Maintain overweight: Over the past few days, it has been widely reported that the latest land deal in Kuala Lumpur’s Bukit Bintang by CDL Hotels (M) Sdn Bhd (a unit of London-based Millenium & Copthorne Hotels, 53% owned by Singaporean billionaire Kwek Leng Beng) to Urusharta Cemerlang (owns and operates the Pavilion KL Mall) was transacted at a record price of RM7,209 psf. The land is said to be the last empty lot in the prime location of Jalan Bukit Bintang. The price is more than three times higher than the latest transaction price of RM2,200 psf for a 0.65ha piece of land in Jalan Perak by Kuok Brothers and FFM Bhd last May.
The transaction price of RM7,209 psf for a piece of land measuring 29,127 sqf located at Jalan Bukit Bintang is unique, in our view. The buyer paid a premium for the value-added advantage and development potential to integrate the land with the development of Pavilion KL Mall. While the development plan for the land has not been reported, we believe the buyer has various options to utilise the land, such as: (i) enhancing the traffic access in the surrounding Pavilion mall — a cut-through between Jalan Bukit Bintang and Jalan Raja Chulan; (ii) providing linkage to Fahrenheit 88, which will also be operated by Urusharta Cemerlang; or (iii) additional parking space for Pavilion mall. Hence, the transacted value of the land at RM210 million is relatively minimal compared with the total value of Pavilion mall, which we should view as an entirety. This also means that the price of RM7,209 psf is not reflective of the market value of land in KL city centre.
Land deals in the KLCC area have picked up since end-2009, and land prices will continue to hold well due to scarcity of prime land. However, we do not think the recent land deals will be a re-rating catalyst for the highrise residences in KLCC area, whose occupancy is highly dependent on the inflow of expats, which is tied to the amount of FDIs into Malaysia.
Key risks for the property sector will continue to be: (i) a cap on lending rates imposed by Bank Negara Malaysia; (ii) higher tax bracket for real property gains tax (RPGT); and (iii) country risks.
We maintain our “overweight” stance on the property sector. Our top picks remain unchanged: IJM Land (outperform, fair value RM3), SunCity (OP, FV RM5.45) and Mah Sing (OP, FV RM2.06). — RHB Research Institute, Sept 20
This article appeared in The Edge Financial Daily, September 21, 2010.
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