As part of its diversification plan, SKH had entered into the following arrangements:

Transcription

1 SKH CONSORTIUM BERHAD ( SKH OR THE COMPANY ) PROPOSED DIVERSIFICATION OF THE EXISTING BUSINESS OF SKH AND ITS SUBSIDIARIES ( GROUP ) TO INCLUDE PROPERTY DEVELOPMENT AND PROPERTY INVESTMENT ( PROPOSED DIVERSIFICATION ) 1. INTRODUCTION On behalf of the Board of Directors of SKH ( Board ), TA Securities Holdings Berhad ( TA Securities ) wishes to announce that the Company proposes to undertake the Proposed Diversification. 2. PROPOSED DIVERSIFICATION SKH is an investment holding company and the Group is principally involved in the trading of information technology ( IT ) and information and communication technology ( ICT ) related products (e.g. hardware, software and accessories), as an electronic commerce provider and facilitator, provision of software development and support services, and property construction and its related business. Currently, the Group derives most of its revenue from its IT and ICT business. Considering the increasingly competitive market in the ICT industry in which the Group operates, the Group is constantly looking for business opportunities to have additional income streams and diversify to prevent over-reliance on one single industry. In this regard, the Group intends to diversify into property development and property investment segments. Proposed diversification into property development segment As part of its diversification plan, SKH had entered into the following arrangements: (i) on 26 June 2018, SKH entered into a share sale agreement ( SSA ) with Smart Wisdom Sdn Bhd to acquire 80,000 ordinary shares in Kepayang Heights Sdn Bhd ( KHSB ) (which represents 80% of the issued share capital in KHSB), for a total cash consideration of RM13,600,000 ( Proposed Acquisition of KHSB ). The Proposed Acquisition of KHSB provides an opportunity for SKH to accumulate land bank for future property development projects as KHSB owns a piece of land in Bentong, Pahang. Further details of Proposed Acquisition of KHSB are disclosed in Section 2.1 of this announcement; and (ii) on 12 July 2018, SKH entered into a SSA with Bijak Fajar Sdn Bhd ( BFSB ) and Newston Development Sdn Bhd ( NDSB ) to acquire 70 ordinary shares in Rimbun Gabungan Sdn Bhd ( RGSB ) (which represents 70% of the issued share capital in RGSB), for a total cash consideration of RM12,000,000 ( Proposed Acquisition of RGSB ). The Proposed Acquisition of RGSB provides an opportunity for SKH to acquire interest in RGSB which shall be granted with an irrevocable, unconditional and full power of attorney from Rimbun Purnama Sdn Bhd ( RPSB ) to undertake an affordable housing development project on a piece of land in Setapak, Kuala Lumpur (owned by RPSB). Further details of Proposed Acquisition of RGSB are disclosed in Section 2.2 of this announcement. (collectively referred to as the Proposed Acquisitions ) 1

2 Proposed diversification into property investment segment In addition to the 4-storey shop office located in Masai, Johor which was acquired in 2014, the Group has acquired additional properties during and after the financial year ended 31 March ( FYE ) 2018 for reasons as stated below. These properties have been classified as investment properties in the Group s financial statements. As such, SKH intends to diversify the Group s business activities into property investment with the following investment properties held by the Group as at 2 August 2018 (being the latest practicable date prior to this announcement ( LPD )): No. Location Description 1. No. 12, 12-01, & 12-03, 1 unit of 4- Jalan Permas 10/6, storey shop Bandar Baru Permas Jaya, office Masai, Johor Darul Takzim (1) Size of the property / land (square feet) ( sqf ) (Audited) Net book value as at 31 March 2018 (RM 000) Tenure of the Category Existing Monthly rental / property / land of the land use (Tenancy period) 1,679 Freehold Commercial 1,243 Rented RM3,000 (1 January 2018 to 31 December 2018) 2. No. 2, Jalan Pengacara U1/48, Temasya Industrial Park, Seksyen U1, Shah Alam, Selangor Darul Ehsan (2) 1 unit of 2-½ storey semidetached factory 7,847 Freehold Industrial 8,111 Rented RM27,000 (1 June 2018 to 28 February 2020) 3. Unit 23-01, Pangsapuri Kebun Teh, Jalan Kebun Teh 2, Pusat Perdagangan Kebun Teh, Johor Bahru, Johor Darul Takzim (3) 1 unit of apartment 7, years leasehold (expiring on 7 June 2109) Building 2,841 Vacant - 2

