Tracking Robert Kuok’s latest real estate venture

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WHEN “Sugar King” Robert Kuok bought 12.5 acres of seafront land in Iskandar Malaysia with Khazanah Nasional Bhd as a 30% partner in April 2013, sceptics shrugged off the deal as “national service” for his birthplace.

Experts thought the billionaire had got a good deal at RM334 psf due to the location while others saw the investment as an endorsement that could lure more smart money to Iskandar Malaysia.

More investment dollars did follow, resulting in a significant rise in the development of high-rise apartments over the past two years. But even back then, Kuok and his people, “who [in 2012] started to explore opportunities to participate in property development in the Nusajaya region”, knew the heyday of the property market was near its tail-end and tougher times would soon ensue.

“The market is soft due to the effect of cooling measures [minimum RM1 million threshold for foreign purchases] and tighter lending ... the property market is going through a consolidation phase. We expected this when we started our Puteri Harbour project.

“We knew there were going to be a lot of high-rises in Iskandar and therefore we had to be very careful about what we planned in Johor to ensure our development would be attractive when the market was not on our side — when it was a buyer’s market,” says Lim Soon Huat, managing director of PPB Group Bhd. PPB is Kuok’s Malaysian-listed conglomerate that has over 70% of its profits coming from its 18.3% stake in Singapore-listed Wilmar International Ltd and currently counts real estate as its smallest profit contributor but a core segment with good potential for growth.

It was with this sense of a probable crisis in mind — and the need to ensure its maiden high-rise project was a success — that PPB decided to take a bit more time to unveil its proposition for the seafront land in Puteri Harbour in which Kuok has a 70% stake through Kuok Brothers Sdn Bhd and PPB.

“Buyers are more selective and better-informed today. Therefore, what investors look for is value and I think we have the right value proposition. We can talk about our location, the view and private marina and our price point sets us apart from others in southern Johor,” Lim tells The Edge.

He reveals that nearly half of the 220 condos in Tower 1 in the Southern Marina mixed-use development were sold to the group’s business associates and “friends” at a private preview last October at an introductory price of RM880 psf onwards.

Tower 1 is the first of two residential towers in Phase 1 of the development with a total of 456 units and a gross development value of RM650 million. Together with two office towers and a retail podium with a net floor area of 230,000 sq ft, the entire Southern Marina’s GDV is RM1.5 billion while the gross floor area (GFA) is 2.03 million sq ft.

Unbilled sales of about RM150 million already exceed the RM84 million revenue and RM38 million profit that PPB’s property investment and development segment had booked for FY2014. As PPB’s stake is 28%, analysts only expect a low single-digit boost from the development in FY2015. Kuok’s private vehicle Kuok Brothers has a 42% effective stake in the venture while the remaining 30% is with Khazanah.

PPB, says Lim, is the project manager of the venture, dubbed Southern Marina Development Sdn Bhd. That puts it in charge of everything, from design to marketing.

It remains to be seen if the Kuok name and careful planning will be enough to ensure success in these tough times. Thanks to what looked like unbridled expansion by developers to capitalise on the slush of cheap credit seeking investments, property experts say supply is poised to remain elevated through 2017.

Adding to this is the entry of new gargantuan developers, such as China-based Country Garden Holdings Co Ltd — which stunned the market with the maiden launch of a then unheard-of 9,000 unit development in Danga Bay in late 2013 — and the likes of Hong Kong-listed R&F Properties Co Ltd with its 116-acre Princess Cove project in Tanjung Puteri — the first phase of which alone will reportedly add 3,224 units by September 2017 — and which is said to be mulling over plans for 30,000 landed homes and 300,000 apartments. Princess Cove, which is three times the size of Country Garden’s Danga Bay, is nearer to PPB’s Southern Marina development in Puteri Harbour and also boasts a seafront location.

While acknowledging the oversupply situation in Johor, Lim expresses confidence in PPB’s value proposition: “Southern Marina was our opportunity to venture into high-rises. It took us awhile because we wanted to make sure we did not make any mistake in the first project. That is why we were able to unveil our proposition in this slow market.”

Part of his confidence possibly stems from PPB’s land cost, which analysts say is lower than that of many Chinese developers. Asked about pricing power, Lim says PPB is offering the market “more realistic prices” without needing to sell lower than what it had planned to when conducting feasibility studies.

PPB is targeting owner-occupiers from Johor as well as those working in Singapore, including those who might be looking for a weekend, holiday or retirement home. The nearby Marlborough College and Raffles American School may also attract buyers.

To be sure, PPB could have been able to command higher selling prices if it had launched earlier but Lim says the current downturn will not only weed out speculators with the wrong credit profile but also presents a better environment to build a strong team. “When times are good, we don’t need to put in extra effort to sell.”

How long do Kuok’s people think the current tough times will last? “The market will never be the same again. It will not see what we saw in 2010, which on hindsight, spiked from a low base. But today, more and more groups are in property and the space has become quite crowded.”

Yet PPB reckons that it can carve out a niche for itself.

By year-end, it would be ready to share its proposition for its 3.9-acre parcel in Petaling Jaya and 4.9-acre parcel in George Town, Penang, that will each have a GFA of more than one million sq ft. “These should keep us busy for the next three to five years,” says Lim.

“Anyone with money can go into property: buy land, hire an architect or a consultant to build and try to sell. It is not difficult in that sense … What’s difficult is the ability to differentiate oneself from the others by creating real value … so, doing well in this business and sustaining [the performance] is not easy.

“As you said, PPB’s property business is not significant [but] I think with this project, we can actually position ourselves as one of the reliable and quality developers. That’s what we aspire to be rather than to grow too big in size.

“When we’ve built our reputation and track record, I think we will have proposals and opportunities from landowners who want us to be a part of their development.”

He adds that the current plan is to focus on delivering the first development well whilst being open to opportunities in Malaysia.

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This article first appeared in The Edge Malaysia Weekly, on March 23 - 29, 2015.