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| Above: Sunway Iskandar is the only township with a seafront |
The “party” in Iskandar Malaysia may have started years ago, but it was only less than two years ago that Sunway Bhd joined in the fun.
The conglomerate had in late 2012 — when the market was rising — entered into separate agreements with strategic investment fund Khanazah Nasional Bhd and Iskandar Investment Bhd to develop a 1,800-acre township in Flagship B of Iskandar.
Sunway entered both agreements on a 60:40 basis. The deals were worth RM413 million. About 700 acres of the site falls under Medini while the rest lies in Pendas, separated by the 7km Pendas River and its mangroves. This is one of the largest new townships coming up in Iskandar.
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| Cheah: Johor has joined the Klang Valley and Penang as one of Sunway’s top three markets in Malaysia |
In terms of acreage, the biggest of these is UEM Sunrise Bhd’s 4,500-acre Gerbang Nusajaya in Flagship A. With a gross development value (GDV) of RM7.7 billion, it will be home to a number of catalysts such as the Ascendas Eco Tech Park, FASTrack Motorsports City and Asian Trade Centre.
Meanwhile, Mah Sing Group Bhd announced that it will develop its biggest township in Pasir Gudang — a RM5 billion development spanning 1,351 acres.
Tan Sri Danny Tan, founder and chairman of Tropicana Corp Bhd which has its luxurious Tropicana Danga Bay development, recently injected 762 acres of land worth RM3 billion into Singapore Exchange-listed Albedo Ltd. IOI Properties Bhd, which was recently listed on Bursa Malaysia, owns almost 3,500 acres in Kulai.
Sunway is poised to launch the first phase of its Iskandar flagship — a five-acre mixed-use development known as Citrine, which comprises 328 serviced apartments, 167 office suites and 51 retail units — by the end of the first quarter. The serviced apartments will have built-ups of 618 to 1,571 sq ft, while the office suites will range from 753 to 1,689 sq ft. The prices of the office suites and serviced apartments are tentatively pegged at RM450,000 onwards. Meanwhile, the retail units have a total built-up of 100,000 sq ft but will be kept by Sunway.
Citrine will come up in The Lakeview, one of the six precincts within the township. The group will build a road connecting the 200-acre, RM2 billion precinct to the Legoland theme park, enabling future residents to drive there within five minutes.
Some reports say phase two will comprise high-rise homes and phase three will feature landed residences, with a tentative launch pegged in the middle of the year.
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| Ong: In Johor, we are known for our college and hotel, but now it is time they know us as property developers |
The timing of Sunway Iskandar’s first phase launch leaves much to be desired, as a sales stampede in 4Q2013 to beat various cooling measures such as the higher Real Property Gains Tax (RPGT) and abolition of the developer interest bearing scheme has left the market panting for breath. Property consultants are predicting a quieter 1Q, with uncertainties over policy enforcement clouding further outlook.
Why launch now? “It’s never a ‘good time’ to launch. Again, if we only had a 10-acre piece then we’d have to really think about it and go, ‘Oh, let’s launch it at the right time to maximise value’, but we have a 1,800-acre township. It’s about creating a community, so we will have to get it moving,” Sunway property development division joint managing director Sarena Cheah tells City & Country in an exclusive interview.
She notes that as a township, the products are varied and staggered according to phases, which provides the developer and buyers with the means to hedge against more tumultuous periods.
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| Tan: Investors who want to invest in the first phase of this township, like any township, will get the biggest capital appreciation |
“There will always be cycles, but when you hit the bottom of the cycle that’s when buyers become pickier about who the developers are and whether they can deliver. We are a developer with a track record and what we deliver is not just properties but also communities, and that is the key differentiator that will give investors confidence.”
Activating the precincts
Sunway is only launching Citrine in the next few months because it had just finalised the township’s master plan. “We want our business associates to be with us as we build this together. We were also awaiting final confirmation on the status of Medini [whether it is exempted from the RPGT and minimum price of RM1 million for foreign investors],” she explains.
According to Tan Wee Bee, Sunway’s executive director of property and construction for the southern region and Singapore, the first phase components were chosen as part of a strategy to make it self-sustaining, in line with a broader overall strategy to “activate” each precinct individually.
“Investors who want to invest in the first phase of this township, like any township, will get the biggest capital appreciation. So in this sense, phase one is the seed for the entire community.
“When you build a new township, whatever you are going to build is going to look and feel a little lonely so you need to build something that is self-sustaining. We have the retail units, office suites and serviced apartments. We are building a township over at least 10 years so we need our business associates to have their satellite offices there, their employees need to have a place to eat, and people from headquarters need a place to stay,” he says.
“The last thing anybody wants to face when going back to their home is construction around them. So a sense of security is very important. That is why we broke it down into precincts. That way as we build there is a sense of completion. So residents of each precinct have everything they need.”
