This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

THE property market in 2023 fared better than in 2022 with improvement seen both in the volume and value of transactions. As in 2022, the buying and selling of development land and the demand for data centres remained positive. There was also renewed interest in investments in Johor.

“Overall, we have seen 2023 be more active than 2022, both in terms of volume and value. Additionally, whereas a considerable number of disposals in 2022 appeared driven by necessity, the deal activity in 2023 appears to be more market-driven, with major developers in particular being quite active as they look to replenish their land bank, something that has been ‘on pause’ for many since the pandemic struck in 2020,” Savills Malaysia deputy managing director and head of capital markets Nabeel Hussain tells The Edge.

“The property market is expected to continue its recovery mode for the rest of the year and into 2024, supported by sustained economic growth, better logistics infrastructure and an improving job market as well as favourable government policies and incentives. In line with the government’s commitment to being pro-business, pro-investment and pro-trade, the Ministry of Investment, Trade and Industry (Miti) and its agencies are prepared to enhance ties with investors that bring in hi-tech and quality investments to help create better paying jobs for Malaysians,” says Knight Frank Malaysia group managing director Keith Ooi.

He adds that Malaysia’s property market activity stabilised in the first half of the year, registering 184,140 transactions with a corresponding value of RM85.37 billion. Although there was a marginal decline of 2.1% in the transaction volume, the value of transactions was 1.1% higher when compared with the same period in the previous year. In 1H2022, there were 188,002 transactions valued at RM84.4 billion.

Ooi points out that notable trends in the property market in 2023 include the rise of data centre developments, with preferred locations being the Klang Valley and Johor. He elaborates that the growing emphasis on environmental, social and governance (ESG) considerations in property developments is anticipated to drive the emergence of more managed industrial parks that are not only aligned with sustainability standards but also foster a self-sustaining ecosystem while promoting synergy with the immediate and wider environment.

CBRE | WTW group managing director Tan Ka Leong describes the property market in 2023 as sturdy in terms of volume while the value of transactions has increased in line with better sentiments towards the country’s economic and property outlook. He observes that demand for development land as well as landbanking activities have continued.

The year saw notable deals in the office, hospitality and retail asset segments.

As in previous years, The Edge reached out to real estate experts for their list of top 10 property deals in 2023. Apart from Nabeel, Ooi and Tan, the other participants were Siva Shanker, CEO of real estate agency at Rahim & Co International Sdn Bhd; Adzman Shah Mohd Ariffin, CEO/chief real estate consultant at ExaStrata Solutions Sdn Bhd; and Stanley Toh, executive director at Laurelcap Sdn Bhd.

The survey only takes into account sale and purchase deals that were executed in 2023.

The sale of an office tower and four adjoining retail lots at Oxley Towers KLCC, six Giant hypermarkets and W Kuala Lumpur Hotel were the clear winners this year as the three deals were selected by all six property experts interviewed by The Edge.

In October, Singapore-based Oxley Holdings Ltd sold a Grade A office tower and four adjoining retail lots at Oxley Towers KLCC in Jalan Ampang to Alliance Bank Malaysia Bhd for RM405.84 million. The 24 floors of office suites and four adjoining retail lots on a two-storey retail podium located at Tower 3 is part of an ongoing mixed-use development. Scheduled for completion in November 2024, the office tower will serve as the bank’s new head office.

“This is a strategic move for Oxley Holdings to unlock and realise the value of the development given the weak office market sentiment. Being right next to the iconic Petronas Twin Towers, the relocation of Alliance Bank’s corporate office to Oxley Towers KLCC will improve its corporate branding,” says Siva when explaining why he listed this deal.

Nabeel views the deal as an “unexpected demand source for the office component at Oxley’s Jalan Ampang development”, pointing out that the building, which had been launched earlier as office suites, was subsequently put on hold. “[It is a] serious sign of intent from Alliance Bank, historically one of the smallest Malaysian banks but backed by significant Singaporean investment from Temasek and others, and which is now on a major expansion drive,” he says, adding that he chose this deal because it is a rare move by a bank to relocate to a prime KLCC location and not to TRX or other iconic developments.

The deal made it to Ooi’s list because it was the “largest stratified office sale of the year”, while Tan selected it saying, “The relocation of Alliance Bank’s corporate office will improve its visibility and branding, also marking the market’s demand for higher quality and green-certified buildings.”

“The transaction is significant to the office sector of the Malaysian property market as the office market is still recovering from the effects of the pandemic. It is also the single largest office tower transaction in the last few years,” says Toh.

Speaking from a yield point, Adzman explains, “The sale at Oxley Towers at RM1,247 psf (including the duplex units) came during a period of severe glut in office space supply in the city. The price reflects an average rent of between RM6 and RM7 psf at an estimated yield of 6% to 7%, which is considered good given the challenging office market.”