3 No. Location Description 4. Unit 23-02, 1 unit of Pangsapuri Kebun Teh, apartment Jalan Kebun Teh 2, Pusat Perdagangan Kebun Teh, Johor Bahru, Johor Darul Takzim (3) Size of the property / land (square feet) ( sqf ) Tenure of the property / land 5, years leasehold (expiring on 7 June 2109) (Audited) Net book value as at 31 March Category 2018 Existing Monthly rental / of the land (RM 000) use (Tenancy period) Building 2,098 Vacant - 5. B-10-3A, 4 th Floor, 3 Two Square, No. 2 Jalan 19/1, Petaling Jaya, Selangor Darul Ehsan (4) 1 unit of shop office 2, years leasehold shop office (expiring on 6 September 2106) Commercial building -* Rented RM5,800 (1 May 2018 to 30 November 2019) 6. B-10-05, 5 th Floor, 3 Two Square, No. 2 Jalan 19/1, Petaling Jaya, Selangor Darul Ehsan (4) 1 unit of shop office 2, years leasehold shop office (expiring on 6 September 2106) Commercial building -* Rented RM5,800 (1 May 2018 to 30 September 2018) 7. PT 4075, Taman Seri Timah, Seri Kembangan, Selangor Darul Ehsan (5) A piece of vacant land 1, years leasehold land (expiring on 24 August 2087) Commercial -* Vacant - 8. PT 4082, Taman Seri Timah, Seri Kembangan, Selangor Darul Ehsan (5) A piece of vacant land 1, years leasehold land (expiring on 12 February 2095) Commercial -* Vacant - [The rest of this page has been intentionally left blank] 3

4 Notes: (1) On 17 March 2014, Nuone Sdn Bhd ( Nuone ) (a wholly-owned subsidiary of SKH) entered into a sale and purchase agreement to acquire this property for a total consideration of RM1,200,000. The acquisition was completed on 16 June This property was acquired to facilitate the proposed expansion of the Group s IT and ICT business to Johor, which was subsequently deferred. On 1 October 2015, Nuone entered into a tenancy agreement to rent out this property, which expired on 31 December The tenancy was further renewed for a period of 1 year from 1 January 2018 to 31 December (2) On 8 December 2017, Open Adventure Sdn Bhd ( OA ) (a wholly-owned subsidiary of SKH) had successfully bid for this property in an auction sale for a consideration of RM8,345,592 (inclusive of goods and services tax). The acquisition was completed on 20 February This property was acquired to be used for the storage of IT and ICT products inventories prior to distribution and for assembly of IT and ICT products. Subsequently, in view of soft retail and consumer demand for IT and ICT products, the Group deferred the abovesaid expansion plan of its business and rented this property to a third party for a monthly rental of RM27,000 for the period from 1 June 2018 to 28 February (3) On 27 April 2017, SKH entered into a conditional sale and purchase agreement with Hien Seng Properties Sdn Bhd ( Hien Seng ) to acquire these 2 units of apartments, for a total consideration of RM4,800,000, by way of offsetting against the amount owed to the Group by a customer of the Group which was a creditor of Hien Seng. The transaction was completed on 1 September The Group intends to rent these apartments to external parties. (4) On 23 April 2018, OA entered into 2 sale and purchase agreements with PDA Expert Mobility Sdn Bhd ( PDA ) to acquire these 2 units of leasehold shop offices, for a cash consideration of RM930,000 for each unit. The state authority has granted its approval to transfer the legal ownership of these leasehold shop offices to OA on 17 July As at the LPD, the acquisitions are not completed pending presentation and registration of the transfer with the relevant authority. These properties were acquired for investment purposes. On 1 May 2018, OA entered into a tenancy agreement to rent out unit B-10-3A and a novation agreement with PDA whereby PDA novate the existing tenancy for unit B to OA, respectively. The tenancy agreement and the novation agreement will expire on 30 November 2019 and 30 September 2018, respectively. (5) On 23 April 2018, Super Kian Holdings Sdn Bhd ( Super Kian ) (a wholly-owned subsidiary of SKH) entered into 2 sale and purchase agreements to acquire these 2 plots of leasehold land, for a total cash consideration of RM95,000 for each plot. The state authority has granted its approval to transfer the legal ownership of these land to Super Kian on 18 July As at the LPD, the acquisitions are not completed pending presentation and registration of the transfer with the relevant authority. These land are intended to be held for investment purposes. * Not applicable as these investment properties were acquired after FYE

