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Monday, May 15, 2017

Here’s how gov’t can make RM90b from Bandar Malaysia

A QUESTION OF BUSINESS | No, that figure is not preposterous as we will show. Our estimate (see table) is that if the government parcels out the land and sells it, the revenue could amount to as much RM105 billion. Deduct the costs as enumerated, and you have a potential profit of as high as RM96 billion!
Even if there are other contingency costs of RM6 billion, we can still make RM90 billion. We explain below how we arrived at the RM105 billion figure for land sales and our various overall cost assumptions.
Of course, you won’t get that day after tomorrow such as you get RM7.41 billion in cash if you sold a 60 percent stake in Bandar Malaysia, valuing the entire land at RM12.35 billion as originally planned. But if you waited even 10 years before completing all sales, it would still be very worth it.
This sale of the 426-acre Bandar Malaysia to the 60:40 consortium owned by Lim Kang Hoo’s Iskandar Waterfront Holdings and the China Railway Group was aborted. This is owned by TRX City whose ownership has been transferred from 1MDB to the Minister of Finance Inc. Since 1MDB is itself wholly owned by MOF Inc, it is merely a right-to-left-hand transfer.
So, let us tell the government how it should have gone about developing the land and realising maximum value for it while retaining all elements of planning and control.
First, the land should have been transferred to a government-owned corporation which has expertise in doing such plans, for example, Khazanah Nasional Bhd, instead of a dubious company like 1MDB whose intentions were not properly stated and which engaged in numerous nefarious and shady practices.
Give this company a broad mandate to come up with a master plan for the development and proposals to sell the land after that. The first step is to then come up with a viable master plan for the entire 426 acres - including stations and facilities for it to become a transport hub.
For this, an international open tender should be invited, and one picked based on initial proposals. Since this is a master plan, it would be based on fixed costs - the cost of services provided. Thus, we think RM300 million will be more than enough for that.
The master plan basically divides the land up for residential purposes (probably high-end condominiums), offices and commercial property such as shopping complexes. As plot ratios (proportion of land to developed area) will tend to be high, the land price per square feet can be astronomical, especially for such a prime development in a prime area.
Once the master plan is finalised, the other costs will be for providing infrastructure and others which we generously but arbitrarily estimate at RM6 billion. It can’t be much higher because 426 acres is actually less than one square mile (640 acres). The cost of relocation of the RMAF air base has been reported at RM2.7 billion. And that’s as far as it goes in terms of major costs - a total of RM9 billion (RM300 million + RM6 billion + RM2.7 billion).
Now comes the difficult part - what price do we put on land sales? We have to remember that this will be prime land and we are assuming it will be sold over 10 years. It is most likely to include super-high-end living, office spaces and shops.
Back-of-envelope calculation
Land prices transacted include about RM7,200 per sq ft for the Pavilion shopping complex land in Kuala Lumpur way back in 2010, RM4,700 for land at the Tun Razak Exchange and other transactions for as high as RM3,500 per sq ft more recently, according to a report.
Let us arbitrarily assume current land valuation to be about RM5,000 a sq ft, which will double to RM10,000 a sq ft in 10 years. That gives an average land price of about RM7,500 per sq ft - remember we are doing a back-of-envelope calculation here.
Bandar Malaysia comprises 426 acres or 18.6 million sq ft, rounded off to one decimal place. And let’s say only 75% is saleable - or 14 million sq ft. Multiply that by RM7,500 and we get land sales revenue of a massive RM105 billion and a profit of RM96 billion or an average of RM9.6 billion a year over 10 years!
Don’t agree with our average land price figure? Okay, let’s half that to RM3,750 per sq ft - RM2,500 per sq ft initially rising to RM5,000 per sq ft at the end of 10 years. Land sales revenue reduces to RM52.5 billion but the profit is still a massive RM43.5 billion (RM52.5 billion - RM9 billion), enough to cover that hole in 1MDB!
Compare that to the scenario where TRX City sells the land at RM12.35 billion now. Deduct the RM2.7 billion for relocating the RMAF air base, and you have a one-time profit of RM9.65 billion, far inferior to our proposal which can potentially give RM96 billion over 10 years but quite possibly at least RM43.5 billion.
The profit that TRX City, wholly owned by all of us Malaysians, gives up, could be as high as between RM34 billion and RM86 billion.
There you have it, our plan to make over RM90 billion from Bandar Malaysia in a little over 1,000 words.
Why does the government want to sell this land at the highest price it can get now? The answer is 1MDB and further nefarious efforts at siphoning off profit from the government - from us in other words. Here’s what 1MDB president Arul Kanda Kandasamy said following the signing ceremony for the now aborted deal on Dec 31, 2015.
“The book value for the land is RM4.2bil. So we are now selling at a valuation of RM12.35bil.”
That means 1MDB could have booked a profit on the deal of RM8.15 billion (RM12.35 billion - RM4.2 billion) which would ameliorate the losses it has made elsewhere when its long-delayed annual audited accounts are released. The gain will cover up the losses.
In addition, it gets a cash injection of RM7.41 billion which would go some way towards reducing more immediate debt obligations and interest payments.
That RM4.2 billion in the books is already a revalued figure as 1MDB only paid RM400 million for the land which it bought from the government, giving it a gain of RM3.8 billion which was used to paper over previous losses it had made.
And so, to continue to support the troubled 1MDB, the government shows its willingness to give up billions of ringgit of its own assets so that the crime that 1MDB is remains hidden as much as possible from public view.
Further - and this is really galling - even after the massive losses which could amount to over RM40 billion, the government is forgoing profit opportunities which could amount to between RM34 billion and RM86 billion as we have shown.

P GUNASEGARAM says we would have been a developed country in every respect a long time ago if our government had been clean, efficient and trustworthy, or bersih, cekap dan amanah. E-mail: t.p.guna@gmail.com- Mkini

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