Affin’s TRX land deal a “steep” price to pay

PETALING JAYA: Affin Bank Bhd's RM255 million land deal at Tun Razak Exchange, (TRX) the highest transacted price at TRX thus far, was a steep price to pay considering previous deals, experts say.
"Based on prevailing market conditions, namely the oversupply of offices in the KLCC area, the deal is on the high side," VPC Alliance (Malaysia) Sdn Bhd managing director James Wong told SunBiz yesterday.
According to him, the highest transacted price in the Golden Triangle was paid by the Pavilion group for a plot of land in Bukit Bintang, next to Pavilion KL shopping mall. The half-acre (29,127 sq ft) land was sold at a record price of RM7,209 per square foot (psf) back in 2010.
However, Wong qualified that that particular acquisition was for a specific purpose. The Pavilion group is currently developing a luxury residential project named Pavilion Suites on the plot of land and the project will be directly linked to Pavilion KL and Fahrenheit 88.
He said the RM255 million or RM4,699 psf price is still much higher when compared with other commercial land deals in the Jalan Ampang and KLCC areas that were transacted around the RM3,000 to RM3,500 psf range.
"In the Lai Meng School area, the owners want to sell the land and are inviting offers. Their asking price is RM3,500 psf and it is within walking distance to KLCC too," said Wong.
Within TRX itself, both Lembaga Tabung Haji (LTH) and Indonesia's Mulia Group purchased bigger plots of land than Affin Bank at considerably lower prices.
"The acquisition price is on the high side given that on a psf basis, it is priced at RM4,699 versus recent transactions namely Malaysian Resources Corp Bhd's acquisition of German Embassy land at RM3,182 psf in April, LTH's acquisition of land in TRX for RM2,780 psf in May and Mulia Group's acquisition of land in TRX for RM4,490 psf in May," said Hong Leong Investment Bank (HLIB) Research analyst Low Yee Huap.
In its announcement, Affin Bank quoted a price tag of RM309.67 psf based on the total gross floor area (GFA) of the office tower it intends to build on the land, which is 823,439 sq ft, instead of the land size (54,266 sq ft), which is the norm in land deals.
"When compared with price per GFA, RM309.67 is also higher than LTH's transaction of RM264.94 albeit the LTH land has a lower plot ratio of 10.47 times," Low said in a research note yesterday.
Low opined that even though the financial impact of the deal is limited, the high acquisition price could raise concerns among investors, especially amid prevailing low investor sentiment.
Affin Bank on Monday had said that the transacted price of the land is a 2.3% discount to its market value as appraised by an independent valuer.
"We engaged CH Williams Talhar & Wong as they would have an independent and professional view based on their experience in the industry," a spokesperson of Affin Bank said when contacted via email. CH Williams Talhar & Wong valued the land at RM261 million.
The firm when contacted was unable to provide further details of the valuation due to a non-disclosure agreement with Affin Bank. Affin Bank did not directly respond to queries on the valuation.
The spokesperson, however, did say that the land purchased by Affin Bank has a high plot ratio of 15.2 times, which reflects the potential to generate higher value as it could build more GFA.
"The investment cost should not be measured only for the purchase of the land, but how much space or floor area that we can build on that piece of land," she said.
Affin Bank has committed to building a 35-storey commercial building on the site.
"The bank would like to reiterate that we decided on this plot of land as it is strategically located in the Financial Quarter of TRX, which is expected to enjoy unrivaled connectivity to Greater Kuala Lumpur and beyond, with the TRX MRT interchange station on site and direct links to Kuala Lumpur arterial roads and major highways.
"As explained by our managing director/CEO yesterday, Affin Bank's plot is one of the most visible plots when entering or exiting the city via Jalan Tun Razak and the MEX Highway Connection from KLIA. When completed, AFFIN's brand will be prominently displayed and be visible from these main roads and highway," she said.
She also said that negotiations started as early as 2012 and took some time to conclude as the bank had to consider and evaluate all options available for an investment of this nature and size, to ensure that the acquisition meets its requirements at the right price.