The township has a development timeline of 10 to 15 years. The six precincts are named The Capital, The Riverside, The Parkview, The Marketplace, The Lakeview and The Seafront. “We are the only parcel within the residential part of Medini that has a seafront,” Cheah points out.
The last four precincts are located on the Medini part of the township. About 70% of the properties in this township will be residential, with the rest being commercial. All the precincts will be linked by roads, a bus rapid transit system and walkways.
Notably, the entire township has a plot ratio of one. This allows more spacious homes to be built and more generous landscaping, although it does not preclude building in higher densities should there be a demand, particularly in the more commercial precincts such as The Capital and The Marketplace, she adds.
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| Above: Citrine is the first phase in The Lakeview, one of six precincts in the township |
“Why a plot ratio of one? Because the site has all this nature, if you build lots of high-rise homes [like many recent launches], they do not fit in. And I think what people want is to go back to basics, back to nature, to have yin and yang. When Johoreans talk about owning a home, they want space, land, a garden and being able to co-exist with nature. Our neighbours [Singaporeans] also value land, and the space and nature comes together so having a plot ratio of one is a good business strategy in some ways. With 600 acres of green and water, that is almost as big as Bandar Sunway.”
Sunway’s master plan will take advantage of the site’s greenery. “When the chairman [Tan Sri Jeffrey Cheah] first decided to turn a tin mine into Bandar Sunway, the theme was rehabilitation. In Ipoh, we took the conservation route. In Sunway Iskandar, it is also very much about conservation because of the environment. You have the river and the seafront, which overlooks the Straits of Johor. Basically the chairman says with this site, he has the air, trees and the sea to play with,” says Cheah.
Meanwhile, Sunway has identified seven major components — a medical park, themed hotel, riverine estate, river park, eco-themed park, themed mall and education park. However, Cheah declines to reveal details of these components. “The chairman will make announcements later this year.”
Low-hanging fruit
For now, the group is looking at low-hanging fruit — namely buyers from Johor and Singapore. However, Iskandar properties as a whole may face competition from real estate in Singapore, where prices declined for the first time in years following nine rounds of cooling measures since 2009.
According to a Bloomberg report, property values in the city-state declined more than expected, with the private residential property price index dipping 0.9% in 4Q2013 and suburban home values dropping by 1% — both falling for the first time in two years. Meanwhile, Channel News Asia reported that Singapore’s public housing flats’ resale values declined by 0.6%, the first time since 2005.
Tan feels that property prices in Singapore will not plunge to levels lower than those in Iskandar.
“Many Singaporeans live in Housing & Development Board flats [public housing], which forms about 80% of the market. The cooling measures were introduced to stabilise the prices. In a sense, the measures have taken a bite [out of the market], but some of these measures are more permanent — to take the exuberance out of the market caused by speculators.
“The Singapore government cannot allow prices to plunge because the success of the market is important … after all, the whole point of public housing is that everybody owns a home and thus a stake in the country, and the houses generate wealth. When the world economy improves, prices will rise again because supply is limited. There will also never be a situation where prices of properties fall to say, S$800 psf on Orchard Road … prices won’t fall that much,” opines the Singaporean.
Sunway Iskandar is the conglomerate’s biggest township to date, in terms of acreage and value, at 1,800 acres and with an estimated GDV of RM30 billion. Johor has thus join the Klang Valley and Penang as one of Sunway’s top three markets in Malaysia, says Cheah.
The township is also a bold move for a group that until recently had no projects in Johor. Its first project, Sunway Lenang Heights near Taman Molek, Johor Baru, is an 88-acre freehold development with a GDV of RM1.2 billion comprising semi-detached homes, bungalows and condominiums. The first phase, which featured 112 units of semidees (RM1.5 million to RM1.8 million) and bungalows (RM2.5 million to RM3 million), was launched mid-2013. The first phase is 65% sold.
Are they concerned about their status as relative newcomers? “In Johor, we are known for our college and hotel, but now it is time they know us as property developers and we can raise awareness through marketing and branding efforts. But then again, why does that matter? It does not negate what we can offer,” says joint managing director of property Ong Pang Yen.
It seems the group’s ambitious plans show that it has faith in the market despite what the naysayer say. “We are building a township, so we are here for the long haul,” says Cheah.
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Long-term outlook still positive
Consultants polled by City & Country were fairly upbeat about the prospects of Sunway Iskandar. KGV International Property Consultants (Johor) Sdn Bhd director Samuel Tan says the project’s site is unique and well-supported by numerous infrastructure projects.
“Sunway Iskandar is located within Iskandar Malaysia, which is well-connected with a good network of highways, proximity to three major ports and strong infrastructure, thanks to over RM4 billion in investments by the government.
“Investors also enjoy lower property prices in Iskandar compared with similar properties in Singapore — a difference of about 10% to 25%.”
He adds that the Medini parcel was acquired at RM25 per gross floor area, lower than the other transactions there.