5 Currently, Choo Peng Hung (Managing Director of SKH) is responsible to manage the investment properties including negotiating on the rental arrangements and monitoring the rental collection. Considering the prospects of property market in Malaysia, the Board anticipates that the property development and property investment segments are expected to contribute 25% or more of the net assets ( NA ) and/or 25% or more of the net profits of the Group for the FYE In regard of this, pursuant to Rule 10.13(1) of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) ( ACE Market LR ), SKH is required to obtain its shareholders approval in a general meeting for any transaction or business arrangement which might reasonably be expected to result in either: (i) (ii) the diversion of 25% or more of the NA of the listed corporation to an operation which differs widely from those operations previously carried on by the listed corporation; or the contribution from such an operation of 25% or more of the net profits of the listed corporation. Accordingly, the Board will seek the approval from the shareholders of SKH for the Proposed Diversification pursuant to Rule 10.13(1) of the ACE Market LR at an extraordinary general meeting ( EGM ) to be convened. Notwithstanding the Proposed Diversification, the Group remains committed to its existing business and will continuously endeavour to improve its business performance. 2.1 Proposed Acquisition of KHSB Currently, KHSB is the registered proprietor of the following piece of leasehold land ( Land ): Location : H.S.(D) PT No , Mukim and District of Bentong, State of Pahang Land area : 78,900 square meters ( sqm ) (approximately 849,273 sqf / 19.5 acres) Tenure of Land : 99-year leasehold, expiring on 10 June 2107 Category of Land use : Building Registered owner : KHSB Express condition : Tanah ini hendaklah digunakan untuk bangunanbangunan kediaman sahaja (sementara sebelum pecah sempadan). Restriction in interest : Tanah ini tidak boleh dipindahmilik, dipajak atau digadai melainkan setelah mendapat kebenaran bertulis daripada Pihak Berkuasa Negeri. Encumbrances : Nil Market value (1) : RM15,500,000 Existing and proposed use of the Land : The Land is currently vacant and will be held for the purpose of future development projects. 5

6 Note: (1) Based on the land valuation conducted on 28 May 2018 by Raine & Horne International Zaki + Partners Sdn Bhd ( Raine & Horne ), an independent valuer appointed by SKH, on the basis that the Land is converted and approved for commercial use with statutory premium duly paid. For the purpose of the valuation of the Land, Raine & Horne has adopted the comparison approach. Under the comparison approach, the value of the Land is determined by comparing and adopting as a yardstick recent transactions and sale evidences involving other similar property in the vicinity and due considerations are given for such factors including location, plot size, improvements made (if any), surrounding developments, facilities and amenities available. The Land is sited within a locality known as Kampung Bukit Tinggi, Bentong which is located approximately 30 kilometres ( km ) to the south-west of Bentong town centre and off the southern side of Kuala Lumpur-Karak Highway (a highway linking Bukit Tinggi developments with Bentong and Raub town centre). The properties within the immediate vicinity of the Land are residential and commercial; including individually designed detached houses, kampong type of houses as well as double storey terraced shophouses. There are primary and secondary schools as well as police station located approximately 1 to 3.5 km from the Land. Notable residential settlements in the vicinity includes Kampung Janda Baik, Kampung Cheringin Tengah and Kampung Chemperuh. The Group has commenced a feasibility study on a proposed development of the Land into a mix residential project. As at the LPD, the management of SKH has not finalised any development details of the Land. The Proposed Acquisition of KHSB is expected to be completed by mid of August 2018 upon payment of the balance purchase price and the registration of transfer of shares to SKH. Further, KHSB had, on 21 March 2017, applied to Pejabat Daerah dan Tanah Bentong for alienation of 3 state lands detailed as follows: Location State land 1 State land 2 State land 3 Mukim and District of Bentong, State of Pahang Land area 1 acre (approximately 4,047 sqm / 43,560 sqf) Category of land Mixed development use (collectively referred to as the State Lands ) 1.5 acres (approximately 6,070 sqm / 65,340 sqf) 1.5 acres (approximately 6,070 sqm / 65,340 sqf) The State Lands are located separately but adjoining to the Land. As at the LPD, the authority is still in the midst of evaluating KHSB s application. If the State Lands are alienated by the relevant authority, the future development of the State Lands will complement the proposed development of the Land. [The rest of this page has been intentionally left blank] 6

