15 Mar 2014

Magma Prima upcoming Twin Towers

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COME April, Magna Prima Bhd will take possession of its crown jewel – the 2.62 acres in Jalan Ampang, Kuala Lumpur that it bought from Lai Meng Girls’ School Association (LMGSA) four years ago.

This will pave the way for the company to build what is to be its biggest project to date – a 60-storey twin towers.

Lai Meng Primary School, which is currently still occupying that piece of prime land in the Golden Triangle of Kuala Lumpur, is expected to vacate the land by the end of the month. School officials tell StarBizWeek that they have already packed up in preparation for the school’s relocation to a new campus in Bukit Jalil during the one-week school break at the end of the month. The school will start operating from its new building when the school mid-term begins on April 1.

According to a source involved in the development of Magna Prima’s project in Jalan Ampang, the niche developer has already secured a plot ratio of 1:12 from the Kuala Lumpur City Council for its upcoming project in the city centre. This means the company can build up to 12 times the size of the land. Such information has been confirmed by several real estate consultants in the city.

Magna Prima has yet to reply to questions from StarBizWeek.

“Generally, approved plot ratios for projects in the Kuala Lumpur City Centre (KLCC) area are around eight to 10. The possible reason why Magna Prima secured a plot ratio of 12 for its project in Jalan Ampang is because of the relatively big size of the land,” Zerin Properties Sdn Bhd CEO Previndran Singhe.

Magna Prima’s land in Jalan Ampang is currently worth at least RM350mil, which is a significant appreciation from the price it paid when it acquired the land from LMGSA four years ago.

Recall, Magna Prima bought the 2.62-acre (or 114.1 million sq ft) land in Jalan Ampang from LMGSA in March 2010 for RM148.2mil cash (or around RM1,350 per sq ft). The deal also included the transfer of a 5.5-acre parcel of land in Bukit Jalil to LMGSA as well as construction of a new campus, costs of which is to be borne wholly by Magna Prima.

The Bukit Jalil land cost Magna Prima around RM10mil, while construction of the new building is estimated to have cost around RM20mil to RM30mil.

Magna Prima has previously announced its plan to build two 60-storey towers, with a combined gross development value of RM1.8bil, on its Jalan Ampang land. One of the towers is to comprise a mixture of serviced apartments, hotel and offices, while the other tower is expected to be a Grade A office building with Green Building Index elements.

The project, located adjacent to the Petronas Twin Towers, is Magna Prima’s second development in the KLCC area after the luxurious condominium project, The Avare. It is set to be the company’s largest project to date and will be financed by internally generated funds and bank borrowings.

Magna Prima has earlier stated in various reports that it intends to start construction of its Jalan Ampang project in the second quarter of 2014, and expected to complete it within five years.

However, a source says Magna Prima can only begin construction of the project one year after possession of the Jalan Ampang land.

“That is stated under the Sales and Purchase agreement that works can only begin one year after possession of the land,” the source says.

According to him, Magna Prima is expected to launch the sale of its twin-tower project’s units in the coming months, with selling prices averaging up to RM4,000 per sq ft.

Such a high price tag for properties in the KLCC area is not surprising given the premium the area commands.

The Malaysian Institute of Estate Agents president Siva Shanker, for one, has projected property prices around the KLCC area to reach RM5,000 per sq ft within the next three to five years.

According to Previn, property values in the Kuala Lumpur city centre currently start from RM1,000 to RM1,300 per sq ft for commercial units and at least RM2,500 per sq ft for residential units.

Space oversupply

The question remains whether Magna Prima’s upcoming project in Jalan Ampang will exacerbate the current oversupply of office space and residential properties in the Kuala Lumpur city centre.

“There is a substantial amount of space in the making in the years ahead. This will add to the existing supply of 110.26 million square feet, which already exhibits an overall occupancy rate of 76.37% for the Klang Valley,” Khong & Jaafar Sdn Bhd managing director Elvin Fernandez says.

He points out that according to National Property Information Centre figures for fourth quarter of 2013, there is a substantial incoming supply of office space in the Klang Valley, to the tune of 17.93 million sq ft.

This excludes “planned” space, which will come from the various projects for which development orders have yet to be secured.

“In the face of this set of numbers, new projects will undergo a high level of competition for tenants in the expanding Klang Valley and this will in turn exert further pressure on rents,” Fernandez argues, adding that a similar scenario is unfolding for serviced apartments and other commercial sub-sectors in the Klang Valley or Greater Kuala Lumpur.

An analyst, however, argues that the oversupply of properties would just be a medium-term scenario.

“Malaysia’s economy is expanding. There will be demand for various forms of properties in time to come as long as the country’s economy is on the right growth track,” he explains, adding that Magna Prima’s upcoming mixed-development project in Jalan Ampang could be a major game changer for the company.

Better times ahead?

Magna’s current market capitalisation is valued at RM340mil.

Its share price ended unchanged yesterday at RM1.02.

As at the end of 2013, Magna had RM928.5mil in total assets, including RM179.8mil land held for property development and RM53.6mil investment properties.

The company had cash and cash equivalents of RM21.8mil as at Dec 31, 2013 however its group borrowings totalled RM280.5mil as at the end of last year, compared with RM169.8mil at the end of 2012.

Despite registering lower revenue, Magna saw its net profit grow 9.5% to RM18.4mil in the financial year ended Dec 31, 2013, from RM16.8mil in the preceding year. Consequently, its earnings per share increased to 5.52 sen from 5.04 sen previously.

Last year, Magna’s revenue fell 30.8% to RM135.9mil from RM196.5mil in 2012 due to lower sales recognition.

Magna believes it will perform better financially this year on full recognition from its Seri Jalil residential project in Bandar Bukit Jalil in Kuala Lumpur.

The expected completion of its AU$210mil (RM618.4mil) residential tower project, The Istana in Melbourne, Australia, in the third quarter of this year will also help lift the group’s earnings.

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