FROM the outset, Datuk Seri Chong Ket Pen knew he wanted to build the “Mont’Kiara of KL South” in Kajang. Some would say this is an ambitious plan, especially for a company that only ventured into property development in recent years, but then Chong is a confident man.
The group managing director of Protasco Bhd admits that even his partners thought he was mad when he first proposed turning a 100-acre tract in Jalan Ikram-Uniten into De Centrum City, a mixed-use development with an estimated gross development value (GDV) of RM10 billion.
“I remember that a well-known property consultancy released a report that was unfavourable to the location. But I look at things differently; property developers must have foresight and I saw the potential,” remarks Chong.
The tract was acquired in the mid-1990s and is fully paid for.
While Protasco is new to property development, it is no stranger to the industry. The group was established in 1991 and was listed on the Main Market of Bursa Malaysia in 2003. It currently has six core divisions — engineering and consultancy services, road maintenance, construction, education, trading and property development.
“When we were listed in 2003, our forte was engineering and construction. Construction has always been part and parcel of our skills and business, and as an engineering company and a contractor, we are familiar with property development. So, it’s only natural for us to move into it,” says Chong.
He was also drawn to property development because it gives the company full control of a project. “Being a property developer means you control your own destiny, so to speak, instead of having to bid for a project. You also get to determine the speed of the project and the cash flow, and adjust according to market demand.”
Protasco debuted with the development of two condominium blocks (Tower A and B) called Unipark Condominium on the freehold site of De Centrum City in 2007. The site also houses Protasco’s headquarters, its Infrastructure University Kuala Lumpur (IUKL) campus and Kumpulan Ikram’s offices.
According to Chong, when the first tower of Unipark was launched in 2007, similar condominiums in Kajang and the surrounding areas were going for around RM100,000 to RM110,000 per unit. He priced the tower at RM180,000 to RM250,000 per unit and managed to sell all of them in three months.
“It was my first project, so I had to ensure it was positioned right. I positioned it as part of Mont’Kiara of KL South. And to do so, our products and prices had to be at a certain level.”
Encouraged by the strong response, he launched the next tower within six months of the first and again sold all the units within three months.
“The second tower was priced about 10% to 20% higher. Now, the units are going for double the original price on the secondary market. So, those who bought seven years ago stand to benefit.”
Chong says he saw the value of the land in the early 2000s but the time was not right because the infrastructure and connectivity in the area were insufficient.
“Then, sometime around the mid-2000s, infrastructure started coming in. The Putrajaya and Kajang links were built and the South Klang Valley Expressway was being constructed. So we thought, ‘With all the links in place, why not work on unlocking the value of the land?’”
And from there, Chong and his team developed the master plan for De Centrum City.
|Top: De Centrum City has an estimated GDV of RM10 billion
Left: Protasco will retain the shopping mall
Right: De Centrum SoHo will offer 80 studio units of 447 sq ft and 112 duplexes of 768 sq ft
Onwards and upwards
The name De Centrum, which means “the centre” in French, was chosen as it shows the central location of the development, says Chong.
“Unipark was our test case. Its success gave us the confidence to go ahead with De Centrum City and come out with proper products for it.”
De Centrum City will be built on 87 acres and will comprise high-rise residences, shopoffices, small offices/home offices, office suites, retail lots, hotels and a convention centre.
What Chong wants to create in De Centrum City is an urbanised lifestyle with products that are modern and dynamic.
At the end of 2012, Protasco launched the first phase of De Centrum City, which comprises De Centrum Residences (320 serviced apartments); De Centrum SoHo Tower (192 SoHos); De Centrum shops (54) and De Centrum Mall (95,000 sq ft of net lettable area).
The 574 to 1,022 sq ft De Centrum Residences are going for RM502 psf on average and are 96% sold to date. De Centrum SoHo’s 80 studio units of 447 sq ft and 112 duplexes of 768 sq ft are priced at RM513 psf on average and are 77% taken up to date.
The 1,134 sq ft De Centrum shops (price: RM565 psf) are fully sold while the mall is not for sale. Construction of Phase 1 is about 50% done and is expected to be completed by the end of next year.
Protasco is working with a retail consultant to ensure the right tenant mix for the neighbourhood mall. “We want to retain the mall so we will have better control of the tenant mix. We are in talks with several supermarket chains. For a new development like ours, these retail giants will always get a good rate as they can bring people in and that will add value to our properties,” says Chong.
As for the shops, Protasco has signed a mutual covenant with the buyers to restrict the types of businesses they can bring in. “We can’t control everything, but we can make sure that certain businesses, like funeral parlours, are not allowed. Entertainment outlets, such as clubs, are fine because we need activity. This is a lifestyle market and people want excitement,” he says.
With this in mind, Chong’s strategy for Phase 2 is to focus on residential products to grow De Centrum City’s population and increase land value and future retail sales.
Phase 2 will be split into 2A, 2B and 2C with 2A concentrating on student apartments (Unipark Condominium Tower C and D) with an estimated GDV of RM200 million. Phase 2B will comprise two blocks of apartments targeting the higher-end market and is expected to be launched in the middle of next year.
The site for 2C currently houses two blocks of student hostels. These will be demolished to make way for a three-star hotel and serviced apartments with an estimated GDV of RM300 million. The hostels will only be torn down after the completion of 2A in the middle of 2016 so the students will have the option of moving into the apartments.
