a nutshell, you're ready if you feel comfortable taking various business and investment risks. This will mean being in a position to manage and minimise possible stress that can come with such a move.

Naturally, it is an added advantage if you know how to adapt Kiyosaki's money-making ideas within a Malaysian context. You must also be equipped with sufficient knowledge and experience about your investments. Most important of all is to have a back-up plan in place to support you and your family financially in the event such money-making ventures fail.

No doubt, this is a lot for the average Malaysian to consider if he wants to start on the journey to becoming wealthy. It is possible for him to become lost along this journey. Bear in mind that every journey begins with a single step and you should take that wisely. In my new book, Set Yourself Free, I emphasise how important it is for you to have clarity about your present financial position. Then, by using a new tool I've created called “The Money Matrix”, I show you how to successfully plot a safe path to wealth, with minimum effort and risk. - The Star

Yap Ming Hui has no hesitation admitting that he is kiasu and prefers a safer and more certain approach to becoming wealthy. He can be contacted at yap@yapminghui.com.

Addressing the rising home price conundrum

THE rising cost of housing has become a phenomenon in many countries, causing enormous social concerns particularly for the lower and middle income groups.

Indeed, from the more than 4,000 suggestions and comments our Prime Minister received online in his preparation for Budget 2013, the price of housing was one of the two hottest topics raised. What can we do to alleviate this conundrum?

Increase supply of affordable houses

State and federal governments should remain the prime providers and managers of affordable housing. With the improved road infrastructure, suburban land owned by them are now more accessible and can be alienated for affordable housing schemes. Contractors with an excellent track record should be selected to build the houses at the lowest price so that houses can be sold to eligible buyers at affordable prices. The Government can also auction and sell land at the highest bid price and use the proceeds to fund the schemes.

Private developers which buy land at a high cost would invariably seek to optimise the usage of land by building high-end houses and commercial properties. The authorities have to set a stringent development quota for affordable housing. As government intervention should be kept to a minimum for the market forces to function, developers should be allowed to pay cash compensation should they decide not to build in accordance with the quota set. Such compensation may also be used for affordable housing schemes.

Curb speculation

Several countries have introduced tougher measures to curb speculation, a major factor to escalating home prices. Singapore, for instance, changed its stamp duty rules on Dec 8, 2011 and imposed a 10% duty on top of the normal rate on foreigners and non-individuals. Stamp duty chargeable on vendors of up to 3% was introduced on Aug 30, 2010 and revised to 16% on Jan 13, 2011.

The slew of stern measures have been fairly effective. From Jan 28, 2011, two major cities in China, Shanghai and Chongqing pioneered the collection of real estate taxes on certain categories of house purchases, including second homes and luxury properties at rates ranging from 0.4%-0.6% and 0.5%-1.2% respectively.

Malaysia can do likewise by reinstating the Real Property Gains Tax on gains from residential property disposed of within two years at 30%, replacing the current mild rate of 10%.

Concurrently, the stamp duty of up to 3% can be increased and be levied on both the buyer and seller in respect of any properties transacted by foreigners and high end properties purchased by the locals who already own one.

The recent Bank Negara rules introduced to restrict the borrowings on buyers who own more than two houses have dampened the sales of developers considerably. To keep the business going, many developers are undertaking promotional activities abroad to lure foreign investors, particularly those from China, Japan and Singapore who often find Malaysian properties unbelievably cheap.

Some investors, especially those who enlist in the My Malaysia Second Home (MM2H) programme, snap up property almost instantaneously without much consideration. It does not make economic sense to shut our doors to foreign investors completely but we can set a higher price threshold for foreigners and take advantage of the inflows to collect more tax revenue. The additional revenue collected can be gainfully used to help more people to own a house.

Provide fiscal assistance

The Government can extend the interest deduction scheme introduced in 2009 under which eligible individuals are given three years' tax deduction in respect of interest incurred of up to RM10,000 per year.

Hong Kong in its 2012/2013 budget extended the annual home loan interest deduction of up to HK$100,000 from 10 years to 15 years.

