New frontiers for property firms

New frontiers for property firms
Written by Chua Sue-Ann
Monday, 11 July 2011 11:38

KUALA LUMPUR: Many Malaysian-based property developers are now increasingly spreading their wings to developed economies after an earlier adventure to developing countries such as Vietnam did not pan out well.

In the past few years, larger Malaysian property and construction groups had flocked to Vietnam, once touted as the rising star of Southeast Asia. They include the likes of Gamuda Land (the property arm of Gamuda Bhd), S P Setia Bhd, WCT Bhd, IJM Land Bhd, Berjaya Land Bhd and Ireka Corp Bhd via its London-listed property fund Aseana Properties Ltd.

But now, there appears to be a growing trend for property players to invest in real estate opportunities in Singapore and Australia, and even as far away as Canada and the UK.

A property industry observer opines that earlier optimism on Vietnam’s real estate prospects were largely fuelled by expectation of strong take-up by the sizeable expatriate population in Vietnam — which has since shown to be unsustainable as prices were out of reach of the local population when demand from foreigners dried up.

Over the past two decades — since the “Doi moi” (renewal in Vietnamese) economic reforms initiated in 1986, foreign direct investments have been pouring into Vietnam.

These reforms have made Vietnam one of Asia’s success stories as it made its transition from a command to a more market-oriented economy, with a low-cost industrial base and a growing middle class.

Investors, including those from Malaysia, poured into its real estate sector, where prices and returns were unrealistically high due to a lack of supply of expatriate housing and international-class office space.


Since the 2008 global crisis, however, the euphoria has died as the economy faced economic woes, including rising inflation, a widening trade deficit, currency depreciation, declining foreign direct investments and high interest rates.

“The prices of the higher-end developments there are unsustainable. There isn’t a large middle class population base to support the supply, as prices are aimed at the limited expatriate market. It will take a long, long time for Vietnamese income levels to reach some of the asking property prices before the crisis.

“After experimenting with Vietnam, developers are now going to more stable countries such as Singapore and Australia,” said the observer.

“Local income levels relative to house prices are important, a factor which developers that went to Vietnam ignored during the euphoria,” he said, adding that developed markets such as Australia and Singapore see steady demand from a mix of local and foreign buying interest.

Selangor Dredging Bhd (SDB) is among the list of developers venturing beyond Malaysian shores, having planned several small projects in Singapore.

SDB has three property projects in Singapore, namely its mixed development Okio Residences on Balestier Road, a high-rise residential project Gilstead Two on Gilstead Road and Jia, a low-density residential development on Wilkie Road.

Recently, SDB ventured into London where its indirect subsidiary had in March acquired a piece of freehold land for development.

IOI Properties Bhd, a unit of IOI Corp Bhd, has been active in the Singapore property sector for a while. Together with its joint venture Ho Bee Investment Ltd, IOI Properties is developing the Pinnacle and Seascape at Sentosa Cove on Sentosa Island. It also working with Mergui Development Pte Ltd to develop a high-rise residential project at Mergui Land in Singapore.

Recently, IOI Corp announced its partnership with City Developments Ltd to develop South Beach, a mixed development project with total land area of 8.64 acres (3.46ha) located at a landmark site between Raffles Hotel and Suntec City and next to the Esplanade MRT Station.

But leading the charge in Singapore is UEM Land Bhd which is likely to play a key role in developing projects via its parent Khazanah Nasional Bhd’s tie-up with Singapore sovereign wealth fund Temasek Holdings Pte Ltd.

The partnership between the two sovereign wealth funds to develop land parcels came after a land swap deal after Singapore and Malaysia agreed on the relocation of the Tanjong Pagar KTMB (Keretapi Tanah Melayu Bhd) station in Singapore.

UEM Land’s subsidiary Sunrise Bhd, which it acquired earlier this year, has seen very strong demand for its Quintet development in Richmond, Canada.

Located outside downtown Vancouver, Quintet comprises condominium units and townhouses with a total gross development value of C$400 million (RM1.2 billion) spread over two phases.

Investors snapped up almost all 300 units under Quintet’s Phase 1 late last year within a single weekend. This prompted Sunrise to bring forward the launch of Phase 2 to June this year, which saw 90% of available units snapped up within a weekend. With nearly 600 homes sold, Quintet has sold more homes in the lower mainland area recently than any other development and has broken numerous real estate records, the developer said.

