Property Hunter Magazine September Issue 2014 | Page 98

/// West Malaysia Property News

Stormy Landscape for Johor Property Development
offices, hotel and a shopping mall, all
of which will be on a saleable floor
area of about 3.5 million sq m, which
is close to 10 times the floor space
of the Petronas Twin Towers in the
capital.
Local developers are starting to feel
the pressure following the massive
developments by the Chinese
developers.

The booming presence of
developers from China in Johor
has not only ruffled feathers
among local developers but also
sparked concerns of the Singapore
government due to the massive land
reclamation works.
Following the high-profile entrance
of Guangzhou-based Country
Garden Holdings Co Ltd, which
launched 9,000 units in Danga Bay
at one-go in 2013, all eyes are now
on other developers from China
who are expected to adopt carpet
bombing kind of development.
Country Garden made the first
move in Johor Baru. It is followed
by Guangzhou’s R&F Properties Co
(R&F) that bought 116 acres near
the first link in Johor Baru from the
Sultan of Johor for RM4.5 billion.
R&F could be launching as many as
30,000 units over the next few years
on land that is to be reclaimed.
Agile Property Holdings Ltd is
another China-based developer that
is expected to make its presence felt
in Johor Baru after it bought 1.3ha
from Tropicana Corp Bhd in Bukit
Bintang, Kuala Lumpur.
A study by a government investment
body, which had undertaken a
comprehensive development plan
for Johor estimated that the number
of new condominiums coming up in
Johor Baru is about 30 times over
the number of units built in Mont
Kiara.
“That is the number of new units
coming into the market,” says an
official.
But what has caught the attention
of the Singapore government is
a project near the Second Link
involving 5,000 acres (2,023 ha)
reclaimed from the sea.

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But the developers from China are
optimistic that Johor will be akin to
Shenzhen and the units being built
would eventually be taken up.
Country Garden, one of the Top 10
developers in China, has teamed up
with a subsidiary of Johor’s stateowned investment arm, Kumpulan
Prasarana Rakyat Johor (KPRJ), to
undertake the job.
Singapore’s concern
The development has caught the
attention of Singaporean authorities
who felt that it would eventually
have an impact on their shore line.
Towards this end, Singapore
has sent a note to Wisma Putra
expressing concerns over the
project.
“It is being dealt with” says a source.
An addition of 5,000 acres also
means that there will be much more
land in the southern region, possibly
impacting the sustainability of the
supply-and-demand chain.
In an interview with StarBizWeek,
Country Garden regional president
for Malaysia project Kayson Yuen
says the mega project “Forest City”
will span over 30 years and the
company had studied it more than a
year ago before committing into it.
He said the land was bought at a
“reasonable price” but could not
furnish wi th details for Forest City’s
land cost.
As for R&F, a very high-density
project is in the pipeline, with the
company planning to launch 15
blocks in the first phase. The six
plots it bought from the Johor Sultan
last year came with a high plot ratio
of 1:10.
Industry observers say the plot ratio
can be further extended to 1:13.
R&F plans to develop high-rise
residential units, retail properties,

Says Yuen: “It takes Shenzhen 20
years to where it is today... so we
expect for it to take some time for
Johor to develop into the same
status.”

That said, the sustainability of
Iskandar Malaysia is in question due
to supply far outstripping demand.
Currently, Iskandar Malaysia has
a population of 1.6 million while
Singapore has 5.4 million.
Shenzhen’s population is a
whopping 11 million while Hong
Kong’s has 7.2 million.
That leads to another question: Who
will take up the massive supply of
houses in Iskandar Malaysia and
Johor Baru?
Country Garden’s Yuen says Chinese
buyers make up 35%, locals 40%
and Singaporeans 20% for its highrise Danga Bay project.

But Iskandar Malaysia, which
is almost three times the size
of Singapore, is already being
positioned as the Shenzen of Hong
Kong. Shenzhen is about twice the
area of Hong Kong.

Who are the buyers?
While there are rumours that
Country Garden has employed a
“buy-one-free-one” approach to
lure Chinese buyers, Yuen outright
denied such talks.

Iskandar’s sustainability
The Chinese are investing in
Malaysia because of political
stability, potential from the
Singapore spillover effect, low
cost of entry, cultural similarities,
language and also partly due to the
slowdown of the property market in
China.

One commercial banker tells
StarBizWeek that many of the
purchasers from China who buys
into Malaysian properties fall into
the middle-income level.

The developers, especially listed
companies, come to Malaysia
because it is still considered one of
the most affordable countries in the
region.

“To them, Malaysian properties are
very cheap. Some of them do not
even bother to take up loans due to
the lengthy process of approval.”

“Take Vietnam as an example, the
recent (anti-China) riot shows that
there is a considerable political risk
to invest in the Indo Chinese nation,”
one developer explains.
As for the Philippines, the political
relationship is not amicable over the
years.
Singapore, on the other hand, is
expensive.
Betting on Iskandar Malaysia as
the next Shenzhen, Johor becomes
a natural investment choice for
China developers but it is also the
very same reason that Malaysia
has to strike a balance to maintain
a congenial relationship with
Singapore.

Their profiles range from small
business owners, teachers to
executives.

He says such buyers will opt to buy
in cash and the property
prices here are much cheaper
compared with those in their
homeland.
Some buy the houses as investment
while others buy for their children,
so that when they send their
children here, there will a place for
them to live.
“Other countries like Australia,
Singapore and Hong Kong are too
expensive for the middle-income
Chinese buyers while in Thailand,
foreigners cannot own property
there,” he explains.
Depending on the bank, the process
to approve the loans may vary.