One kilometre from where Oxley Towers KLCC is located is the site of the five-star, 150-room W Kuala Lumpur in Jalan Ampang. In December, Tropicana Corp Bhd sold the hotel to IOI Properties Bhd for RM270 million.

“This transaction is notable as it is the first arm’s length luxury hotel transaction in over a decade and has established a new market benchmark for non-resort hotels in the process, at about RM1.8 million per key. Hopefully, with this transaction, we will start to see more activity in the premium hotel segment, which for years has seen related-party deals almost exclusively,” says Nabeel.

Similarly, Ooi chose the deal because the sale shows “renewed interest by hospitality investors” and for “being the highest value per key transacted”. Tan placed the deal on his list as it “marks the highest priced hotel transaction in Kuala Lumpur”.

Prior to this deal, the record was held by the 300-room Majestic Hotel, which was bought by YTL Hospitality REIT (real estate investment trust) for RM380 million, or RM1.267 million per room in 2017.

Toh reckons that the purchase by IOI Properties, which is in a prime location, will make for “a good portfolio for an impending REIT listing”. For Siva, the acquisition reinforces IOI Properties’ dedication to extending its presence in pivotal segments of the property market. This is in line with the company’s strategic outlook to invest in high-quality assets that provide not only financial robustness but also the prospect of additional development.

According to Tropicana, the group’s original cost of investment in W Kuala Lumpur was RM364.01 million.

Taking note of this, Adzman says, “Although W Kuala Lumpur was transacted for less than the investment amount put in by Tropicana, the price was slightly higher than the net book value [of RM265.135 million]. The sale price, which reflected RM1.8 million per room, can be regarded as the highest achieved in Kuala Lumpur in the past few years.”

The third commercial deal that emerged as a favourite of all six real estate experts interviewed was the sale of six Giant hypermarkets — five in the Klang Valley and one in Johor — by the Employees Provident Fund (EPF) to Sunway Real Estate Investment Trust for RM520 million. These comprised Giant Superstore Ulu Klang, Giant Hypermarket Bandar Kinrara, Giant Hypermarket Putra Heights, Giant Hypermarket Klang, Giant Hypermarket Subang Jaya, USJ (which ceased operations in late 2022) and Giant Hypermarket Plentong.

Commenting on the deal, Siva says, “EPF made a profit of RM46 million from this sale. The deal also strengthens the standing of Sunway REIT as the second-largest listed REIT in Malaysia, as assessed by property value.”

“It is one of the largest retail transactions and one of the largest (non-related party) REIT purchases as well in recent years,” says Nabeel, whose firm brokered the deal. He adds that the deal signified the recovery from Covid-19 gathering momentum and that it was a sign of major GLCs continuing to review and modernise their real estate investments, as it was EPF’s largest real estate disposal in Malaysia in over a decade.

“This transaction indicates the increasing interest by REITs to secure long-term master leases of investment assets,” says Ooi. As for Tan, the deal is an indication of the REIT’s renewed appetite for business expansion and positive sentiment going forward.

It is worth noting that apart from the six Giant assets sold by EPF to Sunway REIT, there were two other Giant outlets sold in 2023 — Giant Kelana Jaya to UEM Sunrise Bhd for RM155 million by EPF and Giant Setapak to Macrovalue One Sdn Bhd for RM101 million by Guardian Health and Beauty Sdn Bhd.

There were several prominent land transactions in 2023, but the deal that made it to the list of five of the six property experts was the sale of 960 acres of freehold land in Tebrau, Johor, to Scientex Lestari Sdn Bhd for RM547.65 million by S P Setia Bhd.

“This marks Scientex’s second endeavour to acquire the land, following the termination of its initial purchase due to the inability to secure a waiver for the bumiputera equity condition from EPU (the Economic Planning Unit). The acquisition of the land will significantly expand Scientex’s presence in property development in Johor,” says Siva.

“The huge investment in Johor is probably the beginning of a property revival in the south, supported by positive news and sentiments such as the Johor Bahru-Singapore Rapid Transit System (RTS) and the Johor-Singapore Special Economic Zone,” Toh remarks.

On his selection, Ooi says this is likely the largest land deal of the year and that the transaction signifies renewed interest in the Johor Bahru property market. Highlighting that the land, located along the Senai Desaru Highway, is for a mixed-use township development with 12,000 affordable homes, Tan says it is the “largest property value transacted in Johor”.