7 2.2 Proposed Acquisition of RGSB On 28 December 2017, RPSB (which has common directors and shareholders with RGSB) has been awarded by Pejabat Pengarah Tanah dan Galian Wilayah Persekutuan with a piece of an alienated government leasehold land held under Lot 14086, Mukim Setapak ( Development Land ) for the purpose of an affordable housing development project ( Proposed Development Project ). As at the LPD, the Proposed Acquisition of RGSB is not completed, pending approval from the shareholders of SKH for the proposed diversification of the Group s existing business to include property development; the granting of an irrevocable, unconditional and full power of attorney to RGSB; and the submission of development order for the Proposed Development Project. The details of the Development Land are as follows: Location : Lot No , Mukim of Setapak, District of Kuala Lumpur, Wilayah Persekutuan, Kuala Lumpur Land area : 11,391 sqm (approximately 122,616 sqf / acres) Tenure Development Land of : 99-year leasehold, expiring on 19 April 2117 Category Development use of Land : Building Registered owner (1) : RPSB Express condition : Tanah ini hendaklah digunakan hanya untuk tujuan tapak rumah mampu milik sahaja. Restriction in interest : Tanah ini tidak boleh dipindahmilik, dipajak, dicagar atau digadai tanpa kebenaran Jawatankuasa Kerja Tanah Wilayah Persekutuan Kuala Lumpur. Encumbrances : Nil Market value (2) : RM24,525,000 Existing and proposed use of the Development Land : The Development Land is currently vacant and will be held for the purpose of the Proposed Development Project. Notes: (1) The document title to the Development Land was issued on 20 April (2) Based on the land valuation conducted on 25 April 2018 by KGV International Property Consultants (M) Sdn Bhd ( KGV ), an independent valuer appointed by SKH. For the purpose of the valuation of the Development Land, KGV has adopted the comparison approach. Under the comparison approach, the value of the Development Land is determined by comparing it with recent sales and/or listings of similar properties in the vicinity, or if not available, within similar localities. Adjustments are made for differences in factors such as location, physical characteristics and time element. 7

8 The details of the Proposed Development Project are as follows: Description : Proposed development of 2 blocks of apartment (affordable housing development) for a total of 840 units Type of development : Residential Estimated total gross floor area Estimated development ( GDV ) Estimated development ( GDC ) gross value gross costs Developer s estimated profit Expected commencement date : 1,139,000 sqf : RM252,000,000 : RM210,000,000 : RM42,000,000 : Within 6 months from the date of obtaining the development order for the Proposed Development Project Expected date completion : 36 calendar months from the date of commencement The development order for the Proposed Development Project is expected to be submitted by RGSB to the relevant authorities in November Upon obtaining the development order, RGSB will proceed to apply for the developer s licence, advertising, sales permit, approval of the building plan and all other approvals/permits necessary for the Proposed Development Project. The Proposed Development Project will be funded via a combination of internally generated funds, bank borrowings and/or future fund-raising exercises. The exact breakdown between the sources of fund will be determined by SKH s management at a later stage, after taking into consideration, amongst other, the internal fund requirement and/or the Group s gearing level. The estimated GDV for the Proposed Development Project was arrived at based on the following: RM 000 Total estimated selling price of the Proposed Development Project at RM300,000 per unit 252,000 [The rest of this page has been intentionally left blank] 8

9 The estimated GDC for the Proposed Development Project was arrived at based on the following: RM 000 Pre-development costs 1,220 Building works and infrastructure 150,399 Authorities contribution 15,586 Project management, marketing, professional, supervision and 32,654 finance fees Land premium 5,985 Contingencies 4,156 Total 210,000 RPSB intends to grant the irrevocable, unconditional and full power of attorney to RGSB for the purpose of the Proposed Development Project in September Key management personnel Upon obtaining its shareholders approval for the Proposed Diversification but before the commencement of the Proposed Development Project or any proposed development on the Land and/or State Lands, the Group intends to employ the following personnel who have relevant expertise and experience to spearhead the property development segment of the Group: (i) David Ng Chee Hwa David Ng Chee Hwa, aged 34, a Malaysian, is a Director of RGSB and a Director of BFSB (a shareholder of RGSB). He graduated from International American University in 2009 with a degree in Business Administration. He has amassed more than 8 years of experience in the property development segment where he has been actively involved in collaborations with architects, civil and structural engineers, mechanical and electrical engineers as well as construction teams for various property development projects as detailed below. He started his career as a business development executive in NGlobe Sdn Bhd in 2005 and led negotiation with customers on business contract terms. In 2008, he joined Eltean Incorporated Sdn Bhd as a medical product executive, responsible in negotiating and securing orders from customers as well as customer relationship management. In 2009, he joined BFSB as a Director and is responsible for business development projects including land development. On 19 October 2017, he was appointed as a Director of RGSB to manage the business of property development of RGSB. [The rest of this page has been intentionally left blank] 9

