Corporate: Cover Story-- MRT project hot spots

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Property pundits and developers have their ear to the ground, hoping to learn where the stations along the 55km mass rapid transit line will be located. Preliminary information indicates that at least 20 listed property players, five unlisted ones and three government-linked entities will benefit as property values along the line are expected to appreciate as the project takes shape. Who are the lucky ones and where are the hot spots?

Many things may still be uncertain when it comes to the RM36.6 billion mass rapid transit (MRT) project, but one thing is for sure — the property pundits and developers are keenly following news on and speculation about station locations.
Based on preliminary information on the interim alignment of the MRT line — all 55km of it that will run from Sungai Buloh to Kajang — at least 20 listed property players have parcels of developed and undeveloped land along it that could see an appreciation in property values.
Apart from the listed players, five well-known but unlisted developers and three government-linked entities — the Employees Provident Fund (EPF), Permodalan Nasional Bhd (PNB) and 1Malaysia Development Bhd (1MDB) — are poised to enjoy the spillover effects of the rise in property values arising from the MRT cutting through their projects.
The contribution of the MRT project to gross national income (GNI) is mind-boggling, if the numbers forecast by the Performance Management & Delivery Unit (Pemandu) are anything to go by.
The MRT project, when fully completed by 2020, is estimated to contribute up to RM21 billion per annum to GNI. The increase in GNI will be from the jobs created during the construction of the MRT, increased productivity of workers and the appreciation of property values.
Pemandu estimates that some 1.2 million sq ft of commercial and residential space will enjoy appreciation in gross development value (GDV).
HwangDBS Vickers Research, in a recent report on MRT-induced property plays, says it expects land prices in key hot spots to surge 100% to 500% over the next five years, especially where potential interchange stations will be located.
It also highlights the fact that land values will be driven by higher plot ratios and wider commercial zoning under the Revised Draft KL Structure Plan (scheduled to be gazetted by 1Q2011), redevelopment projects which will result in a potential re-rating of surrounding land, and a move towards open international land tenders.
The origins of the MRT line can be traced to 2006, when Syarikat Prasarana Negara Bhd suggested a rail line from Sungai Buloh to Kajang, cutting across Kuala Lumpur to enhance the urban transport infrastructure. MMC-Gamuda Joint Venture Sdn Bhd, a tie-up between MMC Corp Bhd and Gamuda Bhd, undertook a feasibility study and came up with three lines, including a circle around Kuala Lumpur.
Interest in the project spiked last year when the government took a serious stance on improving the urban transport system.
MMC-Gamuda’s proposed three lines have been cut to one for now following recommendations by Minconsult Sdn Bhd. The three lines would have added up to 141km.
Last week, MMC-Gamuda was appointed the project delivery partner for the biggest-ever infrastructure project that the country has undertaken.
Although Pemandu’s CEO Datuk Seri Idris Jala has hinted of more MRT lines to densely populated areas such as Klang in the future, the government has decided to launch the Sungai Buloh-Kajang line by July this year.
It is understood that the only possible additional line that may be constructed in the next few years is the circle around Kuala Lumpur. It is learnt that the government is looking at giving Halcrow Group the mandate to come up with a definitive alignment for the line.

Government-linked entities the prime beneficiariesBased on preliminary plans, the Sungai Buloh-Kajang line will see 35 stations, of which four (Sg Buloh, KL Sentral, Maluri and Kajang) will be interchanges. This means these stations will be connected to existing light rail transit or railway stations.
Pemandu says the Sungai Buloh-Kajang line will tap a population of 1.22 million, with daily ridership expected to be  442,000.
The single largest beneficiary of the line is believed to be the EPF, which has the mandate to develop Rubber Research Institute Malaysia’s 3,300 acres in Sungai Buloh. At least three stations are planned in the RRIM development, at Kampung Baru Sungai Buloh, RRIM and Taman Industri Sungai Buloh.
Malaysian Resources Corp Bhd (MRCB), which is substantially owned by the EPF, is expected to benefit from the development of the RRIM land. The company has already been brought in by the EPF to give its input on drawing up a masterplan for RRIM, which gives it an advantage over other property players.
Late last year, MRCB proposed a merger with IJM Land Bhd but the deal fell through. However, it has been said that the two are still looking at possible future collaborations, which investors would do well to keep an eye on, especially after the award of the RRIM land job is announced.
Another major development that will gain substantially from the MRT is the RM26 billion KL International Financial District project, to be undertaken by government special purpose vehicle 1MDB in partnership with Abu Dhabi’s Mubadala Development.
The KLIFD development will cover 75 acres between Jalan Tun Razak, Jalan Sultan Ismail and the Putrajaya elevated highway. According to plans from 1MDB, the development will comprise office buildings, retail and entertainment outlets, residences, a business university and a park.
The MRT will run through the proposed 100-storey Menara Warisan, located near Stadium Merdeka, and will house PNB’s offices when completed. PNB has reportedly outlined plans to develop the land into a high-end residential area with a commercial component with an estimated GDV of RM3 billion.
The line will also run close to S P Setia’s recently announced land acquisition in Bangsar. The developer has a 50% interest in a JV that will be undertaking the development of 40 acres of prime Federal Hill land in Jalan Bangsar, next to KL Sentral. It had swapped 55.33 acres in Setia Alam for the land with the Ministry of Health. A new integrated health and research complex will be constructed on the Setia Alam land.