Our government has thus far been considerate by providing a 50% stamp duty exemption on purchases of residential property not exceeding RM350,000 from Jan 1, 2011 to Dec 31, 2012 and a 100% exemption for property priced up to RM300,000 purchased under the Skim Perumahan Rakyat 1 Malaysia (PR1MA) from 2012 to 2016.

In view of the high home prices, the Government should consider giving full stamp duty exemption on purchase of residential property not exceeding RM500,000 by first time house buyers.

In China, the real estate tax revenue collected is to be used to subsidise the construction of affordable houses and the Chinese government has targeted to build 10 million units of affordable houses in 2011. Singapore, on the other hand, offers Central Provident Fund (CPF) housing grants to various eligible groups. Applicants living near parents are given a princely grant of S$15,000 to S$40,000.

Presently, there is a housing loan scheme allowing a maximum loan of RM45,000 offered by our Housing and Local Government Ministry to the households which earn between RM750 to RM2,500 per month.

More funds can be channelled to this scheme to increase the qualifying household income to RM8,000 a month.

Developers can certainly play a part in boosting the home ownership by introducing flexi-schemes such as lease with an option to buy and allowing the conversion of lease rental paid to settlement of purchase consideration if the option is exercised.

Malaysian developers may consider adopting an interesting shared ownership scheme practiced in the United Kingdom where a buyer can co-own residential property ranging from 25% to 75% of the overall property value with another party which can be either the housing developer or housing association and pays a rent in respect of the share he does not own.

The buyer is allowed to increase his ownership as his disposable income increases over time.

The lower capital outlay assists the aspiring young own a house at the early phase of his career, encourages him to work harder and save more to eventually acquire absolute ownership of the property.

Strict financial discipline is imperative if one who starts from scratch harbours a hope of owning a house early.

Undoubtedly, the authorities, the developers and the people concerned collectively play pivotal roles in realising the home ownership dream of the lower and middle income groups. - The Star

Yee Wing Peng is the Country Tax Leader of Deloitte Malaysia. He considers himself fortunate as he was able to purchase, with a mortgage loan, a 20X70 link house costing RM220,000 after 6 years of work. He now has concerns for his three children.

Foreigners not an issue in property price rise

I REFER to Mr P. Gunasegaram's article (StarBizWeek Aug 25) and would like to thank him for his thoughts and comments regarding a stable and sensible Malaysian property market.

As you are aware, I am deeply entrenched in the real estate market and thus my interest in his article and I have taken the liberty of sharing my viewpoints.

DBKL has the KL Structure Plan 2020 and this Structure Plan is the blueprint that will guide the development of Kuala Lumpur for the next 20 years. The plan, with its two-pronged approach, outlines the goals, strategies and policies towards achieving the vision as well as identifies ways to minimise or solve issues and problems faced by citizens.

It is unfortunate that some parts of KL's Structure Plan are not followed but overall, I have seen very good compliance by DBKL to its Structure Plan.

Implementation is still an issue on certain sectors and I think this is what needs to be focused on.

On purchase of property by foreigners, please note that in Malaysia, foreigners make up less than 3% of residential purchases (this figure is much higher in Singapore 43% of purchasers of prime properties are by foreigners).

The highest recorded is in KLCC with an average of circa 30%. The occupancy is about 60% in KLCC and many purchasers are fine to leave the units vacant if they can't find a good tenant.

These are serious investors who are cash rich and not speculators who invest without the capacity to hold.

My opinion is that the impact by foreigners is not an issue in the rise of property prices in KL and Malaysia as a whole.

With regards to his comment on loans, it is agreed that easy availability of loans does stimulate demand. But does it encourage speculation? Please note for a 5% easy payment scheme or what is commonly known as DIBS (Developer Interest Bearing Scheme), a purchaser still needs to qualify for the loan i.e. the capacity to service the full loan once it is drawn upon.

If he does not qualify, the loan is not approved and he can't purchase a property. This in my opinion is a good scheme as it allows a first house buyer who does not have capital (to make a full 10% or more deposit for the house) but do have recurring income (to service the loan) to purchase that elusive home.

