- Addressing the gap in affordable housing: The Edge Malaysia featured some updates from the inaugural Penang Property Summit 2015, which was held at the Subterranean Penang International Convention and Exhibition Centre (SPICE) from 9 to 11 January. According to figures obtained from Penang Institute, the net migration into Penang averages over 10,000 p.a., driven by movement from other states and extended life spans. By extension, the number of households is set to increase by another 220k from 2010 to 610k by 2030. By then, the low-income group would require 90k units, with another 140k for the middle-income group.

To meet rising demand for affordable housing, the Penang government has set aside ~RM500mil for the construction of 22,545 units of low-cost (LC), low-medium cost (LMC) as well as affordable homes. The private sector has also submitted planning permissions for another 9,858 units on the island. Under this scheme, prices on Penang Island range from RM200k to RM400k (unit size: 750sf to 900sf), and between RM150k to RM250k on the mainland.

According to the state government's first-time homebuyer eligibility rules, applicants for LC and LMC must have joint household incomes of between RM2,500 and RM6k for units costing between RM42,500 and RM200k respectively. For affordable housing costing up to RM400k, the income ceiling is RM10k. Since this scheme was introduced in December 2013, some 200k application forms were snapped up with 5,000 applications approved thus far.

- Higher development charges to kick-start infrastructure projects: Some developers at the conference have offered some suggestions to improve the state government's affordable housing initiatives (e.g. increase density, loan subsidies, and location-based adjustments). Likewise, property prices in Penang are unlikely to come off in the coming years as development cost is rising. For instance, infrastructure development charges for residential projects (>15 acres) have tripled to RM15psf since 2012 (commercial: RM21psf), while rezoning fees have doubled to 50%. The Penang government has however asserted that the increased charges are rechanneled to new infrastructure and the state's upcoming RM27bil Penang Transport Master Plan (PTMP).

- Seberang Prai is catching up: The disparity in the cost of development and land conversion rates between mainland and Penang Island is widening. Development charges on the mainland is RM3psf vs. RM15psf on the island; rezoning fee is 12.5% vs. 50% on the island, and RM5psf/plot ratio for the mainland (island: RM21psf). Given this scenario, more developers are turning their attention towards Seberang Prai. Out of mainland Penang’s total size of 751.8 sq km, some 26% of land is still available for development until 2020. Interestingly, we understand that traffic-oriented development concepts are prioritised in setting the density requirements for future projects.

Several catalytic developments are coming up, notably the proposed Aspen Vision City (a JV between Aspen Group and Ikano Pte Ltd). Over at Butterworth, MRCB is spearheading the development of the RM2.7bil Penang Sentral Transport Hub. Another boost will come from the RM30mil Think City Sdn Bhd’s (a unit of Khazanah Nasional) urban regeneration plans that include Butterworth.

- E&O and Gamuda remain our top picks for Penang exposure: Despite near-term headwinds, we expect the PTMP to underscore the next property up-cycle in Penang. From our recent checks, the number of candidates vying for the PTMP’s Project Delivery Partner (PDP) has narrowed to ~15 from over 50 originally. Also, the scope of the PDP could be revised to ~RM17bil (from ~RM20mil originally, excluding the RM6.3bil Penang Undersea and road bypass projects that were already awarded to the Zenith-BUCG JV). Tender submissions for the request for proposals are likely to close next month with the award within six months. Given its tunneling expertise and track record as the PDP for the Klang Valley MRT 1 & 2 lines (in a JV with MMC), we favour Gamuda as a leading candidate for the PDP role.

Eastern & Oriental’s (E&O) appeal lies with its highly-coveted Sri Tanjung Pinang 2 (STP2), where reclamation rights have been pre-approved. The Penang government is entitled to 110 acres of reclaimed land (STP2 – 60 acres net; 50 acres in Gurney Drive). The state government also has a 21% stake in STP2, which is a crucial source of funding for the PTMP. The award of the reclamation tender for STP2 is expected by March 2015 (open tender to be called this month). Other key beneficiaries for exposure to Penang’s property market are IJM Land, Mah Sing Group, Titijaya Land, Sunway and MRCB.

Source: AmeSecurities