Thursday, November 23, 2017

Why are 1MDB-related projects given special exemptions despite Cabinet blanket ban on luxury property projects above RM1 million in unit values?

Last week, Dato’ Seri Johari Abdul Ghani announced the Cabinet decision on a “temporary ban” approvals for shopping complexes, offices, serviced apartments and luxury condominiums priced over RM1 million effective November 1.

The freeze came after Bank Negara’s report on the substantial supply and demand imbalance within the country’s property market. The report found that new property launches were skewed towards the high-end sector of the market.

Particularly in the Klang Valley, the report found that office vacancy rates had increased from 20.9% in Q1 2015 to 23.6% in Q1 2017. The situation is only set to get worse as there is an incoming supply of 38 million square feet of office space.

It has also been confirmed in various news reports that the Kuala Lumpur City Hall (DBKL) has received the above directive.

However, we are not sure if we should be shocked that the Mayor, Tan Sri Mohd Amin Nordin Abd Aziz announced yesterday that the prospective single largest high-end property development project ever in Malaysia – Bandar Malaysia is exempted from the ban.

Malaysiakini reported that although the Kuala Lumpur City Hall (DBKL) had yet to receive any application regarding the project, Mohd Amin said the freeze on approvals for condominiums, serviced apartments, offices and shopping complexes priced at RM1 million and above is not a blanket ban.

“We haven’t received any application from Bandar Malaysia. No, because it is not a blanket (ban). On certain developments, it can be approved,” he told Malaysiakini.

At the same time, it was announced yesterday that IJM would be building a new RM500 million office tower at Tun Razak Exchange after acquiring TRX City subsidiary Fairview Valley Sdn Bhd. Will this new tower, which will have a gross floor area of 560,000 square feet also be exempted from the ban?

Due to the size of these 1MDB-related projects, they will certainly exacerbate the property over-supply situation in the Klang Valley and effectively blunt the effectiveness of the Cabinet decision to ban high-end development projects.

More critically, if the 486 acres Bandar Malaysia and the 70 acres Tun Razak Exchange projects receive automatic exemptions from the ban – how is that fair to the rest of the property development industry in the country?

Clearly the “temporary ban” is a hare-brained which will fail to actually solve the “supply-demand imbalances” in our property sector. Worse, the investment and business community will only see the inconsistency and unfair policies imposed by the Government.  Can they be blamed if both the domestic and foreign investors take their money and invest in other countries?
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