KL's Policy Shift Set To benefit property sector

Source : The Business Times, July 14, 2009

MALAYSIA'S decision to scrap a key approval process for most property transactions is expected to jump-start the sector and benefit commercial and international-class properties the most, property analysts say.

Regroup Associates managing director Allan Soo expects that the sector would be more opened up since larger funds would find Malaysia more attractive following last week's announcement that the Foreign Investment Committee (FIC) would no longer process property transactions, except where it involves a dilution of bumiputra or government interests. Even then, the approval is required only if the property costs more than RM20 million (S$8.13 million).

'The most important impact is that the big funds can come in without needing to find bumiputra partners to take up a 30 per cent stake,' Mr Soo said.

Previously, owing to rules under the affirmative-action New Economic Policy, a foreign firm proposing to buy commercial property would invariably be asked to set up an entity, which had to be 30 per cent held by bumiputras.

On the odd occasion, the 12-man FIC would use its discretion and make an exception, one such example being the Four Seasons Resort Langkawi - sold by Malaysia Airlines to a company controlled by Saudi Arabia's Prince Al-Waleed bin Talal in 2007 for RM435 million.

The FIC's powers have now been pared, and guidelines on the 30 per cent bumiputra quota covering the acquisition of equity stakes, mergers and takeovers have been repealed. The government concedes that, by so doing, it had removed a major 'irritant' to investors.

Property players say this would definitely improve the perception of investibility and save time. Quill Group general manager Ng Chee Kheong said that FIC approvals took three to four weeks, but sometimes up to six weeks. Quill has a joint venture with Singapore's CapitaLand in an office Reit that is listed on the Malaysian stock exchange.

But FIC approval is still needed where transactions involve bumiputra or government-owned properties that exceed RM20 million.

Minister in the Prime Minister's Department Nor Mohamed Yakcop assured that the government would be 'reasonable and flexible' in considering applications. He said this last week when asked if the additional restriction would create a 'two-tier system' and lead to a bias against bumiputra and government-owned properties given the additional process.

In at least two states - Johor and Kedah - property consultants aver that many bumiputras themselves prefer buying real estate which does not attract any restrictions.

'Anything that has any sort of restriction will fetch less,' Quill's Mr Ng said, adding that his experience in Kedah revealed that bumiputras preferred buying non-bumi lots.

His view is echoed by Tanah Sutera Development general manager Steven Shum who has urged a review of the practice. He maintains that because properties endorsed as 'bumiputra title' in Johor have to be re-sold to other bumiputras - unless the state allows otherwise - many bumiputras do not like buying bumiputra units, the developer discount offered on such units notwithstanding.

But commercial properties might not attract the same problems. Regroup's Mr Soo observed that most buildings in Kuala Lumpur do not have bumiputra interests. Moreover, buying decisions are made on the basis of location and the quality of the building - whether it is a class-A building and let to good tenants. 'If you put the Maxis building on sale, everyone would bid for it,' he commented.

Located in the prime Kuala Lumpur city centre area, Menara Maxis is 67 per cent owned by a subsidiary of Tanjong plc - the listed power and gaming company controlled by tycoon Ananda Krishnan. But the 49-storey prime building is also 33 per cent owned by KLCC Property, which is in turn 53 per cent held by national oil company Petronas.

Petronas'a property arm also has interests in other prestigious buildings in the area: Petronas Twin Towers (51 per cent) Suria KLCC (60 per cent), Mandarin Oriental (75 per cent), Menara ExxonMobil (100 per cent) and Dayabumi (100 per cent). Dayabumi is located slightly further out.

As the 'largest commercial property owner in the super prime KLCC area', KLCC Property stands to be the prime beneficiary of last week's policy changes, said HwangDBS-Vickers analyst Yee Mei Hui.