02 September 2014

New benchmark for RRI land

  02 September 2014

PETALING JAYA: The recent purchase by Malaysian Resources Corp Bhd (MRCB) seems to be setting a new benchmark in terms of prices for the land previously owned by the Rubber Research Institute (RRI) in Sg Buloh.

The property developer is estimated to be paying about RM705 per sq ft for the 64 acres. This is based on RM418.45 per sq ft in cash over a period of 12 months and another RM286.96 over a period of 15 years on a staggered basis from its profits.

One analyst, in an Aug 15 research note, described the deal as “generous”.

On Aug 14, Kwasa Land Sdn Bhd and MRCB announced that they would set up a special-purpose vehicle (SPV) for the 64-acre commercial development known as Project MX-1. MRCB will have a 70% stake in the SPV – Kwasa Development Sdn Bhd – while Kwasa Land will hold the remainder.

Kwasa Land is a unit of the Employees Provident Fund (EPF). This is the first parcel to be carved out by Kwasa Land. C H Williams, Talhar & Wong valued the land in June at RM1.09bil, which translates into RM390.56 per sq ft.

However, MRCB is paying RM816.6mil for its 70% equity stake in the venture, thus valuing the entire 64 acres at RM1.17bil.

MRCB is to pay 10%, or RM81.6mil, as advanced payment upon the execution of the shareholders’ agreement. The balance 90% is to be paid upon the fulfilment of certain conditions within 12 months, according to Kwasa Land in a media response dated Aug 28.

Apart from this, MRCB is also giving a minimum profit guarantee of RM2bil, to be staggered over a period of 15 years.

According to the Kwasa Land media response dated Aug 28, “the profit guarantee required from the bidders was not fixed and was up to the bidders to propose”.

So, the profit guarantee from the development of the land was also critical to MRCB winning the job to develop the township of the RRI project.

According to property valuers, because the RM2bil is to be paid over a 15-year period, the time value of the money comes into question.

The RM2bil was equivalent to RM800mil in present value terms, assuming an average present value factor of 0.4, a valuer said.

At RM800mil, the 64 acres would be equivalent to RM286.96 per sq ft.

One may say that Kwasa Land, and effectively EPF contributors, are the winners here, considering that they have managed to value the land at a price of RM705.41 per sq ft. Another view is that MRCB has not lost out because it is paying only RM418 per sq ft now, and the rest over 15 years when the value will be a lot higher.

Also, to be noted is that MRCB is paying higher than the valuation of RM390.56 per sq ft tagged by C H Williams, Talhar & Wong.

By no means is the development of the Kwasa Damansara township an ordinary one. It involves a master developer, in this case the EPF, who will need to make some gains from the deal, having reportedly paid RM2.3bil for the acquired 2,330 acres, or RM22.50 per sq ft.

Whichever view or perspective one may have, the fact remains that MRCB is not paying a cheap price for the 64 acres. Having said that, such valuations will impact future parcels and its effect on the community and affordable housing.

There are high hopes that with the Mass Rapid Transit line there, there will be some quarters shown towards affordable housing.

Hopefully, this is a compulsory element within the scope of development.



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