Another issue is the fact that Bank Negara's new Responsible Lending Guidelines has kicked in. I don't think the availability of easy loans creates a speculative market. Hong Kong and Singapore are speculative markets and you can observe this by the serious spikes and drops in their real estate prices.

In Malaysia, the growth of prices is generally sensible and more stable, with certain locations, due to scarcity, having steeper price escalations. In Malaysia, I do not see speculation as a serious contributor towards price movements. In my inquiries with local developers on the profile of their recent purchasers, 65% are owner occupiers, 35% are investors and most estimate that so-called speculators or flippers consists of maybe 5% of the total.

Price movements over recent years have generally been a function of the high employment rate in Malaysia, economic growth and the rise in construction cost of properties. Just a point of note, Rehda has mentioned that the regulatory cost in a development can come up to 20% of the total construction cost, which is passed to the consumer.

Now if the federal and state governments can focus on reducing this, we can at least see a 10% to 15% drop in the price of properties and may assist in reducing property prices.

Gunasegaram's piece was also focused on providing affordable accommodation to the general rakyat. These are my thoughts for this:

1. RRI Land in Sg Buloh should be very focused on this market. Providing accommodation in the RM350,000 to RM500,000 homes. With these prices, obviously the development will have to be vertical, and this can be complemented with the 3 new MRT stations that are on the RRI Land. The MRT stations and lines have to be leveraged upon. In fact, I think all the land along the MRT line that can be developed, should be heavily skewed towards this sector of the market instead of focusing on commercial and high-end developments. Hong Kong is a good example of this.

2. Banks need to take some form of responsibility as well. If developers can provide low-cost homes, I think banks are also responsible to provide low-cost financing

3. Efficiency of the federal, state and local governments has to be increased to reduce regulatory contributions.

4. More effective use of government land, more so nearer to transportation nodes, to be used for affordable homes.

On the long-term view of the market, there has been strong talk of RPGT (Real Property Gains Tax) and stamp duty to be revised in this budget. My opinion is that a country must continuously encourage investment and as such stamp duty should be maintained as it is, or maybe even reduced, for first-time house buyers.

In the case of RPGT, I think to avoid speculation, the tax should be high for the first two years, and then back to 5% as it is now for third-year onwards (encouraged at entry and punished at early exit).

On the comments on Tun Razak Exchange, I am of the opinion that the project will take time and it's not going to happen all at once (like KLCC when it first started) and flood the market with a huge supply.

The tax arrangement is quite normal worldwide (there are tax-free zones in India, China, Middle East and some parts of Europe and US) but I do agree with him that there could be market distortions. Authorities have to be vigilant here. Iskandar Malaysia also has tax breaks but one has to qualify for it.

I fully agree that speculation and ill-considered developments will cause volatility, and am confident that the Malaysian real estate market is actually sensible and stable, with more action required by the authorities to improve their efficiency and implementation to make it a long-term viable pillar of Malaysia's economy. - The Star

Previndran Singhe
CEO of Zerin Properties

Upcoming developments

THE year 2013 is pretty much a busy one for Dijaya Corp Bhd as it is planning some 12 launches spread over the Klang Valley, Penang and Johor. One of the more imminent ones include The W Hotel & The Residences, which deputy managing director of Dijaya Dickson Tan is personally spearheading.

Situated on 1.28 acres of freehold commercial land along Jalan Ampang, The W Hotels & The Residences will have 150 rooms while the residences will have 353 units.

In early 2011, Dijaya announced its partnership with Starwood Hotels & Resorts Worldwide, to develop a W Hotel in Kuala Lumpur.

Designed by Skidmore, Owings & Merrill LLP from New York, The W Hotel & Residences will be located within the Golden Triangle and is situated along Jalan Ampang, across the Petronas Twin Towers. It is about 500 metres from the Kuala Lumpur Convention Centre.

“The W Hotel will truly mark resort living in the city. You will forget that you are in the middle of a bustling city,” says Tan.

