City&Country: Cover Story-- Taking KL's growth to the next level

Cities only grow or die, they don’t stand still,” said New South Wales premier Kristina Keneally at the recent Forbes Global CEO Conference 2010 in Sydney.

These words continue to resonate with Bukit Kiara Properties Sdn Bhd’s managing director N K Tong, who was at the conference.

“That’s something we want to think about. Do we want to grow or die?” he asks, referring to the challenge of taking Kuala Lumpur’s growth to the next level.

“We are still growing. The question is, are we happy with average growth? Or do we want to be competitive?

“It’s not just growth for growth’s sake, it’s not just population or gross domestic product numbers, but also all the soft stuff that comes with it, such as better public transport and parks and all that,” Tong tells City & Country.

Since his appointment as chairman of the Real Estate and Housing Developers’ Association Wilayah Persekutuan (KL) branch (Rehda KL) in May,  Tong has been busy meeting stakeholders and authorities, among them Kuala Lumpur City Hall and the Federal Territories Ministry, on the considerable changes in property-related legislation such as the Building and Common Property (Maintenance and Management) Act 2007 and the Strata Titles Act 1985.

 

 

 

 

 

 

 

 

 

 

The Greater KL Plan
Like other developers, Tong is excited about the Greater KL Plan, one of 12 National Key Economic Areas (NKEA) identified under the ambitious Economic Transformation Programme (ETP), which aims to double the gross national income per capita to RM48,000 from the present RM23,700 by 2020.

Rehda KL has two representatives in the NKEA labs organised by the Performance Management and Delivery Unit, the chief architect of the ETP.

“I’d say I generally liked what I saw ... it was more progressive and aggressive in the targets,” Tong says of the Greater KL Plan.

The ETP, which Tong calls a blueprint for the city’s “soul”, covers a host of urban planning issues such as housing, green areas, land redevelopment, new commercial focal points and the much-discussed mass rapid transit (MRT) system.

The MRT is something that Tong is especially excited about. According to the recently unveiled Budget 2011, the MRT is expected to cost RM40 billion, the bulk of which is to be footed by the private sector. Gamuda-MMC Sdn Bhd, a joint venture between Gamuda Bhd and MMC Corp Bhd, is said to be a frontrunner in the project. Work is scheduled to begin next year. Upon completion, estimated to be in 2020, the MRT is expected to boost usage of public transport to 40%.

“For us, it’s a no-brainer. You put in the MRT, the hours [spent in traffic] just drop. It’s expensive but it’s necessary,” he says in response to criticism from some quarters about the cost.

Still, Tong is largely ambivalent as Budget 2011 is but one in a series leading up to the year 2020.“From Rehda KL’s point of view, I think the more important thing, besides looking at the immediate impact over the next year of this budget, is how it will fit in with the Greater KL Plan for 2020. There are 10 more years to go and the important focus is to have this and subsequent budgets that will progressively work towards supporting that plan in the long run.  Cities that continue to grow consistently and sustainably will ultimately thrive, and hopefully the Greater KL Plan can spur KL’s growth even beyond 2020,” he says.

“From that perspective, it is heartening that the greening of KL and the River of Life programme [the rejuvenation of the Klang River] are priorities, getting a RM1.9 billion allocation in Budget 2011. This will ensure that in tandem with city development, residents continue to enjoy a higher quality of life. Likewise, the allocation of RM40 billion for the MRT and the commitment to complete it by 2020 will ensure that KL’s traffic is well managed together with the anticipated growth.

“Homeownership has always been a government priority, and the focus on first-time homeowners is good because in the long run, a home is also a very safe and solid investment. This is in line with raising the per capita income of the rakyat as homeownership will also allow capital appreciation for all, through easier ownership of affordable homes,” he says.

Incentives in the budget to promote homeownership include a proposed stamp duty exemption of 50% on instruments of transfer of residential properties not exceeding RM350,000 for sale and purchase agreements executed between Jan 1, 2011, and Dec 31, 2012, as well as on loan agreements. This applies to first-time purchases by Malaysian citizens.

