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When it’s tight, price is high

Nice title yeah. I thought so too. Okay, we know land prices in Batu Kawan, Penang is now RM60 psf instead of the single digit years ago before the Second Bridge was built. We also know that prices in certain prime areas can reach RM88 psf in Shah Alam easily. (Shah Alam Damansara Heights)  What about land prices in an area all of us are familiar with. What about Bukit Bintang? RM1,000 psf? RM2,000 psf? Well for a piece of very prime land, it can be up to RM3,280 psf.  The transaction was recent, Tropicana Corporation sold eight parcels of land in Bukit Bintang to Offshore Triangle for RM448.4 million. Total land size was 1.3 hectares. That’s about 140,000sf. Yes, it’s a very small piece of land. That’s why the price is much higher compared to larger pieces of land.

With this small piece of land, Offshore Triangle will develop the 1.3ha land into a mixed-use commercial project with a gross development value (GDV) of about RM1 billion. In other words, the price of land itself is already 45% of the overall cost! This does not really give a high gross return and the company must manage its costs well because the margin is not high. The company is a 30:70 joint venture between Tropicana and Agile Property Holdings Ltd, a Hong Kong-listed builder with hotels and commercial properties in China.

landDo not worry, this is not the usual land price. If it is, I dare not imagine the total prices that we would have to pay to buy a roof over our heads. Selectively, some of the recent land transactions in Iskandar includes the following in the chart. These prices are always much higher than even prices that you pay for a piece of land in the island of Penang. However, if everything falls into place for Iskandar, these prices would still enable the developers to have sufficient profits to continue developing. The reason being, it’s right next to Singapore. Hopefully, the cordial relationship today between Malaysia and Singapore grow stronger as time passes.

Written on 15 May 2014

Next suggested article:  Cost of Land increasing vs GDV

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kopiandproperty.com

kopiandproperty.com is everything about property related writings and news. Enjoy reading with a latte.

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