10 His past involvements in completed projects are as follows: Projects Type of development Roles and responsibilities Project duration (year) Casa Green at Bukit Jalil (also known as Bukit OUG, Kuala Lumpur) A residential project comprising: 1 block of 38-storey condominium total to 490 units of Rumah Mampu Milik Wilayah Persekutuan ( RUMAWIP ); Assists in land acquisition and conducting due diligence; Project and cashflow management; Coordinates with municipalities and other government agencies on project related matters; and GDV/ Project value (RM 000) ,000 1 block of 32-storey condominium total to 240 units of non-rumawip; and Contract management for the development project. Nidoz Residences at Desa Petaling, Kuala Lumpur 1 block of 33-storey condominium total to 250 units of non-rumawip. A residential project comprising 4 blocks of 40- storey condominium with 320 units in each block ,000 10

11 (ii) Heap Wei Guan Heap Wei Guan, aged 39, a Malaysian, is a Director of RGSB and a Director of NDSB (a shareholder of RGSB). He graduated from University Malaya in 2004 with a degree in Accountancy. He is also a Chartered Accountant and a member of Malaysian Institute of Accountant and Malaysian Institute of Certified Public Accountants. He has 10 years of experience in the property development industry. He started his career as an auditor in KPMG in 2004, whereby he was involved in audit of local and overseas public listed companies, primarily in property development and construction, hotel and timeshare industries. In 2007, he left KPMG to join Sentoria Group Berhad as Head of Finance, Purchasing and Marketing to oversee the property development, education as well as leisure and theme parks divisions. In 2012, he left Sentoria Group Berhad to set up his own company, Newston International Group Sdn Bhd and was also appointed as the Director of Ideal Heights Development Sdn Bhd. Being the Directors of Newston International Group Sdn Bhd and Ideal Heights Development Sdn Bhd, he is involved in the planning and implementation of the entire Kuantan Waterfront Resort City Project in Kuantan, Pahang. In 2015, he joined NDSB as a Director and is responsible for overall planning and setting direction for the development project undertaken by NDSB. On 19 October 2017, he was appointed as a Director of RGSB to manage the business of property development of RGSB. His present involvements in projects are as follows: Projects Type of development Roles and responsibilities Project duration (year) Kuantan Waterfront Resort City in Kuantan, Pahang On-going mixed development project covering 500 acres of development land Sets overall planning and development concept for the entire master plan; Liaises with relevant authorities to secure all approvals from government agencies; and Manages resources planning. GDV/ Project value (RM 000) ,000,000 11

12 Projects Type of development Roles and responsibilities Project duration (year) Imperium Residence (Kuantan Waterfront Resort City Phase 1) in Kuantan, Pahang On-going mixed development project involving 719 units of 2 blocks of 29-storey service apartment, 35 units of waterfront lifestyle outlets and a property gallery Oversees the execution of the project, including monitors the progress, resources planning and marketing. GDV/ Project value (RM 000) ,000 [The rest of this page has been intentionally left blank] 12