Other schemes to promote homeownership include My First Home Scheme through Cagamas Bhd, which will help those with household income of less than RM3,000 a month. The scheme will provide a guarantee on downpayment of 10% for homes below RM220,000 and buyers will get a full loan without having to pay the 10% downpayment.

The Low-Cost Housing Financing Scheme, with an allocation of RM50 million, managed by Bank Simpanan Nasional, is open to all Malaysian permanent estate workers. It aims to help them obtain housing loans of up to RM60,000 for the purchase of low-cost houses at 4% interest rate, with a repayment period of up to 40 years.

Meanwhile, RM568 million has been set aside to build 300 units of affordable homes under the Urban Housing Aid Project, 79,000 units under the Public Housing Programme and 8,000 units under Projek Bantuan Rumah Sewa, catering for the needy and low-income group.

One of the more talked-about components of Budget 2011 must be the RM5 billion, 100-storey Warisan Merdeka landmark. Tong says it is hard to predict the project’s long-term implications given the lack of details.

At a briefing last Wednesday, Permodalan Nasional Bhd (PNB) said it expected an 8% to 10% annual return from the project, which will tentatively have a gross floor area of three million sq ft. The entire project will be internally funded, but PNB does not rule out tapping the capital markets should the cost be lower. PNB expects the project period to be as long as 10 years, although the tower is expected to be completed by 2015.

The land was acquired from Pengurusan Danaharta Nasional Bhd for RM310 million and the development area is 19 acres.

Says Tong, “The whole idea of the Greater KL Plan is as a catalyst for growth. The projects should be carried out in tandem with global economic trends. Whether or not it is a 100-storey building, how it complements development is more important.”

To illustrate his point, Tong recalls how the Petronas Twin Towers became  a subject of much debate when the plans for them were unveiled. Now, the 88-storey, US$1.6 billion towers are  synonymous with the city and command premium yields.

It all boils down to timing and execution, says Tong. “Again, when the Greater KL Plan is on track, it will see all kinds of development and demand for commercial and retail space might go up.”

‘Injecting vibrancy’
Other facets of the plan, such as the greening of the city and growing the population, are expected to alter the landscape of the city’s real estate over the next decade as well.

Tong expects the Greater KL Plan to introduce more life into the city, given its aim to almost double the population to three million from the current 1.8 million or so.

Seoul and Tokyo buzz with business activity because of their population of  around 10 million each.

“We now have 1.8 million people in KL. You see some kind of life but it’s not the kind that three million people would create,” Tong notes.

However, a fast pace of life would not go down well with those who are used to a relaxed lifestyle.
“Of course, some people feel that the city would change, but then again, you either change for the better or you die, you fade away … those who want a  sedentary lifestyle can move to the outskirts or they can move to a different town altogether,” he says.

A bigger population is also vital for another reason — to sustain efforts to transform Kuala Lumpur into a greener city, the most significant being the rejuvenation of the highly polluted Klang River.

“We do not have RM10 million to support the programme. We do not have three million people in Kuala Lumpur to support the programme ... there’s not enough quit rent assessment and whatever local taxes to support all this nice beautification from a very small population ... it’s not realistic, it’s expensive,” quips Tong, who then cites the successful 386 billion won (RM927 million) project to rehabilitate Cheonggyecheon River in Seoul, South Korea.

Education, education, education
The success of the Greater KL Plan, Tong stresses, relies on an enlarged populace. A growing population would call for increased density and greater demand for residential property, he adds.
However, several issues have plagued the local housing sector, in particular rising home prices in some areas. Property developers, as a whole, have been tarred with the same brush, no thanks to the irresponsible actions of a few, something that Tong is understandably frustrated about.

“I think the image of developers is an ongoing [challenge] for Rehda as a whole ... it is unfortunate that you have one or two bad sheep that colour the whole industry [when unscrupulous practices are] not necessarily the case.