He says normally foreign buyers can get 50% to
60% loan of the total purchase price and banks
may request for the foreign buyers to deposit few
more months of instalments upfront.

Eco World Tipped to Get Prized Pudu Jail Land for RM7
Billion Project
prompting rumours he would
join Eco World as his son, Tian
Xiong, is also a director and
substantial shareholder in the
company.
Eco World has embarked on a
programme to expand its land
bank and projects worth up to
RM30 billion after a corporate
exercise last year. Its jointventure in the Bukit Bintang
City Centre is expected to help
UDA trim its debts and raise
money for affirmative action
projects.

“To prevent the risk of default, banks are usually
more cautious with the approval process as the
checking of the income statement can be different
from the local buyers.
“Some banks may also perform a credit checking
on the buyers in their country,” he adds.
It is usually easier for buyers to borrow from the
developers’ panel banks, which can also be a local
bank.
As for Country Garden, analysts say the company
raises bonds in Hong Kong and utilise the funds
for its expansion overseas.
While listing can be another way of raising funds,
in Country
Garden’s case, analysts opine that floatation of its
Malaysian unit is unlikely to happen in the nearterm.
As for project execution, industry players note that
besides developers from China, many contractors
from the mainland are also moving into Malaysia.
However, Country Garden’s Yuen says it engages
with mostly local contractors for its projects in
Johor and hired an Australian consultant for the
gargantuan reclamation works.
Chain reaction from China?
So far, Country Garden has the most number
of notable projects in Malaysia. R&F is fast gain
prominence with its launches in a big way.
Country Garden’s Danga Bay project has a gross
development value of RM10 billion while its
projects in Semenyih and Serendah are estimated
at RM3.5 billion jointly. It also has the major capital
commitment for the land reclamation works for
the Forest City off the coast of Pendas, Johor.
Some quarters are concerned that the property
growth in China will have an impact on the
Chinese developers that have venutred into
Malaysia following reports of property bubbles in
some of the cities in China.
John So of RHB Research who is based in Hong
Kong tells StarBizWeek that the perception that
there is a property bubble in the third and fourthtier cities in China is a “simplistic view”.
“The national home sales (of China) has gone
down 10% for the first five months while
developers like Country Garden and Evergrande
Real Estate Group have experienced robust
growth for the same period,” he says.
He notes that sales in certain tier-one and two
cities have slowed down by some 20% and it will
be impacted by affordability and dem and.

Upstart property developer
Eco World Development
Group Bhd is tipped to win the
RM7 billion redevelopment
project of the Pudu Jail land in
Kuala Lumpur, a prized UDA
Holdings Bhd property that
Bumiputera firms say should
only be developed by them.
The Malaysian Insider
understands Eco World is
going into a 70:30 jointventure with UDA for the
7.85ha prime land in the
capital city’s Golden Triangle
that once housed Kuala
Lumpur’s main prison, the
101-year-old Pudu Jail which
shuttered officially in 1996.
“Eco World is getting the
project, the announcement
should be made soon,” a
source told The Malaysian
Insider, saying the site has
been abandoned for the past
few years despite being made
an Economic Transformation
Programme (ETP) project.
In 2011, China-based
developer Everbright
International Construction Ltd
was to get the project with a
RM2 billion investment with
UDA, which has land but not
money to develop projects.
But several Umno members
and Malay developers
protested the deal, prompting
UDA’s only shareholder, the
Finance Ministry, to order a
new plan.
There is now disquiet over
Eco World getting the project,
dubbed Bukit Bintang City

Centre, as UDA had called for a
tender last September.
Sources said the result of
the tender exercise has not
been revealed and there are
rumblings that UDA should
have considered all the bids
before deciding on a directly
negotiated contract.
“There are no details as to how
Eco World got the project. We
understand that the Finance
Ministry made the decision,
not the UDA board,” a source
said.
The Finance Minister is Prime
Minister Datuk Seri Najib
Razak while the Second
Finance Minister is Datuk Seri
Ahmad Husni Hanadzlah,
both of whom have oversight
over UDA, which was set up
to redevelop urban areas
and increase Bumiputera
participation.

Analysts said the decision over
the Pudu Jail redevelopment
will be yet another test
of Najib’s commitment to
economic
liberalisation as the hardliners
in Umno, Perkasa and Utusan
Malaysia had once criticised
UDA for allegedly abandoning
the Bumiputera agenda by not
appointing Bumiputera jointventure turnkey investors for
the project.
UDA, whose assets were
estimated to be worth RM2
billion two years ago, is more
than RM900 million in debt.
It had an outstanding RM104
million land premium for the
Pudu site that was due in
September 2012.

Eco World has been scooping
up big projects since its
inception last year and
has among its directors,
experienced property man Tan
Sri Liew Kee Sin, who resigned
as developer SP Setia Bhd’s
chief executive office last April
30.
Liew was SP Setia’s group
managing director from 1996
and turned the RM200 million
company in 1998 into a multibillion ringgit international
property firm.
He quit just over a year after
state investment company
Permodalan Nasional
Bhd bought over SP Setia,

UDA was set to get Everbright
as its partner two years ago as
the RM2 billion offer from the
Chinese firm was three times
the land value but politicallyconnected firms scuttled the
deal.

Eco World is getting
the project, the
announcement should
be made soon,” a source
told The Malaysian
Insider, saying the site
has been abandoned
for the past few
years despite being
made an Economic
Transformation
Programme (ETP)
project.

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