A week prior to this deal, Scientex purchased six parcels of land in Kulai from Permodalan Nasional Bhd (PNB) for RM299.8 million. Referring to both purchases by Scientex, Nabeel says, “Scientex has continued its unmatched pace of land bank acquisition with the two purchases totalling nearly three-quarters of a billion ringgit in Johor alone.” He highlights that it is “one of the earlier Johor land sales in 2023, subsequent to which we saw a marked acceleration in land transaction activity in the state”.

Over in the Klang Valley, in June, S P Setia Bhd’s subsidiary Petaling Garden Sdn Bhd sold 500 acres of development land in Glengowrie Estate, Semenyih, for RM392.04 million to Mah Sing Group Bhd to build an integrated township with a gross development value of RM3.3 billion. This deal was listed by four of the property experts.

It is worth noting that in 2016, Petaling Garden, then a subsidiary of I&P Group Sdn Bhd, bought 805 acres in Glengowrie Estate for RM428.8 million from Sime Darby Property Bhd. The land became part of S P Setia’s assets when, in 2017, it purchased I&P Group from its controlling shareholder PNB for RM3.65 billion cash.

“The proposed development will be an integrated township named Glengowrie Estate and construction will commence in 3Q2024. Demand is observed and enhanced in the growing areas outside of Kuala Lumpur city centre,” says Tan.

The deal made it to Nabeel’s top 10 list because it is “one of the multiple major land sales by S P Setia in 2023”. He observes that it is unusual for two top 10 developers to transact with each other in such a large land transaction and that the township land purchase is a departure from Mah Sing’s recent strategy of focusing more on high-rise developments.

For Toh, Mah Sing’s acquisition sparks the confidence in township developments as well as the continuous demand for landed properties as the preferred choice of domicile in the country, whereas for Ooi, the deal showed continued interest by developers to landbank for future developments.

During the year, Ajinomoto (Malaysia) Bhd disposed of 25 acres of land in Kuchai Lama to Paragon TSDI Sdn Bhd for RM408 million, or RM360 psf. This deal also received four votes. “It is a sizeable piece of prime land in Kuchai Lama, transacted at a premium above its prevailing market value. This acquisition is anticipated to bring about some urban rejuvenation to Kuchai Lama,” says Siva.

As for Tan, his reason for selecting this deal is because at RM360 psf, it is the highest transacted value in the Klang Valley this year.

Nabeel points out that it is “one of two major recent purchases by TS Law Group, evident of the increasing role played by the cash-rich private group of high-net-worth individuals”. The other purchase made by TS Law is the Embassy Garden Project from Agile Group for RM310 million. Agile Group suffered a loss of RM371.21 million from the sale.

Agile Embassy Garden was also mentioned by Siva, Tan and Ooi. Siva notes that, “With this sale, the former British High Commission land has changed hands for the third time within a span of 11 years.”

Tan liked the deal. “Despite incurring a loss on transaction, the sale is able to generate immediate cash inflow for the seller and enhance the overall liquidity of the group, enabling it to meet working capital requirements for the development of its other projects,” he says.

Meanwhile, the sale of 403.78 acres of land in Mukim Senai, Daerah Kulai, Johor, to Eco World Development Group Bhd by IOI Prima Property Sdn Bhd for RM211.07 million to develop a business park known as Eco Business Park VI was penned into the top 10 deals of Siva, Toh and Nabeel.

“This acquisition empowers Eco World to develop another business park in Iskandar Malaysia, thereby amplifying its market presence and bolstering its industrial portfolio in the region. The persistent and robust demand for industrial properties from both local and foreign investors is expected to continue, especially with the ongoing construction of the RTS Link,” Siva opines.

Apart from the news related to the RTS and the Johor-Singapore Special Economic Zone, Toh says the development of the Eco Business Park series — which is the company’s mixed-use commercial and industrial development — is a testament to the booming industrial sector in Johor, especially with a slew of investments in the data centre space.

Nabeel picked it because it was another land transaction between two top 10 developers.

Lagenda Mersing Sdn Bhd’s acquisition of 1,075 acres of land in Kulai, Johor, from PNB unit Seriemas Development Sdn Bhd for RM398 million was selected by Tan and Toh. The 70%-owned subsidiary of Lagenda Properties Bhd plans to develop the land into an affordable township with a mix of commercial components.

The sale and purchase activities of four other REIT players, apart from Sunway REIT, did not go unnoticed.

Malaysian Resources Corp Bhd sold Menara CelcomDigi in Petaling Jaya to Sentral REIT for RM450 million. Four of the six property agents/valuers liked this deal.

Nabeel describes the deal as “a successful conclusion to the long-anticipated sale of Menara Celcom, which has been on the market since 2019 but failed to attract a market purchaser as pandemic disruptions set in soon after the disposal exercise began. This also continued the recent trend of major office sales of over RM200 million being primarily to related-party investors.”