Another mixed development to be launched which is likely to garner interest in the 88 acre Tropicana Hills in Subang, which is a mixed development of condos, retail lots, offices and a shopping mall.

“I think what people want today is affordability. There is strong demand for properties below RM800,000. The trend is now moving away from landed properties because of the affordability factor,” says Tan.

Meanwhile, some of the properties being injected into Dijaya which are ready for development are in pretty prime spots. For example, in the Klang Valley, Dijaya will get its hands on pockets of land on Jalan Kia Peng and Jalan Bukit Bintang which are located in the city centre. In Penang, it has land along Jalan Macalister, while in Sabah it has land on Jalan Bundusan.

To be exact, the landbank with ready development orders include land in SS13, Subang Jaya (RM200mil), Jalan Kia Peng (RM330mil), Jalan Bukit Bintang (RM680mil), The Landmark (RM90mil), Jalan Segama, Lahad Datu (RM30mil) and Jalan Albert Kwok (RM60mil).

Key yielding assets include Dijaya Plaza, Jaya Square, Wisma TT and Casa Square in the Klang Valley, while in Sabah, there is Bangunan Blue 7.

As for the Johor property market, Tan says that the buoyancy of demand actually caught the company by surprise. For instance, Tower A of Tropez Residences which was launched last December, has recorded a take up rate of 90% (not taking into account the Bumiputera units), while Tower B and C which were launched this year have recorded take up rates of 87% and 22% respectively.

“Profile-wise, some 40% of the homebuyers are Johoreans, another 40% from the Klang Valley and the remainder Singaporeans,” says Tan.

Wanting to further capitalise on this growth, in June, Dijaya's 80%-owned subsidiary, Aliran Peluang Sdn Bhd entered into a sales and purchase agreement to buy 11 parcels of land, measuring a total of 2.4 million sq ft, or 55.07 acres, in Mukim Pulai, Johor, for RM105.07mil.

Currently, Dijaya has four projects in Johor, namely Tropicana Danga Bay, Tropicana Danga Cove, Tropicana Senibong and now Mukim Pulai.

Dijaya has two joint ventures with Iskandar Waterfront Sdn Bhd for its projects in Danga Bay.

Tropicana Danga Bay is a 60:40 joint venture between Dijaya andIskandar Waterfront, with an expected GDV of RM3.8bil which will take an estimated eight to 10 years to complete.

Tropicana Danga Cove, with more than 220 acres, is earmarked to be developed into a new township with a GDV of RM2.9bil while the 37-acre Tropicana Danga Bay and the injected lands will be turned into a mixed development with a high GDV due to its proximity to city centre.

“It was just 5 years ago, that nobody believed the Johor story. However, maybe 5 to 10 years from today, once the infrastructure is complete and the MRT connecting Johor and Singapore is ready, think how prime and in-demand the Johor properties will be,” says Tan.

To date, Iskandar Malaysia has attracted investments of RM10.67bil in the first six months of 2012. Cumulative committed investments have reached RM95.45bil, represented mainly by Asia (42%) and Europe (40%).

Dickson says that the economic zone of Iskandar Malaysia will continue to be the driving factor in boosting the demand for properties in Johor Bahru.

For example, the completion of several major ongoing road and highway projects in Iskandar Malaysia such as the New Coastal Highway, Eastern Dispersal Link Expressway (EDL) and Senai-Pasir Gudang-Desaru Expressway and the widening of Permas Jaya bridge will improve connectivity within Johor Bahru.

“Upon completion and commencement of operations, such infrastructure developments will provide a boost to demand of properties in Johor Bahru due to better connectivity. This augurs well for our developments, which are located within the central business district of Iskandar Development Corridor,” says Tan.

As for Penang, Dijaya has a 55:45 joint venture with Ivory Properties Group Bhd to develop a 41.02ha development in Bayan Mutiara. The joint-venture company, Tropicana Ivory Sdn Bhd will undertake a mixed residential and commercial property project with a GDV of RM9.8bil over the next eight to 12 years. The land was sold for RM1.07bil, or RM240 per sq ft, to be paid over five years

Last November, Ivory announced that it was entering into a 49:51 joint venture with Dijaya to develop Bayan Mutiara.