“I think out there, if we are not in touch with what the customers want, if we are not delivering on time, you’re not going to survive. And because property purchases are such a big decision, if anyone really needs to be close to the customer and is especially close to the customer, it is the property developers who are in it for the long haul. So I guess one of the challenges or opportunities I would say is education,” he opines.

The debate of whether or not to adopt the build-then-sell concept in home development has also come into greater focus in recent times due to some projects being abandoned.

Tong has a counter suggestion — homebuyers wishing to buy ready homes, he says, should consider the secondary market. Citing statistics from the National Property Information Centre (Napic), he says as at 2Q2010, only about 3.4% of the 4.4 million homes available on the market are new. Very few new projects have been abandoned, he observes.

“It all boils down to education. Buyers have to be aware of [the risks] and must make their purchases with their eyes open as there are inherent risks in investing in new properties,” he says.
As for the rise in the prices of houses in some areas, Tong says this is due to prices and sales catching up with each other, given the dearth of transactions during the global financial crisis.

“Land prices around KLCC are around RM1,200 to RM1,400 psf, which is nowhere near their highs before the crisis,” he comments.

And if prices are a concern, should they be brought down or should income levels be raised, he asks.

“If we cut the availability of credit, that’s going to put a dampener on the market in general. If you want to make it more affordable, increase the supply, don’t cut off demand.

“The irony is, the Greater KL Plan requires us to go from 1.8 million people to three million. So, if people are talking about a bubble coming up soon, it’s going to be a bigger bubble in five years’ time.

“If you say we’re going to achieve this goal in 10 years, we will need more housing,” says Tong.
“We need more commercial space, more parks, more of everything. Now is not the time to try and slow it down. Unless somebody has already decided that it’s not going to work. But we just have to believe that it’s going to be. It’s a paradox, right?

“What we’re doing is, we’re looking at the next 6 to 12 months and worrying about the pricing. But in the scheme of 10 years, it’s not relevant; we are short of housing.”

Can it be done?
Tong concedes that there is some resistance to the Greater KL Plan for resistance’s sake and uncertainty about the future.

“We cannot help those who are staying, not literally where they are, but [want to] continue to live that lifestyle. They can, but not in the same location unless they can afford to hang on.

“As for uncertainty about the future, I guess that’s where these labs [by Pemandu] and road shows come in. All that will help paint [a clearer] picture. These do not get rid of the resistance overnight but I think what you will find over time is that people will see the results and then become believers,” he says of Pemandu’s efforts.

Tong cites the faster processing of identification documents in recent years as an example of better things to come. In Kuala Lumpur, strata titles can now be obtained in just weeks if all required information is submitted, he says.

“Whatever the outcome [of the Greater KL Plan], it requires political will. Of course, whether or not [the goals of the Greater KL Plan] can be achieved in that time frame is another question; you need people to push in that direction and political will.”

However, the nine mega projects — the development of the Rubber Research Institute of Malaysia (RRIM) and Sungai Buloh land, among others  — should not be undertaken just “for the sake of it”, he points out.

“The conditions and timing must be right ... like a science experiment. If you add the ingredients at the wrong time, it will not catalyse. Then, we’ll have to readjust our time frame,” he says.

Offer and opportunity
The Greater KL Plan is both a challenge and an opportunity. Continued dialogue between the private and public sectors is a must, Tong stresses. He cites the Harumi Island Triton Square as an example of a successful redevelopment in the heart of Tokyo that was deemed unattractive due to its baggage of social issues. The 100-acre site in the centre of Tokyo, he says, was previously home to squatters. It became the bustling residential and commercial district it is today after the landowners approached the city’s urban redevelopment authority to transform it.

Tong calls for transparency and a level playing field in ensuring the success of the plan.

Moving forward, he is optimistic about its success. “We have to be …,” he laughs.

“[Besides the MRT], there are the parks. Go out and enjoy some greenery, destress, bring your family there instead of going home, feeling stressed and wanting to strangle someone. Also, enjoy the entertainment.

“So, it’s going to be a great day in Greater KL,” he adds.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 829, Oct 25-31, 2010