City & Country: Why the townships ground to a halt

Carey Real Estate’s Ampang branch director Avtar Singh is familiar with both Bandar Sungai Buaya and Lembah Beringin. The townships, he recalls, were launched in the early 1990s and the general population profile comprised young working families or retirees. “When the Klang Valley market was booming, highways, interchanges and cheaper homes began to emerge. Homebuyers were drawn by the affordability of the houses as well as the enhanced accessibility to these locations via the highways,” he explains.

However, everything came to a standstill with the advent of the Asian financial crisis. The crash of 1997, says Avtar, saw many defaulters in these two projects. “Before 1997, some of the secondary market buyers were buying at 30% to 40% higher than the launch prices in anticipation of profits.

“Since then, there have been no new developments at both the locations. Some of the properties have been left in dilapidated condition, vandalised and in some cases, were not even completed,” he adds.
Today however, says Avtar, both developments are seeing a steady growth in population as many investors have picked up homes at bank and public auctions at 30% to 40% lower than the developer’s launch prices.

Ho Chin Soon, master mapmaker and principal of Ho Chin Soon Research Sdn Bhd, says it was a costly move for L&G when it decided to embark on these two developments. “At the time, many were bullish about the developers, one of which was L&G, and the expansion of the network of highways. The developer believed that the highways would be able to sustain the township developments. However, no one foresaw the petrol and toll hikes. For L&G, its cash cow then was Bandar Sri Damansara and these two unsuccessful projects drained its resources,” Ho explains.

On Feb 3, 2000, L&G announced its debt-restructuring proposals in a filing with Bursa Malaysia. Due to the Asian financial crisis, its infrastructure expenditure had a negative impact on its financial position. As a result of the economic downturn, L&G faced tight cash flow, which impaired the group’s ability to service its debts. L&G announced defaults in repayment of bank loans by two of its subsidiaries amounting to about RM40 million.

To address its financial problem, the group explored various debt-restructuring proposals to deal with its creditors, which included bank lenders and trade creditors as well as euro convertible bondholders.

In addition to the proposed debt-restructuring proposals, the group also worked on various plans to address the redemption of redeemable preference shares of RM1 each in Bandar Sungai Buaya. As at Sept 30, 1999, the group owed bank lenders and trade creditors about RM887 million.

According to L&G, the developer is looking to “graduate from the corporate debt restructuring scheme before July 2010”. L&G managing director Low Gay Teck says: “With the completion of the debt restructuring scheme, L&G does not see any further need to dispose off its assets. However, depending on the price received and subject to prevailing business conditions, we will not be averse  to dispose our assets that do not fit into our core business.”

Going forward, the rejuvenated L&G looks set to regain its past glory.



This article appeared in City & Country, the property pullout of The  Edge Malaysia, Issue 763, July 13-19, 2009