City & Country: Hap Seng makes its mark in Klang Valley

Hap Seng Consolidated Bhd may be a relatively new property brand in Peninsular Malaysia, but the company has built more than 10,000 homes in the past two decades in Sabah, in towns such as Sandakan, Tawau, Lahad Datu and Kota Kinabalu.

In 2004, the company decided to establish a presence in Peninsular Malaysia. A hunt for opportunities culminated in the purchase of the then MUI Plaza, a 21-storey office building in Kuala Lumpur’s Golden Triangle.

After paying RM190 million for the building, which was suffering from both low occupancy and rents, the company invested another RM60 million on a major refurbishment exercise that took about a year before renaming it Menara Hap Seng.

“Being a new player in Peninsular Malaysia, establishing the Hap Seng brand was the first crucial step,” Hap Seng group managing director Datuk Edward Lee tells City & Country.

The move proved to be both strategic and profitable. Menara Hap Seng, with a net lettable area of 330,000 sq ft, is enjoying a consistent average occupancy rate of 95% with an average rental rate of RM6.50 psf, versus an average RM4 psf under the previous management. The building also bagged the International Real Estate Federation (Fiabci) Malaysian Property Award in the “Office Development” category last year.

“We feel that we have been successful in branding our company and have shown that we are a quality developer that is recognised by the industry. Buyers have confidence because they know the company,” says Lee.

Besides Menara Hap Seng, the company also owns a 50% stake in Menara Citibank in Kuala Lumpur’s Jalan Ampang. It paid RM310 million for the building in August 2009. The building has a net lettable area of about 770,000 sq ft, with an average rental rate of RM7.50 psf. The occupancy rate is currently 90%.

Then on Dec 21, 2009, Hap Seng proposed to acquire a 1.1-acre freehold tract in Jalan Tengah from Eastern & Oriental Bhd (E&O) for RM103 million (about RM215 psf). The land is adjacent to Menara Hap Seng.

On the other side of Menara Hap Seng, at the intersection of Jalan P Ramlee and Jalan Sultan Ismail, is the 31,000 sq ft Hap Seng Star Mercedes-Benz showroom. Hap Seng acquired the land on which the showroom sits in early 2005 for RM70 million.

When completed, the Jalan Tengah land acquisition means that the group will own three adjoining parcels totalling about 3.6 acres of strategically located commercial land and property in KL.
“The location of the three parcels of land alone provides appealing opportunities for Hap Seng,” says Lee.

The group intends to build another office block with food and beverage outlets on the Jalan Tengah land to complement Menara Hap Seng. Details, however, are not immediately available.

“In the future, when the time is right, we will look into redeveloping the showroom site. The 1½-storey showroom is sitting on valuable land, with its dual frontage of Jalan P Ramlee and Jalan Sultan Ismail. In the medium to longer term, if we want better returns, we should build an office building on that site,” says Lee.

Is the group moving into an aggressive mode on the Klang Valley property scene?

“We wouldn’t say that we are aggressive,” Lee responds, noting that the two recent acquisitions were made after prices had been corrected, underscoring prudence. The decisions were also based on their potential to add long-term value to Hap Seng’s property holding and development division.

Office market outlook
Lee remains positive on the office space market despite expected new supply, citing location and unique concept as key product differentiation. Menara Hap Seng, he points out, boasts amenities like F&B outlets and banking services, something not all buildings have.

Bolstered by its Menara Hap Seng success, the company is on the lookout for buildings in the city centre that it can acquire and refurbish. The offices in the city centre may suffer during a slowdown, but they will be the first to recover, Lee explains. “Outside of the city, there are many options but for businesses that need or want to be in the city centre, there is only one city centre.”

Landbank
Hap Seng is not just about Menara Hap Seng or Menara Citibank. The company’s landbank of over 3,000 acres has a total estimated gross development value of RM2 billion, RM800 million of which is in Peninsular Malaysia.

Its landbank in Sabah includes the 600-acre tract in Jesselton Hill, Kota Kinabalu, which it acquired late last year. Lee says the company is planning a very unique project for the land. Datuk Paul Ng, Hap Seng Land Sdn Bhd’s property division chief executive, chips in: “We will make this a very exciting development. We are looking at ideas from all over the world and we’ll see how we can incorporate the best of them.”

The tract has a long frontage, with the main road leading out of the Kota Kinabalu city centre. A prominent town planner has been engaged for the project, which has an estimated GDV of RM150 million. It will feature a business park as well as housing units.

“Based on the market in Sabah, we are looking to complete the whole project in five to six years. Because the population is small, we can’t expect brisk sales like what we have in D’Alpinia (see box story). In Sabah, the sales are steady but they take a longer time,” says Lee.

Also on the drawing board are plans for the 60,000 sq ft of land next to the Royal Selangor Golf Club on Jalan Tun Razak, KL, which is said to be surrounded by old oak trees of the club, and which has a good view of the golf course and the Petronas Twin Towers. “We do not have definite plans yet, but it can be developed into a nice mixed development, maybe a tower each of office and condo,” says Lee.

Then there is the 500-acre tract in Sepang, which is next to the Sepang Gold Coast, a 4,612-acre development. Lee says the company is not in a hurry as the oil palm-planted land is income generating. “It depends on how successful Sepang Gold Coast is. Besides, the longer we keep the land, the higher the value. We plan to turn it into a residential development when the time is right,” adds Lee.

Hap Seng is looking for more landbank and investment opportunities, but only locally. “We want to focus on growing our business in Malaysia because we believe in the Malaysian economy,” says Lee.

Moving ahead
Lee has a cautiously optimistic outlook for the property sector. “We are confident that the sector will likely trend positively in tandem with the global economic recovery. The low interest rate regime may be sustained in order to ensure the country pulls clear from the downturn, and this will likely bode well for the industry.”

In 2008, Hap Seng’s property division achieved revenue of RM240 million and Lee expects it to grow in 2009 and this year. The division contributes on average about 20% to group revenue, but the plan is to increase it to between 30% and 35% in the next two to three years. “We see property as one of the main drivers of our business. We are also involved in manufacturing and the trading of building materials. These are all synergies where one business will help to push another in the group,” says Lee.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 802, April 19-25, 2010