Property companies expect spillover effectOne of the issues raised by analysts has been funding for the mega-project. There has been speculation that the government may request that the developers co-fund some of the MRT stations, although this has yet to be formalised.
Be that as it may, property owners are more likely to be concerned about their investments fetching a higher selling price down the line.
Some analysts have also taken the position that local house prices are much lower than those in Singapore or Hong Kong. The ease of credit, competitive base lending rates and extended tenures also mean that investors have been buying homes despite the recently imposed 70% cap on loan-to-value ratios for those buying their third home.
Based on the interim Sungai Buloh-Kajang alignment, as released by the Land Public Transport Commission, it appears that developers north of the line have better chances of boosting the value of their land because most of the developments are greenfield or have still to be completed.Examples of such developers are Sunway City Bhd, Glomac Bhd, MK Land Holdings Bhd, Boustead Holdings Bhd and the unlisted Mitraland Group.
Sunway City appears poised to be one of the biggest beneficiaries, based on the interim alignment, as four of its developments are believed to be situated close to four proposed MRT stations — Dataran Sunway, Taman Duta, Cochrane and Taman Cuepacs. The developer has an estimated landbank of 122.7 acres in these areas.
In terms of single parcels, MK Land and Boustead Holdings appear primed to tap a proposed MRT station at The Curve.
This proposed stop is situated within Boustead’s 360-acre Mutiara Damansara township. According to a report by HwangDBS in September 2010, the conglomerate still has 10 acres of valuable undeveloped commercial land.
Nearby is the 750-acre Damansara Perdana development by MK Land, which has three projects ongoing, according to the company’s latest annual report.
Additionally, Boustead, whose major shareholder is Lembaga Tabung Angkatan Tentera (LTAT), is in the midst of finalising a government deal for 60 acres in Jalan Cochrane which is also expected to have an MRT station. HwangDBS expects Boustead to model the development after Mutiara Damansara.
Mitraland Group expects to see its Kota Damansara mixed-use development project, known as The Cascades, benefit from an MRT station located about 750m from the site, its chairman Datuk Johan Ariffin told The Edge’s City & Country pullout earlier this year.
Mitraland is also in the midst of developing C180 at Batu 11 in South Cheras, which sits on 18 acres of land. Launched in April 2009, it is expected to be a mixed-use development with the group’s maiden hospitality venture, the All Seasons Hotel.
This development is likely to be located close to the Bandar Tun Hussein Onn MRT station, of which the primary beneficiary is expected to be UDA Holdings Bhd. Spanning 752 acres, the township is the largest housing development in Cheras Selatan. According to reports last year, 24% of the area is still undeveloped.
Further south and towards the end of the interim alignment is Gamuda’s 366-acre Jade Hills township development, which is estimated to be about 2km or 3km away from the proposed station, a company official tells The Edge.
According to the company’s website, the project has an estimated GDV of RM1.5 billion and should be completed by 2016.
With so many property counters standing a chance of realising some upside from the proposed MRT alignment, it is fair to say that the greater Klang Valley/Kuala Lumpur area appears poised for a major re-rating.
The question is, when will the finalised alignment be made known and will steps be taken to curb speculative activity and land transactions, especially in the hot spots? More importantly, if the government is to follow the Hong Kong MRT model, it will reserve all the land at the hot spots for the owner of the MRT line — Prasarana.
This is because development in the hot spots will not be sold but leased out as a source of providing recurring income to help Prasarana run the operations. Is this happening?

This article appeared in Corporate page of The Edge Malaysia, Issue 844, Feb 7-13, 2011