SCEPTICS are questioning the viability of a property development project for the Malay Chamber of Commerce of Malaysia (Dewan Perniagaan Melayu Malaysia, DPMM) on a piece of land it owns in Bukit Petaling, Kuala Lumpur. The main concern is the funding for the project as DPMM is a not-for-profit entity. It is funded through membership fees, government grants and private donations.
Experts say the construction cost of the project, located close to Bukit Bintang City Centre, Merdeka PNB118 and a stone’s throw away from the Bandar Malaysia development, could reach about RM400 million.
“It is not clear why DPMM wants to monetise this land and why they want to do it now, since the property sector is very sluggish. The land is strategic, but there is no reason for DPMM to monetise the asset quickly,” says an engineer at a property development company.
Recently, DPMM placed an advertisement in local newspapers calling for a pre-qualification tender for the appointment of a turnkey contractor for the proposed mixed-use development on Lot 1287, Jalan Lapangan Terbang Lama, Seksyen 69, Kuala Lumpur.
The address suggests that the land is located close to the Bandar Malaysia development on the Kuala Lumpur airbase. On a visit to Bandar Malaysia Gallery, this writer found an area next to the site cordoned off with hoarding.
However, according to sources within the property development sector, and confirmed by a DPMM officer who requested anonymity, the land is actually where the Tupai Tupai Restaurant and Rumah Gabungan Persatuan Penulis Nasional (Gapena) are located.
“DPMM has been trying to develop the land for some time now, but it could not find a suitable partner to undertake the project ... because it is looking for a developer who can fund the project,” says a source familiar with the matter.
When the developers looked at the details of the project and the fact that it is being commissioned by DPMM, a not-for-profit organisation, many refrained from participating in the tender, says the source.
He explains that as DPMM is looking for a turnkey contractor, it could mean it is looking for a contractor that can undertake the project starting from design, engineering, construction and even financing.
But many are not convinced that DPMM can be a good paymaster, more so given the current economic situation with razor-thin construction margins. So, many property builders dare not take on the risks associated with the project, says the source.
“For any kind of construction or property development project, definitely there will be construction and commercial risks, however, this project requires the turnkey contractor to bear financing risks as well,” he says.
One of the ways DPMM could actually fund the project without going to the banks is to commit parts of it to the contractors. DPMM could commit either the office building, the hotel or the serviced apartments to the turnkey contractor in return for its funding.
However, the property market is going through a soft patch and developers are offering rebates and discounts to attract buyers. At the same time, Bank Negara Malaysia’s stringent financing guidelines mean rejection rates for home financing are high.
According to the National Property Information Centre (NAPIC), property sales in the first quarter of 2016 (1Q2016) for residential units priced above RM1 million dropped to 502 units in Kuala Lumpur, from 525 units in the same quarter last year and 672 units in the preceding quarter.
In the serviced apartments and hotel segment, NAPIC data shows a drop in sales in 1Q2016 to 411 units in Kuala Lumpur, from 426 units in 1Q2015. In the fourth quarter last year, 506 units of serviced apartments or hotels were sold in Kuala Lumpur.
Last year, an article about Rumah Gapena by a local Malay-language daily stated that in 2012, the association had been ordered to vacate the house and move into a new premises in Jalan Belfield.
Gapena is an association that strives to promote the development and sustainability of Malay literature. Besides Rumah Gapena, Restoran Tupai Tupai has been operating there for years.
According to the advertisement calling for tender, the project will consist of a convention hall and meeting rooms, auditorium, an 18-storey block for a four-star hotel with 296 rooms, a 43-storey block of serviced apartments and an eight-floor block of offices with a net floor area of 76,000 sq ft.
The project will have 782 parking bays over nine floors, including the basement and podium, and a joint lobby for the offices, convention centre, hotel and serviced apartments. The project will have a gross floor area of 910,811.25 sq ft.
A property developer tells The Edge that Dewan Bandaraya Kuala Lumpur (DBKL) has approved a plot ratio of 10 times the land area, which is quite high. Usually, projects in the vicinity are given a plot ratio of seven times.
Normally, when a project is given a high plot ratio, the developer would have to improve the connectivity of the development. It is not clear whether DPMM will build any new roads leading to the project.
Questions sent via email to a DPMM officer failed to elicit a response as at press time.
Another source who spoke to The Edge on the condition of anonymity says that DPMM wants the project to be completed within
22 months, instead of the usual 36 to 48 months. DPMM did not give the source any reasons why the project should be accelerated.
Being close to several multibillion ringgit development projects, including Malaysia’s next tallest building and the terminal for the Kuala Lumpur-Singapore high-speed rail, the land holds significant value for its owner.
However, some quarters question the viability of the project and why DPMM is developing the land when it could simply sell it to its members.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.