In March it received shareholder approval for its plan to purchase and develop this piece of land. Tan adds that the masterplan has yet to be submitted, as it is still in the planning stage. The project will be called Penang World City.

“It will include a mixed development, which includes high-rise residential as well as commercial components such as shopping mall, board walk al fresco dining area, hotel and an office tower,” said Dickson.

“Acquisitions of development lands in Penang Island by developers have been active in 2011. We are upbeat about the potential growth of the Penang property market, especially with government initiatives to improve the infrastructure and further attracting investments into Penang,” says Tan. - The Star

The next stage of evolution for Dijaya

THERE are moments in a company that its direction and fortunes take a turn for the better. For Tan Sri Danny Tan Chee Sing and Dijaya Corp Bhd, its first metamorphosis took place over two decades ago.

Tan, a budding developer with his company Dijaya back then, had the good fortune to come across the opportunity to buy 1,000 acres of rubber land on the fringes of the upmarket Bandar Utama for a meagre RM2 per sq ft.

The nondescript land was slowly landscaped into undulating slopes with sprawling mansions called Tropicana Golf & Country Resort, creating a desirable address in Klang Valley that can rival the more famous and older Kenny Hills and Damansara Heights.

“I always believe in being flexible. With the Tropicana Golf & Country Club, I tell my people to always be flexible and try to understand our housebuyers' needs. They spent so much money building their houses here. Let them build their 3- and 4-storey houses. If we can do something for them, let us do it,” says Tan, the CEO of Dijaya Corp.

In the process of having exclusive homes that are manned by help most consider a luxury, the value of the once rubber estate has grown dramatically.

Today, the land is said to be worth RM350 per sq ft.

“In those days, nobody wanted the Tropicana Golf & Country Club land. I bought it for RM2 per sq ft and today it is worth RM350 per sq ft. I should have kept it for myself!” laughs Tan.

But like most land that reach that sort of valuation, it is a signal of maturity.

What's left of the 1,000 acres is just 36 acres but the profit that Dijaya has made from selling and developing the land has helped it expand throughout Peninsular Malaysia, having acquired new land in the Klang Valley, Johor Baru, Penang and Sabah.

Dijaya's other landmark development in about the Klang Valley is Tropicana City Mall in Petaling Jaya, which is today a bustling enclave of activity surrounded by office blocks and condos, The mall today has an occupancy rate of some 95%.

Dijaya has some 22 projects throughout Malaysia with a total gross development value (GDV) of RM31.9bil which makes it among the top ten property developers in the country. As of the second quarter of 2012, Dijaya has unbilled sales of RM636mil, which is a record high.

But things are about to change. Dijaya is set to undergo another metamorphosis as it is set to seal an amalgamation exercise with Tan's private property assets mooted in April this year.

Once completed, Dijaya will add more heft in the property developers league table and improve its size and fortunes.

Through this exercise, Tan hopes Dijaya will be catapulted to rank among the ten largest property companies in Malaysia by market capitalisation with a size of approximately RM1bil. It's current market capitalisation is about RM566mil but it will get a lift from the injection of cash and assets from the amalgamation exercise.

Last month, shareholders gave their approval to Dijaya's proposed amalgamation exercise to streamline and rationalise the majority of the lands and properties held privately by Tan for RM943mil.

The deal will see Dijaya acquire some 73 properties comprising 49 parcels of lands and 16 buildings, valued at some RM1.1bil into Dijaya. This exercise is expected to be completed by the fourth quarter of this year.

The exercise will also see Dijaya getting rental income of RM42.7mil or a yield of 8% per year, whichever is higher, over the next nine years.

Meanwhile, the new land Dijaya will acquire from Tan will have a potential GDV of RM6.1bil.

Upon completion of this exercise, Dijaya will have a total landbank of 913 acres in the Klang Valley, Johor, Penang and Sabah with an estimated GDV of RM38bil to be developed over the next 10 to 15 years.

