This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

THE status of Shenzen-based property developer Vanke Co Ltd’s project on Jalan Raja Chulan near the Kuala Lumpur Tower has piqued the interest of market observers over the past few weeks.

Industry observers are keen to know when and if Vanke’s local unit, Vanke Holdings (Malaysia) Sdn Bhd (Vanke), will launch the project on the site that it acquired six years ago following news that another top China-based and Hong Kong Stock Exchange (HKSE)-listed property developer Agile Group Holdings Ltd had sold its yet-to-be-completed Embassy Garden project in Ampang, Kuala Lumpur, at a substantial loss.

Their concerns are justified given that over the past couple of years, two Chinese property giants — China Evergrande Group and Country Garden Holdings Co — have slipped into serious financial problems.

“The concern is that the ongoing housing/debt crisis in China has had an indirect impact on projects in Malaysia and as such, dragged down sentiment in the property sector as a whole. We hope that Agile Group’s sale of the project in Taman U-Thant is an isolated case and will not cause a domino effect in the months to come,” real estate agent and property valuer Stanley Toh of LaurelCap Sdn Bhd tells The Edge.

Three weeks ago, Agile Group announced that its local outfit Agile Property Development Sdn Bhd had sold Agile Embassy Garden to Law Developments Sdn Bhd — a TS Law Group company — for RM310 million, suffering a loss of RM371.21 million.

Sources say Vanke is mulling over what it should do with the land. A source tells The Edge that Vanke had earlier this year planned to launch its project but adds that plans may have changed as the developer is now “exploring alternative options”. The Edge is given to understand that the options could include going back to the drawing board and planning a project suitable for the current market, bringing on a potential joint-venture partner or even a possible sale of the land.

Vanke had bought the 7.4-acre parcel in September 2017 through a tender called by the liquidators of the owner, City Centre Sdn Bhd. The purchase price was reportedly RM500 million or RM1,600 psf. In early 2019, Vanke announced plans to launch a RM5 billion mixed-use development on the site during the year. However, there has been no progress since then, possibly partly due to the outbreak of the Covid-19 pandemic.

When contacted for an update on the project and comments on whether indeed it was looking at alternative options for the land, Vanke tells The Edge, “Vanke is still operating well in Malaysia and waiting for the property market in Kuala Lumpur to rebound, for a better launching (timing) in the near future.”

Commenting on the response, Toh says, “I think Vanke has made a wise move in this instance as the property market within the city centre is still grappling with an oversupply. Coupled with the rising interest rate scenario, the property market for high-rise apartments in the city centre remains challenging.”

In fact, Agile Group, in its announcement to the HKSE, cited “prevailing market conditions and the increasingly challenging operating environment of the property industry in Malaysia” as reasons for the sale.

Toh believes the domestic property market will experience some sort of recovery when there is more positive newsflow or sentiment on the economy, regional geopolitics or Malaysia’s fiscal policies.

“There’s been a general trend among PRC (People’s Republic of China) developers towards reducing investment and financial obligations overseas as many are now facing significant financial and regulatory issues in China,” says Savills Malaysia deputy managing director Nabeel Hussain when asked for his comments.

“Agile Group’s recent sale of its Jalan Ampang project is not a huge surprise. As for the economics of the deal, what’s been reported so far is rather brief and may not fully reflect the basis for the transaction. I don’t think one should assume that Agile’s decision to sell necessarily means that Vanke will do the same,” he adds.

On when he expects to see a turnaround in the property market in Kuala Lumpur, Nabeel says, “It’s difficult to say without knowing the details of what the developers are proposing to build. Transactional activity has picked up since last year in certain segments of the high-rise residential market as corroborated by recent NAPIC (National Property Information Centre) data that show a continued reduction in the overhang.

“Leading developers such as Mah Sing (Group Bhd), Sime Darby (Property Bhd) and Exsim have decided to tailor their current offerings to the demand segments that are most in favour,” Nabeel points out.

Evergrande has become the world’s most indebted property developer due to the unprecedented liquidity crisis in China’s property sector while Country Garden has posted record losses and defaulted on its entire offshore debt. At the same time, analysts are turning bearish on Agile Group’s performance outlook. In contrast, Vanke Co’s performance is rosier.

In November, Vanke Co reported US$14.3 billion in cash and cash equivalents for its third quarter, which is sufficient to pay off its short-term debt 2.2 times over. It also said it will ensure the payment of domestic and overseas debts as scheduled and that it has full confidence and sufficient funds and tools to help it face extreme conditions.

As for the sale by Agile Group, it is worth noting that this is the third time the former British High Commission land has changed hands in 11 years.

The UK government had received the land in exchange for Carcosa Seri Negara, the former residence of the British High Commissioner. In late 2012, the UK government sold the 120,319 sq ft parcel to S P Setia Bhd for RM295 million. Six years later, S P Setia sold it to Agile Property for RM449.2 million. Agile Property is 70:30 held by Agile Real Estate Development (M) Sdn Bhd and bumiputera partner Duta Hicon Sdn Bhd, whose sole shareholder is Ferdaus Mahmood. Duta Hicon acted as a nominee on behalf of and for the benefit of Agile Real Estate.

Agile Group said the sale at RM310 million would generate immediate cash inflow for the group and in turn improve its liquidity and facilitate its working capital requirements for the development of other property projects as well as streamline its existing business structure and operations.

Upon the completion of the disposal of the project to Law Developments, Agile Group said it will record an estimated loss of RM371.21 million based on the difference between the consideration receivable by the group and the fair value of Agile Property. Agile Group’s investment and capital in the project was RM768 million while the net liability value as at Oct 31, 2023, was RM126.93 million. 

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