OSK: Look for mid-to-high-end niche developers in Johor

OSK: Look for mid-to-high-end niche developers in Johor

IF the Iskandar Development Region (IDR) “really kicks off” as it should and at the anticipated time, most property developers in the IDR will benefit, said OSK Investment Bank research analyst Mervin Chow.

This, he said, was based on the assumption that the IDR would result in urban migration and wealth creation, which would see the people upgrading from their old addresses to higher-end properties.

“Increased foreign buying interests, especially after the recent scrapping of real property gains tax (RPGT) and the removal of requirements to purchase houses above RM250,000, will also boost IDR potential,” he said.

Chow, however, cautioned that these were “bold assumptions.”

Houses built by KSL in the Taman Nusa Printis III township in Johor Baru.
“Owing to the glut in other areas, many developers have ventured into south Johor and are building as many residential properties as possible, banking on the fact that the development of the IDR will pick up pace in the next four to five years,” he noted.

Because the current population was unable to absorb the growth in residential property supply, this had created a massive overhang situation in south Johor, especially for low to middle-end residential properties, Chow said.

“However, I believe that the current overhang situation may be short-lived as long as the Government continues to provide sufficient catalysts and support to hasten the development of the IDR,” he said.

Then again, given such high risk and fear that the IDR may not pick up in “that sort of momentum” as expected, Chow advises investors to look for property companies with focus on middle-to-higher end properties with niche attributes in Johor.

One of OSK’s picks is UM Land Bhd. All of the company’s land bank is located within the IDR. Its undeveloped land bank totals about 2,102 acres.

The company’s two major projects are the two townships of Seri Alam and Seri Austin, which are located within the IDR region.

Plenitude Bhd’s Taman Desa Tebrau project is also another development to look out for.

Chow said the existence of stores such as Jusco and Tesco and the upcoming monorail (connecting Aeon Tebrau and Johor Baru) made the township a “very sensible commercial location”, hence enabling it to demand a slight premium and above average take-ups vis-à-vis its competitors.

The RM1.9bil development, sitting on 965.7 acres and located 14km away from Johor Baru, had enjoyed a strong 86% take-up rate for its launches so far, Chow said.

Another low-profile player on OSK’S list is Crescendo Corp Bhd. This company has undeveloped land bank of 3,300 acres in Johor and 60% of it is located within the IDR.

The company is venturing more into industrial property development instead of just purely relying on developing affordable homes, thus differentiating itself from most of the other developers in Johor.

The prime earnings catalyst would be industrial developments in its Nusa Cemerlang Industrial Park in Bandar Nusajaya, Chow said.

Another of his picks is Johor Land Bhd, which is currently one of the largest landlords in Johor with total undeveloped land bank of 3,044 acres and a gross development value balance of over RM6.6bil.

“For other developers, especially those with focus on developing affordable or low-cost homes and which are without proper niche target markets, I believe may continue to be plagued by the overhang situation in Johor, especially in the medium term,” Chow said.

At the end of the day, property capital appreciation still boils down to the simple supply and demand mechanism,” he said.

“There have been reports that land prices in Johor could soar to more than 10 times their current market prices.

“It may happen but if the land and property prices soar and diverge away from the economic fundamentals due to high speculative elements, the sector may risk entering into a bubble,” he said.

Chow believes that only developers, which are able to carve themselves a niche in an extremely competitive environment in south Johor and able to unlock the value of their land banks, would be able to thrive.

Standard & Poor's said in a report that it continued to like KLS Holdings Bhd for its high operating margins, high quality projects, attractive gross dividend yield of around 6% and sound management.

“Further upside to our earnings estimates and target price will stem from the proposed plans to revive the Southern Johor Economic Region, of which KSL may be a potential beneficiary with most of its land bank in Johor,” it said.

KSL has submitted plans to the authorities to build a hotel-cum-shopping mall along Jalan Dato' Sulaiman, on a site that it acquired in early 2006.

“KSL aims to capitalise on the attraction of neighbouring Singa- pore's Integrated Resorts (IRs) when they open in 2010, offering Malay- sians a cheaper accommodation alternative while they commute across the causeway to visit the IRs,” Standard & Poor's added.