The soft launch for Tower C and D of Unipark will be on June 1. They comprise 320 units of 1,270 to 2,540 sq ft with prices starting at RM420 psf.
“We haven’t decided whether to sell the hotel, but the chances are that we will retain it. We are considering signing a contract with a hotel operator on a profit-sharing basis,” says Chong.
The decision to focus on residences in Phase 2 is partly due to the cooling measures announced in Budget 2014. Chong admits that there were a few cancellations in Phase 1 as some buyers were unable to obtain loans.
“Our initial plan for Phase 2 comprised offices and a convention centre. The cooling measures have affected investors, so we have pushed the commercial components to Phase 3. We think for the next two to three years, depending on market conditions, we will not be launching any commercial products. Our strategy now is to bring in residents to increase the population, which will help support our retail.”
Chong estimates that if Phases 2A, 2B and 2C do well, they will bring in 5,000 residents. “Coupled with the moving traffic, in two to three years’ time, we can see day traffic of about 8,000 and night traffic of about 5,000.”
Phase 3 will be split into 3A and 3B with the former comprising the convention centre and multilevel retail-entertainment complex, football field, cinema, sports centre and multi-storey car park while the latter will consist of a five-star hotel and office towers.
“Convention centres are big business. In some places, you have to book two years ahead for a wedding. The football field, sports centre and car parks are a cost to us, but they will add value to our development,” says Chong.
|Left: Phase 2 will focus on residential products to bring in the population
Right: The developer is working with a retail consultant to ensure the right tenant mix for the mall
According to him, it is likely that Protasco will sell the five-star hotel as it is already in talks with an interested party.
“We will have more phases, but we can’t reveal many details yet. The phases I mentioned will be rolled out within the next five years. We will have about
RM250 million to RM300 million worth of products to be launched every year.”
Chong says the remaining parcels will include signature towers, which he hopes to fill with big corporations. “We want to bring in big corporations that want to have their headquarters in this area because the federal administrative centre in just next to us in Putrajaya. These are companies that don’t need to be in the city centre and moving here also means the employees can avoid the traffic jam.”
Phases 1 to 3B will take up 25 acres and have a GDV of close to RM2 billion, he adds.
“Some of the existing structures will eventually be demolished as they no longer have economic value. We are trying to build inside out, meaning we will leave the most prime land to the last as it has the best value. We are bringing population into the area and the land value could shoot up to RM1,000 psf in a few years.”
Protasco will move the IUKL campus to another site just down the road where the land value is lower. Chong initially planned to complete the entire De Centrum City in 15 years, but due to the cooling measures, it will now take longer.
“Our plan was quite big before the cooling measures were announced. Now, with them in place, we are concerned about affordability and take-up. However, we are in a position to control our pace because the land is fully paid for. So, if the market is not doing well, we can hold back. Also, we have low gearing,” says Chong.
As at March 31, 2013, Protasco was in a net cash position of RM105 million. Cash and equivalents stood at RM161.9 million while total borrowings amounted to RM42.3 million.
Despite the slowdown in the sector, Chong remains confident that De Centrum City will do well. He notes that the location is very accessible, being within a 30- minute drive from the Kuala Lumpur city centre, Putrajaya and KL International Airport, among others.
In a note released in early April, RHB Research estimated De Centrum City’s GDV at RM10 billion over 15 years. It also said the 100-acre tract was ripe for development.
RHB expects Protasco’s earnings in its financial year 2014 to grow 14%, driven by contributions from two public housing projects and a first full-year contribution from De Centrum City.
“I believe there is still good potential for developments in KL South. You can see in recent years that activity is moving towards this side. This is where the future is,” says Chong.
Growing the property development division
Currently, the revenue generated by Protasco’s property development division is small compared with that of its core divisions of maintenance and construction.
“In our last financial year, the division contributed 4% to the group’s earnings. We are expecting a contribution of 8% to 10% this year. Ultimately, I want to grow the contribution to a quarter of total earnings. Property development will be one of the growth drivers for the group in the future,” says Chong.
Protasco is already looking beyond De Centrum City, having allocated RM50 million to buy land outside the Klang Valley for developments similar to De Centrum City.
In October last year, it entered into a joint venture with Asdion Bhd to develop five parcels totalling 14.369 acres in Pasir Gudang, Johor, under the De Centrum brand. Protasco holds a 76% stake in the JV while Asdion holds 36%. The parcels were acquired for RM29.6 million.
Asdion is a software development and information communications technology company.
Also in October last year, Protasco was appointed the developer for the 1Malaysia Civil Servants Housing Programme. It will build 1,680 apartments worth RM578.5 billion in Putrajaya, which will be completed within 24 months. Protasco will also develop Projek Perumahan Mampu Milik 1Malaysia homes worth RM88.1 million in Perak.
“For now, De Centrum City will keep us busy for a while and we will continue to acquire land in good locations. At the moment, we don’t intend to go into mass housing like 1 or 2-storey houses. We prefer to stick to the type of development we are doing with De Centrum City. In the end, the key is to position yourself right and create the right products at the right price to meet the market’s needs,” says Chong.
This article first appeared in The Edge Malaysia Weekly, on May 5 - 11, 2014.
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