The lettable areas of investment properties will also increase to approximately 1.4 million sq ft from the current 550,000 sq ft. The investment properties are tenanted out, offering average yield of 8%.

Needless to say, the exercise is a game changer for Dijaya.

Says deputy managing director Dickson Tan, the eldest son of Danny and and also architect of the amalgamation exercise: “I want to make Dijaya one of the leading property developers in Malaysia. This amalgamation exercise will now see Dijaya's market capitalisation increase to the RM1bil mark. The next level, and we hope to do this within 3 years, is to increase the market cap to RM2bil to RM3bil,”

When asked how Dijaya plans to achieve that, Dickson says the company is open to mergers and acquisitions with other entrepreneurially run property companies.

“First things first though. Our launch plan for our new land will start early next year and this will keep us busy over the next 8 to 10 years. We have the development order for some RM2bil of the new land under the amalgamation exercise. We are already prepping for developments to start next year,” says Dickson

Related party transactions

Interestingly, it was Dickson who persuaded his father to go ahead with the amalgamation exercise, and it took a lot of convincing for a number of reasons.

The assets held by Danny that are going to be injected into Dijaya are receiving a healthy rental yield of 8%. Secondly, Danny is receiving less than the market value of his private assets, a necessary loss some might say to overcome the stigma of related party transactions (RPTs) that have been a blight on companies for years.

“When Dickson first told me about the amalgamation exercise, I was unsure. First of all, everyone thinks RPTs are bad deals. I didn't want to go through so much effort, only for people to have a bad perception of the company. “I also know that my private assets are valuable, and by injecting it into the company, it would not only significantly increase the value of my company, but we get access to bigger funding facilities. We need big working capital for the big projects. That's how the company grows,” says Danny.

Presently, Danny owns 66.4% of Dijaya. He directly owns 30.4%, and indirectly owns 17.8% through Impeccable Ace Sdn Bhd and 18.2% through Golden Diversity Sdn Bhd.

“My father is not taking a single sen out of the company. In fact, he is subscribing for the entire portion of his rights issue, which adds up to RM250mil,” says Dickson.

Under the deal, the proposed amalgamation exercise will be satisfied by RM250mil cash and the balance via the issuance of a 10-year 2% coupon redeemable convertible unsecured loan stocks (Rculs), with a staggered conversion price range of RM1.30 to RM2.50 over a 10-year period.

There will also be a renounceable rights issue of up to 491.3 million new shares of RM1 each, which Danny has committed to take up at least RM250mil, which is also the minimum scenario of the proposed exercise.

The chances of Danny triggering a general offer threshold is remote as there are clauses which limit the quantity of RCULS to be converted depending on profits made by Dijaya over the next 10 years.

While Dickson admits that it is one of the largest RPTs in Malaysia, he feels that so long it is implemented fairly and without detrimental effect to the interest of minority shareholders, investors should not discriminate against the transaction.

Astramina Advisory managing director Wong Muh Rong, who is also the advisor for the deal, says it is unfair for people to always view RPT as a crime.

“RPTs done in a fair and transparent manner should in fact be encouraged. Only the owner of a company is able to sacrifice for his own company. The market may be scared of RPTs because of previous bad deals,” says Wong.

“However, it is only with this sort of RPTs, that good and prime land can be injected into public companies, and they become bigger. Right now, by going through this amalgamation exercise, the major shareholder has to hire advisers and go through so many complications. There is so much effort and resources spent to execute this deal, when he could simply enjoy the private land on his own,” says Wong.

She adds that if RPTs continued to be viewed negatively, in future, property developers with good land bank may think twice before injecting those assets into a company, and this could hinder the growth of a company.

“If not for this RPT, Dijaya shareholders will not have the opportunity to have exposure to all the prime development land and investment properties, which provide diversification in earnings stream as opposed to concentrated earnings from property development pre-amalgamation,” says Dickson.

“I have no regrets about the amalmagation exercise. I am proud of Dickson for doing something so impactful for the company. Right now I own more than 60% of the company. I don't mind paring down a lot more of my stake if it means bringing in a new partner or embarking in an exercise where my company can go to the next level,” says Danny.