Last weekend, Sunrise launched the final 100 units of the development in Tower E, which has premium mountain and park views.

Property analysts opine that Malaysian developers’ push abroad is in line with the growth trajectory to enable the companies to achieve their aspired scale. “For the bigger Malaysian property developers which want to grow their base and have high annual growth, Malaysia may be too small a market. They would have to go regional,” said one analyst.

Nevertheless, it may prove difficult for Malaysian property developers to go abroad in a big way unless the companies have already built up a strong following and brand, said another analyst.

“For overseas projects, Malaysians would prefer to buy from a developer they’re already familiar with, and can deal with easily here... rather than through long-distance phone calls and correspondence”, the analyst said.

He added that the developers’ plans to expand abroad were also to tap Malaysians who wanted to diversify their assets overseas.

The stronger ringgit also bodes well for Malaysian property groups wanting to venture abroad to buy land and start development, analysts said. Many analysts also pointed to Vietnam’s present economic uncertainties and the policy risks evident in China as the government moves to cool the residential property market in major cities amid fears of overheating.

Although many developed economies, with the exception of Australia, are still facing uncertain economic growth prospects, there are still opportunities to be tapped by property players, analysts said.

In a report last month, CB Richard Ellis (Australia) senior managing director Rick Butler said Australia’s property market showed a pick-up in activity in April after a slow start for the year as buyers began shifting focus towards other Asia-Pacific markets following the Japan earthquake.

“Australia continues to record a noticeable increase in enquiries from Asia-based funds looking to deploy capital previously earmarked for Japan,” Butler said.

Butler expects the pace and volume of real estate transactions in Australia to pick up in the coming months as more assets are made available for sale.

Last month, Magna Prima Bhd announced that it had entered into an agreement to purchase a freehold high-rise apartment project in Melbourne from its developer which had already sold about 62% of the project. The property, named Dynasty Living, is a 25-storey residential development with 320 apartment units which will commence construction in 4Q of 2011.

However, the latest giant to pit its fortune Down Under is S P Setia Bhd which recently launched its maiden Australian property project, the Fulton Lane high-rise apartment and commercial development in Melbourne.

S P Setia is also embarking on joint ventures to develop property in Hangzhou, China, and had recently acquired a project for development in Singapore as it continues its endeavours in Vietnam.

Fulton Lane is a mixed-use project comprising retail space and two blocks of residential units in the northern part of Melbourne’s central business district, with a GDV of A$470 million (RM1.5 billion) and is slated for completion in 2014. S P Setia released about 297 units under Fulton Lane’s Phase 1 launch while Phase 2 will offer over 400 units.

S P Setia’s Fulton Lane property saw strong take-up rates of 70% of its Phase 1 during a recent preview launch, which bodes well for the developer given its ambitions to expand its landbank in Australia.

Australia has managed to escape economic recession during the 2008 global credit crisis, thanks to its booming mining sector, making it an attractive investment destination in the Asia-Pacific region.

Australia’s growing population and a shortfall in housing supply, particularly in the major capital cities of Sydney and Melbourne, have also attracted the interest of investors from Singapore, Indonesia, China and Hong Kong.

Sam Nathan of independent Australian property consultancy firm Charter Keck Cramer noted that Melbourne had been attracting Asia-based property developers and investors in the last five years.

There are currently about 16 high-rise residential projects being undertaken by Asian developers in Melbourne’s inner city region, Nathan told reporters in a recent briefing in Melbourne.

To cope with population growth, Nathan said property players need to deliver 35,000 dwellings per annum but are only completing about 26,500 housing units annually in Melbourne.

Melbourne and Sydney are facing shortfalls in residential properties as demand continues to be driven by immigration-fuelled population growth, rising student population and lifestyle changes.

“This is not a speculative boom. This is a response by the property development community to the fundamental need for dwellings,” he said.

Nathan, however, concedes that prospects appear bright for now, given Australia’s economic prosperity on the back of its booming resources sector due to consumption by China and the Asia-Pacific region.

Like the Vietnam experience, only time will tell if the ventures to the developed economies prove a winning bet in the medium term.


This article appeared in The Edge Financial Daily, July 11, 2011.