“Sunway Iskandar is different from other developments as it is a township offering a wide range of properties. The additional land at Pendas enables Sunway to develop eco-themed products. The water and river frontage differentiates the township from other zones in Iskandar.”
Tan says the township’s attractiveness and value will increase once the Second Link’s customs, immigration and quarantine centre is completed. Dispelling concerns about the group’s status as a relative newcomer to the southern state, he says its brand will draw buyers to its first phase.
“This project will give the group the chance to recreate a township of international stature.”
Sunway Iskandar’s first phase, dubbed Citrine, will comprise 328 serviced apartments, 167 designer office suites and 100,000 sq ft of retail space. The prices of the designer office suites and the serviced apartments are tentatively pegged at RM450,000 onwards.
Knight Frank Malaysia’s Johor branch resident director Ricky Lee observes that there were many serviced apartment projects launched in Medini and Puteri Harbour over the last two years.
While serviced apartments, which were only introduced to the Johor property market two years ago, were well-received thanks to their security and lower absolute values, sales have slowed in recent months. He attributes this to a combination of the cooling measures and holiday season.
“The earlier developments generally received good response but the later launches experienced some slowdown especially towards the end of last year. This is due partly to the holiday season and also because of the cooling measures. Buyers and developers are waiting for formal clarification on whether Medini is exempted from the Real Property Gains Tax (RPGT) and higher threshold on foreign investors, although the market assumes that the area will be exempted,” he tells City & Country.
“Locals generally prefer developments in the city fringes with low entry cost. Something around RM400,000 to RM700,000. You cannot find anything over 1,000 sq ft with that price tag.”
Comparing serviced apartments with condominiums, Lee says: “Historically, condos command a yield of between 5% and 8%, depending on location and the facilities provided. But rentals have not been growing in tandem with property values.”
He adds that most buyers were young couples or families, while the rest were older investors seeking gated and guarded communities with good access, advanced security features and quality products.
According to Lee, some comparable launches include those by Mah Sing Group Bhd and Link (THM) Holdings Pte Ltd, which launched small office/home office (SoHo) units and small office/versatile office (SoVo) units in the past year.
Mah Sing launched its Meridin Linx iSoVos in September, which comprised 583 units with built-ups of 430 to 1,050 sq ft and prices from RM650 psf onwards in 4Q2013. During the same period, Link launched the first phase of its Media Village mixed-use development near Pinewood Studios, which comprises 500 units of SoHos from 600 sq ft and priced at RM750 psf.
While Lee does not have the take-ups of these projects, he says “similar projects launched in Mount Austin, Johor Baru, have received good response, according to their developers”.
These projects are Austin 18, which comprises 320 units of SoHos with built-ups of 670 to 1,040 sq ft and priced from RM750 psf, and Manhattan, which comprises 306 units with built-ups of 640 to 1,200 sq ft and priced from RM550 psf. The latter project was launched in 2Q2013 and Lee understands that it was almost sold out within the first few weeks after its launch.
Meanwhile, Landserve (Johor) Sdn Bhd executive director Wee Soon Chit says: “This sector is untested in Johor Baru. Traditionally, the office sector has not been popular due to its poor returns. However, going forward, this sector has great potential due to the attractive incentives offered under Medini.
“We foresee that buyers are going to be from companies that qualify for Iskandar incentives whereby they will enjoy either a 10-year income tax exemption or investment tax allowances of 100% for five years, with exemption from the RPGT and import duty or sales tax.”
As SoHos and SoVos are new types of products in Johor, there is no information on their typical yields and capital appreciation. However, Lee notes that rentals of purpose-built offices are still quite low, with yields ranging from 5% to 8%.
According to Knight Frank’s Real Estate Highlights 2H2013, the current office space supply in Johor Baru is 8.15 million sq ft, with an overall average occupancy rate of 73.3%. Rent in the prime central business district range from RM2.50 to RM3.30 psf, while rent in non-prime areas range from RM1.60 to RM2.50 psf.
“On the other hand, shopoffices in good and prime locations generally command slightly better yields,” says Wee.
On the outlook for Iskandar Malaysia, Lee opines that it is still positive “at least for the next two to three years as most developments have just been launched and they are in various stages of completion”.
He adds that more foreign direct investments are expected to come on-stream over the next few years as Iskandar develops and high-rise buildings fill the skyline rapidly.
“Given Sunway’s excellent track record in the Klang Valley and Ipoh and its ability to deliver good and quality products, it has a good following of prospective purchasers or investors for its developments.
“As long as Malaysia’s economy continues to grow, and coupled with Iskandar’s continuous efforts to attract foreign direct investment especially from Singapore, Indonesia and the greater Asia-Pacific region, there is tremendous prospect for the entire Iskandar region, including Sunway Iskandar,” concludes Lee.
This article first appeared in The Edge Malaysia Weekly, on February 14, 2014.