Siva believes the deal demonstrates that “fortifying the resilience of a real estate portfolio through diversification is becoming progressively crucial. This acquisition signifies Sentral REIT’s strategic approach to diversify both tenant mix and location within its portfolio”.

Ooi included the deal in his list as it is “the single largest en bloc office sale for the year”, while Adzman chose it because the RM450 million price tag for 450,000 sq ft in net lettable area (NLA) is estimated at about RM1,000 psf. “With the lease agreement with Celcom Bhd for 15 years plus the option to renew, the asset appears to be yield accretive and suitable for immediate injection into the REIT,” he adds.

Three other REIT deals caught the attention of at least two of the real estate agents, who considered them worthy to be placed on the Top 10 Property Deals 2023 list. One was the sale of Holiday Villa Beach Resort and Spa in Langkawi to Plenitude Bhd for RM145 million by Amanahraya REIT.

Commenting on this, Adzman says it was his pick because the property was acquired in 2007 for RM55 million but was sold for a RM40 million gain, or 38% above the valuation conducted in December 2022 at RM104.74 million.

The 20-storey Hotel Stripes Kuala Lumpur, Autograph Collection was purchased by YTL Hospitality REIT in a related-party transaction from a unit owned by YTL Corp Bhd for RM138 million. “This is reflective of investors’ renewed interest in hotel properties in the Kuala Lumpur city centre,” says Ooi.

The deal, which was on a sale and leaseback term of 7% per annum, was significant to Adzman because “based on 184 rooms, the rate is about RM750,000 per room, which is a good rate to achieve given the current challenging times for hotels”.

Nabeel mentions Holiday Villa and Hotel Stripes but groups the deal with Kolej Yayasan Saad Melaka, which was bought by Hektar REIT, saying that there has been increased buying and selling activity by REITs post-Covid-19, and that it is a rare REIT activity related to hotel properties. He adds that YTL Hospitality REIT continues its track record of executing purely related-party transactions.

On the Kolej Yayasan deal, Siva says it marks Hektar’s “entry into the education sector, representing a strategic diversification from its traditional focus on the retail sector. It is also an ESG initiative as the acquisition demonstrates a commitment to social responsibility through an investment in education”.

Another deal that was picked by real estate valuers Toh and Adzman was the sale of Ramsay Sime Darby Healthcare Sdn Bhd to Columbia Asia Sdn Bhd for RM5.7 billion by Sime Darby Bhd. “This is probably the largest transaction ... this year and it is my number one [pick] because of its sheer amount and also the resilience of the medical sector in Malaysia, especially during and post-Covid-19. The transaction includes the assets, that is, the properties as well as the business as a going concern. Hence, the transaction can be seen as relevant in this instance,” says Toh.

For Azman, the sale of Ramsay Sime Darby for RM5.7 billion with a gain of RM2 billion is “Malaysia’s deal of the century”. Columbia Asia Healthcare Sdn Bhd already has 13 hospitals in the country and has undoubtedly become a larger hospital operator and is presented with the opportunity of setting up a REIT in the future.

There were several interesting transactions that received a single vote. Up north in Kedah, there was the sale and leaseback of a manufacturing facility in Kulim Hi-Tech Park valued at RM2 billion between PNB, EPF and Kumpulan Wang Persaraan (Diperbadankan) (KWAP) — collectively known as co-investors — and Osram Opto Semiconductors (Malaysia) Sdn Bhd.

“This marks the inaugural collaboration of the nation’s three largest institutional fund managers in investing in real estate. This transaction is anticipated to promote foreign direct investment, enticing multinational companies to invest in Malaysia,” says Siva.

In Rawang, 245 acres of freehold land in Kuang was acquired by Sunway Rawang City Sdn Bhd and Amal Resources Sdn Bhd for RM115 million. “This Industrial Technology Park will complement the neighbouring industrial areas such as the Kuang Industrial Area and Rawang Industrial Park. This transaction benefited from its strategic location and good connectivity to the Kuala Lumpur International Airport and Port Klang,” says Tan.

In Johor, Crescendo Corp Bhd sold eight parcels of land in three separate transactions for a total of RM543.19 million to Microsoft Payments (M) Sdn Bhd. Microsoft plans to develop a data centre on the site.

Meanwhile, Tan’s list includes the sale of the 22-storey TM Semarak office building for RM72 million to Titijaya Land Bhd as part of the purchaser’s investment strategy and to facilitate the entry into the data centre business. This deal was concluded by CBRE | WTW.

TM Semarak was one of four properties under Menara ABS Bhd, a special-purpose vehicle set up in 2008 to help Telekom Malaysia Bhd raise RM1 billion through an asset securitisation structure that involved the sale and leaseback of Menara TM, TM Taman Desa, TM Cyberjaya and TM Semarak. 

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