13 Concurrently, recognising the importance of key personnel towards the success of the Group in the property development segment, upon obtaining the requisite approval for the Proposed Diversification, the Group plans to hire several key personnel with relevant experience in property development as follows: Position Expected no. of persons Finance manager 1 Property development manager 1 Site / Project manager 1 Marketing manager 1 As part of the measures taken to limit the expenses to be incurred by the Group prior to the requisite approvals being obtained for the Proposed Development Project or any proposed development on the Land and/or State Lands, the recruitment of the aforesaid personnel is still in the planning stage. The Group will exercise its discretion when hiring the team of professionals and use its best endeavours to recruit the appropriate personnel who have the relevant skills, expertise and experience in the property development segment. Notwithstanding this, the exact size and structure of the team of key personnel may be subject to changes due to various factors, such as progress of the Proposed Development Project or any proposed development on the Land and/or State Lands; availability of qualified and suitable candidate as well as the potential new projects that may be secured by the Group. Assuming that the Proposed Development Project or any proposed development on the Land and/or State Lands progresses as planned (including all necessary approvals being obtained) and there is no shortage of suitable candidates, the Group is expected to finalise the arrangements for the formation of a team of key personnel within 6 months upon completion of Proposed Acquisitions. 2.4 Financial commitments and associated development costs The details of the financial commitments arising from the Proposed Acquisitions as at the LPD are as follows: Amount (RM 000) Balance of the purchase consideration for the Proposed 1,400 Acquisition of KHSB Balance of the purchase consideration for the Proposed 10,800 Acquisition of RGSB Shareholder s advance to RGSB for its working capital in 2,100 relation to the Proposed Development Project Total 14,300 Further, if the State Lands are alienated to KHSB in the future, KHSB is required to pay a land premium for the alienation of the State Lands to Pejabat Daerah dan Tanah Bentong within a period of time specified in the approval letter, in order for the State Lands to be registered under the name of KHSB. The actual quantum of land premium is subject to Pejabat Daerah dan Tanah Bentong s final assessment. SKH intends to finance the financial commitments via a combination of internally generated funds and/or bank borrowings. Save for the abovementioned, the Group does not expect to incur any other financial commitment for the Proposed Acquisitions. 13

14 In addition, at this juncture, the management of SKH is not able to determine the associated development costs for any proposed development on the Land and/or State Lands as the details of any proposed development have not been finalised. The associated development costs arising from the ordinary course of carrying out a property development business is expected to be funded via a combination of internally generated funds, bank borrowings and/or future fund-raising exercises. The exact breakdown between the sources of fund will be determined by SKH s management at a later stage, after taking into consideration, amongst other, the internal fund requirement and/or the Group s gearing level. 3. RATIONALE FOR THE PROPOSED DIVERSIFICATION Currently, the Group derives most of its revenue from its IT and ICT business. Considering the increasingly competitive market in the ICT industry in which the Group operates, the Board anticipates that the future prospects of ICT segment will continue to be challenging. Hence, the Proposed Diversification will enable the Group to diversify into new business segments which will provide additional stream of revenue and to complement with the Group s existing construction business. The Board believes that this will be part of the Group s business plan to improve its financial performance as well as its shareholders value. In addition, the Proposed Diversification will allow the Group to reduce reliance on its existing business in the IT and ICT industries as well as its construction activities. 4. INDUSTRY OUTLOOK AND PROSPECTS OF THE GROUP 4.1 Overview and outlook of Malaysian economy In 2017, the Malaysian economy recorded a robust growth of 5.9% (2016: 4.2%), supported by faster expansion in both private and public sector spending. A key highlight for the year was the rebound in gross exports growth as global demand strengthened. This was due mainly to higher demand from major trading partners following the upswing in the global technology cycle, investment expansion in the advanced economies and the turnaround in commodity prices. Altogether, the global technology upturn translated into robust demand for electronics and electrical products while the stronger regional demand and the revival in investment activity in the advanced economies lifted exports of non-electronics and nonelectrical products. Commodity exports also turned around in 2017, supported largely by the recovery in major commodity prices. While real gross domestic product growth was boosted by the external sector, domestic demand continued to anchor growth. In particular, private consumption growth strengthened to 7.0% in 2017 (2016: 6.0%), supported mainly by continued wage and employment growth, with additional impetus from government measures. Public consumption grew by 5.4% (2016: 0.9%) due to higher spending on supplies and services by the Federal Government amid sustained growth of emoluments. On the supply side, most sectors registered higher growth in The performance of the 2 largest sectors, services and manufacturing, benefited from marked improvements in domestic and external conditions, growing at 6.2% and 6.0%, respectively (2016: 5.6% and 4.4%). The construction sector recorded a moderate growth of 6.7% (2016: 7.4%), while growth in agriculture production rebounded to 7.2% (2016: -5.1%). Growth in the mining sector, however, moderated to 1.1% (2016: 2.2%), reflecting the voluntary crude oil supply adjustments by PETRONAS, in line with the Organization of the Petroleum Exporting Countries (OPEC) agreement to limit oil production until end

