City&Country: Property a ‘natural progression’ for Loh & Loh

Loh & Loh Corp Bhd’s brand name has been synonymous with the construction industry. People familiar with the company would recall the builder’s involvement in civil engineering jobs, especially water-related infrastructure such as treatment plants and dams in Malaysia.

But given the cyclical nature of the construction sector, property development has emerged as a crucial component of Loh & Loh’s business model since 2005. This is in line with the company’s intention to rely less on its construction income.

Five years down the road, the debt-free boutique and niche developer, armed with a substantial cash pile, has come a long way.

altLoh & Loh’s managing director Jason Loh says the developer is indeed in expansion mode and that it has lined up RM360 million worth of property launches this year which  will contribute some 30% to the company’s net profit. “Property is a natural progression,” he tells City & Country.

Loh & Loh’s property launches comprise two projects in the Klang Valley — the RM240 million Idaman Hills in Selayang, Selangor, and The Peak, a RM120 million development in Bandar Sri Damansara, Kuala Lumpur.

These projects follow the developer’s maiden effort — RiverView Kemensah in the Taman Melawati enclave in Kuala Lumpur.

RiverView Kemensah is a RM120 million luxury residential project comprising 78 units of 3-storey semi-detached homes and nine 3-storey bungalows on a 13.44-acre freehold tract near Jalan Taman Melawati. Houses within the completed gated and guarded low-density project have average prices of RM1.8 million. It was reported that 90% of the homes were taken up even before the launch of the show unit in 2008.

Idaman Hills to be unveiled in July

altIdaman Hills comprises 180 residential units, including semidees and bungalows, on a 34-acre freehold tract on Jalan Taman Bidara in Selayang. Notable landmarks in the vicinity include the Gombak police headquarters and the Selayang hospital.

The developer will launch 62 bungalows and 38 semidees in the first phase and another 80 bungalows in the second phase. According to the company’s website, the 2 and 2½-storey semidees come in two designs while the 2½ and 3-storey bungalows come in four designs.

Loh says the semidees, priced from RM837,000, have built-ups of 2,395 to 2,725 sq ft on a 2,450 sq ft (35 sq ft x 70 sq ft) tract. The bungalows, going for at least RM1.29 million, will have built-ups of 3,065 to 4,266 sq ft on 3,700 sq ft (50 sq ft x 74 sq ft) of land.

The semidees come with five bedrooms while the bungalows have seven. “Almost all the bedrooms have a bathroom,” Loh says.

Idaman Hills, which will be launched in July this year, is targeted at people who live and work in Selayang. The project is expected to be completed in 2H2012.

According to filings with Bursa Malaysia, Loh & Loh acquired the land from Perbadanan Nasional Bhd for RM35.3 million in April 2007. The developer has indicated that it intends to capitalise on the scarcity of freehold houses in the Selayang area where existing residents are ready to upgrade to larger homes.

The Peak to be launched in 3Q2010
The Peak comprises 79 residential units — 68 semidees, five bungalows and six zero lots on an 8.5-acre freehold tract. The site, which is on elevated ground, is accessible via Jalan Persiaran Meranti through Jalan Persiaran Perdana and is linked to other areas of Kuala Lumpur via the Middle Ring Road 2 and Lebuhraya Damansara Puchong.

Loh declines to disclose the prices for these “upscale” units that come with marble flooring, only indicating that the semidees have built-ups of 2,800 to 4,200 sq ft on 2,400 sq ft (32 sq ft x 75 sq ft) of land.

While he reveals that the semidees come in three designs and have six bedrooms, he would not disclose the built-ups and land areas of the bungalows and zero lots. “This concept [of The Peak] provides a lot of open space,” is all he would say.

Construction of The Peak is expected to begin this month and completion is expected within three years. The project will be launched in 3Q2010.

Loh & Loh acquired the Bandar Sri Damansara tract from Bina Goodyear Bhd for RM27 million in May 2009, according to filings with Bursa.

The way forward
While property development will continue to gain significance for Loh & Loh, its construction unit will continue to be its main revenue earner.

Loh says the developer is scouting for more pocket-sized land with fast turnaround potential in the Klang Valley to undertake more upmarket boutique projects with thematic concepts.

“We are not a township developer,” says Loh, who declines to specify how many undeveloped tracts the company has, only indicating that the company’s sites have been fully paid for.

Loh & Loh’s latest annual report shows that the company owns a 31-acre vacant freehold land in Seremban, Negeri Sembilan. The site has a net book value (NBV) of RM10.13 million. It also owns a 16-acre vacant industrial tract in Batang Padang, Perak, which has an NBV of RM3.82 million.

For now, the developer has no plans to establish a portfolio of investment properties or undertake real estate projects abroad.

Construction revenue made up 85.8% of the company’s top line of RM250.57 million for FY2009 ended Dec 31 while property development made up 18.2%, according to notes accompanying the company’s quarterly financials.

During the year, construction income accounted for 73.9% of pretax profit while property development was 28.5%. The company had a cash pile of RM55.16 million as at December last year.

Loh & Loh made the news in 2008 when UBG Bhd initiated a takeover offer to acquire the remaining shares it did not own in Loh & Loh. At the close of the offer in September that year, UBG had secured 85.23% of the company’s issued and paid-up share capital.

UBG intends to maintain the listing status of Loh & Loh. Thus, it will initiate measures to ensure that the public shareholding spread of Loh & Loh complies with the listing requirements of Bursa.

At a glance, Loh & Loh’s current focus on upmarket properties seems strategic because  luxury real estate tends to be resilient in the face of interest rate hikes in a recovering economy.

UBG’s link to the Middle Eastern construction market is also worth noting because this offers Loh & Loh an opportunity to expand its development operations abroad. But considering the cyclical nature of both the construction and real estate sectors, it will be pivotal for Loh & Loh to establish and expand its recurring income base to ensure earnings stability.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 808, May 31-June 6, 2010

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