Post date: May 12, 2010 12:51:9 PM
It has not even been a week since the announcement of the New Economic Model and already the sparkle is starting to fade.
Market talk of Malaysian Resources Corp Bhd (MRCB) being the front-runner for the position of “master developer” for the government and the Employees Provident Fund’s (EPF) 3,000-acre project in Sungai Buloh has rubbed many the wrong way.
But it should be pointed out that neither the EPF nor the government has announced who will head the project. However, given that the EPF is a major shareholder of MRCB with a rapidly increasing stake, the company’s participation in the venture makes sense.
Even so, should MRCB should get a portion of the project, no matter how big or small, by virtue of the EPF’s stake in the company?
Public perception of the politics aside, a look at MRCB’s track record shows that the company lacks extensive experience as a developer of a sizeable piece of property.
The company’s biggest achievement to date is KL Sentral. It is smaller in size and it is chiefly commercial and high-rise residential. To be fair, MRCB does have one township development under its belt, Bandar Seri Iskandar in Perak, which has a gross development value of RM5 billion.
“However, the project is still ongoing. It would raise questions as to why the EPF and the government didn’t choose a developer that already has proved itself to be successful in township development,” says a property player.
While the size of the Sungai Buloh land alone would invite scrutiny, property analysts do not mince words on how prime the land is. A phrase that is normally used to describe the land is “cream of the crop”. One property analyst places the price for the area at possibly RM70 to RM80 psf, which is at the top end of the pricing scale.
“However, even prime land can see its value fall without expert planning. Because the project is under the EPF, it is unlikely that it will be all high-end residential properties. There will be some parcels that will be designated for medium to low-cost housing.
“Usually that would bring down the GDV of a township, but with proper planning this can be avoided. Also, given that it is the EPF that is embarking on this venture, it is even more critical that the value of this premium land is optimised, so structure becomes even more important,” says a property analyst.
So it becomes clear that an open tender or a beauty contest is the best solution.
The EPF and the government should hold an open call for developers to present their proposals for the township, with certain criteria such as an allocation for low and medium-cost housing, and pick the one that maximises the value of the land.
While 3,000 acres seem a lot for one property developer to handle, it is not unheard of for property players to combine their resources.
This was the case with Sime Darby Property Bhd and Sunrise Bhd which formed a joint venture to undertake a RM1 billion property development in Bukit Jelutong in Shah Alam.
There is also no reason to limit it to just local players. The field could be opened to regional property developers with the caveat that they team up with a local party.
Regardless, most fund managers and analysts still hold the belief that MRCB will end up with a portion of the pie in some shape or form. One scenario put forward is that the land will be parcelled out with MRCB getting a portion.
“However, parcelling out the land without a lead developer with a concrete master plan would also prove detrimental. There is no getting away from the fact that there has to be one company in the driver’s seat, otherwise, the entire development won’t gel,” says a property analyst.
Some fund managers see another scenario where MRCB becomes the master developer and then farms out the various jobs.
“If this turns out to be the case, it would be in MRCB’s best interests to form a joint venture with a more experienced party to take on the first few parcels of this development. After obtaining some success with the initial phases, then MRCB could strike on its own... Embarking on this development by itself could prove suicidal,” says an industry observer.
In the midst of all this speculation, MRCB has come out to say that it is keen to participate in the development of the Sungai Buloh land, if given the opportunity by the government and the EPF.
“With the success of KL Sentral as one of the leading urban property and infrastructure developments in our country, we believe the MRCB group has the right resources to play a role to help implement the Sungai Buloh development,” states MRCB CEO Mohamed Razeek Hussain.
However, it would be unwise to put the cart before the horse at this stage. Neither the EPF nor the government has revealed further details as to how they will tackle the Sungai Buloh land. Even so, judging by the public outcry to even a rumour of MRCB overseeing the project, the EPF and the government would definitely be inviting an even bigger backlash if it becomes a reality.
This article appeared in Corporate page of The Edge Malaysia, Issue 800, Apr 5 - 11, 2010