BY M. SHANMUGAM
WHILE the attention has been on Bandar Malaysia and the Ministry of Finance Inc (MoF) calling off an agreement with the master developer, a much bigger property development project in Malaysia took off quietly.
The Malaysia Vision Valley (MVV), a project that is being carried out by the tripartite joint venture (JV) of Sime Darby Property Bhd, Retirement Fund Inc or KWAP and the Brunsfield group, spanning an area of 379,000 acres, got off the ground.
The development is two times the size of Singapore. It stretches from the mountains near Nilai right up to the shoreline of Port Dickson.
The promoters have lined up a series of international names, hoping that these companies would house their operations within the MVV, which will have connectivity to the high-speed rail.
The JV hired a master planner to come up with the details of the entire development, leaving the JV partners to execute the plan and extract maximum value from the land.
MVV wants big foreign names to house their operations in the area, as well as help build a community near the work place. The objective is not to see the emergence of ghost towns within the MVV.
Interestingly, the consortium driving MVV obviously did not see the need for a foreign party to be part of the JV.
MVV is not the only project that does not have any foreign partner as part of the master developer.
Kwasa Land Sdn Bhd, which is the master developer of the entire 2,330 acres in Sungai Buloh, is also driving the development all by itself.
Owned by the Employees Provident Fund, Kwasa Land has so far sold a chunk of land for the development of the area around the mass rapid transit station.
What Kwasa Land probably wants to do is to slowly unlock value on the land that borders the Tropicana golf course and has good connectivity.
The MVV project is also going to be implemented in similar fashion. The promoters are not planning any major land sale. It is a project that will be done over 30 years and is expected to draw in investments worth RM300bil.
Property development is no rocket science. It is all about buying and realising value from the land. It is all about having the ability to hold on to properties as the value of the land increases.
The biggest cost in any development is the land itself, followed by the infrastructure. To reduce the cost of holding the land, developers tend to quickly develop it. The faster they turn around the land, the fatter the margins are.
However, if the land cost is negligible, then developers need not rush. That is why traditional plantation companies are natural candidates to become property developers. The IOI and Kuala Lumpur Kepong groups are some traditional plantation companies with a sizeable property development arm.
The MVV where Sime Darby is a 50% partner comprises mainly land that was previously planted and is now ripe for property development.
In this respect, the MoF is also the owner of many prime parcels of land that are in its books at historical values that are a fraction of the market price today. It has the ability to hold on and extract maximum value from the land slowly. The 486-acre Bandar Malaysia is one such parcel.
In 2015, when the land was under 1Malaysia Development Bhd (1MDB), there was a competitive tender to appoint a master developer, which was won eventually by a JV between Iskandar Waterfront Holdings Sdn Bhd and China Railway Engineering Corp (M) Sdn Bhd (IWH-CREC).
At that time, there was an urgent need to monetise the land because of 1MDB’s financial problems. Now, the deal with IWH-CREC has been aborted and the MoF has taken over the assets.
The MoF has stated that it would be inviting expressions of interest for the role of master developer for Bandar Malaysia with full ownership being preserved by the ministry.
On the face of it, it would appear that the MoF does not plan to sell any part of the company that holds the land in Bandar Malaysia. Hopefully, that is the case.
Land is a finite resource. It’s not a commodity that can be replenished, especially in urban areas.
One need not look far to see how governments extract maximum value from land sales, and how it can be done in a transparent manner.
Just go to the website of Singapore’s Urban Redevelopment Authority (URA) to see how the government has been disposing of land and premises with old buildings for redevelopment.
It is a transparent process up to the point that every tender exercise even states the number of bidders and their price.
In every tender exercise, the description of the buildings required and the gross floor area that can be built on the land are clearly stated. From this data, prospective developers are able to derive the plot ratio and how much value they want to pay for the development.
The URA website even provides details on historic tender processes as to who paid how much and when for the right to develop the real estate.
One reason often given for foreign participation in large land transactions is that they are able to pull in big names to ensure the success of large-scale developments. But that is a fallacy.
The big Middle East names came to Iskandar Malaysia in Johor and failed to deliver.
The government does not need foreign partners to develop large chunks of land such as Bandar Malaysia. It needs to pay good money for a master development plan that drills right down to specifics.
For then on, it is a matter of getting the best price for those interested, including foreigners. It’s a tedious process, but certainly allows for much higher value to be extracted compared to getting a foreign partner in as a master developer.
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