PETALING JAYA: Sunway Bhd
stands to benefit from the proposed move to allow the conversion of properties under a private lease scheme (PLS) to freehold in Medini, Iskandar Puteri, Johor Baru, due to its substantial landbank in the area, says Hong Leong Investment Bank (HLIB) Research.
“It was reported that Iskandar Investment Bhd (IIB) is offering buyers and developers in Medini the option to convert properties under the PLS to freehold status, with premiums of RM8 per gross floor area for undeveloped land and RM10,000 per unit for completed properties.
“Sunway benefits significantly from this development as its Medini landbank, comprising 691 acres, which is 60%-owned via a joint venture (JV) with Khazanah Nasional Bhd, is currently under PLS.
“The group has an effective remaining landbank and gross development value (GDV) of 130 acres and RM6.2bil, respectively.” HLIB Research said in a note to clients.
According to the research house, the conversion will enhance land value and GDV, as demonstrated by the 25% price difference between Sunway’s freehold Maple Residence and the PLS Sunway Aviana projects.
HLIB Research maintained its forecasts and “buy” recommendation for the company, with with an unchanged target price of RM5.75 per share.
Sunway currently holds 1,770 acres of land in Sunway City Iskandar Puteri (SCIP), divided into two key areas, one of which is the JV with Khazanah.
This land is under a PLS, with 30% of the Medini land already developed.
The remaining effective landbank stands at 130 acres, said HLIB Research.
Sunway also fully owns 1,079 acres of freehold land in Pendas.
The PLS is a property ownership structure where the landowner (lessor) leases land to a developer for a fixed tenure.
“In the case of Sunway Medini, the land is owned by IIB and leased to Sunway for an initial tenure of 99 years, with an option to extend for an additional 30 years.
“Sunway, as the developer, is the first lessee under the PLS. Once Sunway develops and sells properties, the homebuyer becomes the second lessee,” the research house said.
The PLS in Medini was initially introduced to restrict foreigners from owning properties in perpetuity.
However, several drawbacks of this scheme have emerged, according to the research house.
Firstly, since the PLS structure is the first of its kind in Malaysia, there is no established legal framework specifically governing it.
This is in contrast with the conventional freehold and leasehold land statuses, which are backed by well-defined national and state land laws.
The absence of clear legislation creates uncertainties for both developers and buyers.
Secondly, homebuyers often face difficulties in obtaining bank financing due to the lack of clarity and regulation around the PLS structure.
According to the research house, banks are hesitant to finance PLS properties, perceiving them as higher risk compared to properties with leasehold or freehold status.
Lastly, the lack of a well-developed governance framework could deter potential buyers, who may be concerned on the long-term security of ownership and the conditions for lease renewal.
HLIB Research noted that discussions on converting PLS properties to freehold in Medini began in 2020.
“The timing is ideal, aligning with the recent formalisation of the Johor-Singapore Special Economic Zone (JS-SEZ).
“As SCIP is located within the JS-SEZ, the area’s appeal to buyers is set to increase significantly,” it noted.
Additionally, the requirements for the Malaysia My Second Home programme in the JS-SEZ have been eased.
“Crucially, it mandates that properties must be purchased directly from developers, driving demand in the primary market and boosting sales for developers like Sunway,” it added.
Another positive is that Medini Iskandar stands out for having no minimum price threshold for foreign property buyers.
This is a significant advantage compared to other parts of Johor, where foreigners face a minimum threshold of RM1mil for high-rise properties and RM2mil for landed properties.
HLIB Research noted that this could be a catalyst to accelerate development in Sunway’s SCIP.