“Even if I halve my stake to the 30% level, do you think it is so easy to kick me out of the board?” laughs Danny.

“If my children are going to eventually run my company, I only want the best for Dijaya. That's one reason why I want Dijaya to grow big. I do it for my children,” said Danny.

Growth Strategy

His hint of a succession plan follows in the footsteps of Danny's elder brother Tan Sri Vincent Tan Chee Yioun who recently took a backseat to allow his son Datuk Robin Tan to assume the positions of chairman and CEO of Berjaya Corp Bhd.

“Every company needs to have succession planning. It has always been my hope that one of my children will be able to take over the company. I have high hopes for Dickson. He has been with the company for the last seven years. I always tell him to work hard,”

“There are other things in life which are important, like health and happiness. I am not as ambitious as my brother (Vincent). He gets involved in everything! If my children can successfully run my company, then I can go travelling and relax. Right now, I am still working late nights,” says Danny.

Having engineered the injection of his father's assets into Dijaya, Dickson feels that's the fastest way to bring value to shareholders.

“Through the private assets, we had access to great land bank and great recurring rental income. If we were to be serious in joining the big leagues, then we had to do something drastic,” says Dickson.

Having been in the company since 2004, Dickson joined the board of Dijaya in end-2010 as deputy managing director. Dickson says there are numerous hurdles to overcome when a company is small. First up, it's almost impossible to capture the interest of institutional investors, and therefore enhancing shareholders' value becomes difficult. Without interest from the big funds, liquidity becomes an issue.

“So increasing our market capitalisation to the RM1bil mark was the first step. Now that we have a strong balance sheet, this gives us better access to debt and equity capital market for funding requirements. I believe it is a matter of time before Dijaya receives attention from investors and be re-rated accordingly,” he says.

Secondly the company has been hiring new talents over the last two years, as it prepares for its bigger roadmap.

This includes Koong Wai Seng, the former chief financial officer ofSunway City Bhd, Edmond Kong who was previously TA Global Bhd's chief operating officer and Datuk Andy Khoo Poh Chye who previously was managing director of GLM Reit Management Sdn Bhd.

All these new recruits now sit on Dijaya's board. Its latest recruit is its new chief marketing officer Richard Tong, who was previously from theSunrise group.

“With the amalgamation exercise almost complete, we now plan to ramp up our launches. We have targeted to complete RM1.1bil worth of sales this year. So far, we have done 60% of that. We hope to more than double this sales figure next year to RM2.3bil and RM2.4bil in 2014.”

Dickson says Dijaya plans to diversify geographically into the Klang Valley, Penang and Johor. In addition, it has also ventured into Sabah, which is identified as the key regional development area attracting investors from South Korea, Japan and China among others.

Through the amalgamation exercise, 24 pieces of land are slated for development and 24 buildings injected for rental income.

“Our first target is to exceed the RM100mil net profit mark in financial year 2013. This is possible as the size of our investment properties will increase to 1.4 million sq ft from the current 550,000 sq ft. This also will generate recurring income of approximately RM43mil. Thus, post amalgamation, our estimated group earnings can be more than RM100mil,” explains Dickson.

As for Dijaya's financial year (FY) ended Dec 31, 2011, the company has recorded a 51% increase in net profit to RM65mil on the back of a 28.42% increase in revenue to RM375mil.

For the second quarter ended June 30, 2012, net profit jumped to RM107.2mil from RM20.8mil previously on the back of a 66% increase in revenue to RM70.7mil

The 417% increase in net profit was mainly due to the fair value adjustment on investment properties as well as contributions from its developments.

“I am personally very bullish about the growth of the Johor property market. I wished I had gone there earlier. I was invited by Tan Sri Lim Kang Hoo (executive chairman of Ekovest Bhd) many years back to Johor development projects. I didn't. How I regret not doing so,” says Danny.

“I was so surprised that my Johor units sold out faster than some of our Klang Valley units. I truly believe that once the land links between Singapore and Malaysia is sorted out, there will be a whole new dynamic to Johor property,” said Danny. - The Star