15 Amid the stronger global economic conditions, the Malaysian economy is projected to grow by 5.5% - 6.0% in Domestic demand will continue to be the anchor of growth, underpinned by private sector activity. Private consumption growth is expected to remain sustained, supported by continued growth in employment and income, lower inflation and improving sentiments. Private investment growth will also be sustained, underpinned by ongoing and new capital spending in both the manufacturing and services sectors, and strengthened by continued positive business sentiments. Public sector expenditure is projected to decline due to the contraction in public investment amid more moderate growth in public consumption. (Source: Annual Report 2017, Bank Negara Malaysia) The Malaysian economy expanded by 5.4% in the first quarter of 2018 (4Q 2017: 5.9%), driven by continued growth in private sector spending (5.2%; 4Q 2017: 7.4%) and strong growth in net exports (62.4%; 4Q 2017: 2.3%). On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.4% (4Q 2017: 1.0%). Domestic demand recorded a moderate growth of 4.1% (4Q 2017: 6.2%), due to lower growth of private sector expenditure (5.2%; 4Q 2017: 7.4%) and a marginal decline in public sector spending (-0.1%; 4Q 2017: +3.4%). Private consumption registered a sustained growth of 6.9% (4Q 2017: 7.0%), supported by continued strength in wage and employment growth. Public consumption growth was lower at 0.4% (4Q 2017: 6.8%) on account of lower expenditure on supplies and services. On the supply side, services and manufacturing sectors remained the key drivers of growth. In 2018, growth is projected to remain favourable, with domestic demand as the key driver of growth. The positive growth prospects are supported by continued spillovers from the external sector to domestic economic activity. Private consumption will be underpinned by continued wage and employment growth, with support from government measures. (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2018, Bank Negara Malaysia) 4.2 Overview and outlook of the property development and property investment industries in Malaysia Market activity recorded 153,729 transactions worth RM67.81 billion in the first half of 2017, down by 6.0% in volume but up by a marginal 5.0% in value against similar half of Residential sub-sector continued to dominate the market, with 61.8% contribution in volume and 48.4% in value. All sub-sectors recorded softer market volume ranging from % to -0.9%. In terms of value, all sub-sectors recorded growth except for industrial sub-sector, down by 4.2%. Development land saw its total value shot up by nearly 30.0% due to several major land dealings namely those in Bandar Malaysia and Tun Razak Exchange area, which dated in 2016 and 2015 respectively but concluded in For residential properties, there were 94,992 transactions worth RM32.85 billion recorded in the review period, declined by 7.0% in volume but value saw a marginal 0.5% increase. There were 28,397 units launched, down by 9.1% against 31,257 units in similar half year of Against the preceding half, the launches were higher by more than 32.0% (H2 2016: 21,456 units), while sales performance was low at 23.9%. The residential overhang situation has yet to pick up as the unsold units continued to grow in which there were 20,876 units worth RM12.26 billion, up by more than 40.0% in both volume and value against the preceding half. On similar trend, the unsold under construction and not constructed grew to 68,245 units and 14,776 units respectively, up by 6.5% and 27.1%. The Malaysian House Price Index continued to increase at a moderating trend. As at the second quarter of 2017, 15

16 the Malaysian House Price Index stood at points (at base year 2010), up by 5.6 % on annual basis. On quarterly movements, the index points increased marginally by 0.4% against the first quarter of For commercial properties, there were 10,375 transactions worth RM11.99 billion recorded, down by 11.0% in volume but value increased by 5.9% due to several major transactions recorded in the year involving shopping complex, purpose-built office and hotels. Market activity in most states recorded double-digit declines. The shop overhang recorded 4,017 units worth RM2.61 billion, contracted by 20.8% in volume and 8.0% in value. Similarly, the unsold under construction and not constructed contracted to 6,815 units and 233 units, down by 1.1% and 67.4% respectively. Despite the slowdown in market activity, prices of shops remained stable. (Source: Property Market Report First Half 2017, Valuation and Property Services Department, Ministry of Finance Malaysia) Growth in the construction sector moderated in the quarter. While growth of the civil engineering sub-sector was stronger, supported by the transportation, petrochemical and power plant projects, the sector s performance was affected by weaker activity in the residential and non-residential sub-sectors. This is consistent with the significant number of unsold residential properties and the ongoing weaknesses in the commercial property segment (oversupply of office spaces and shopping complexes). Yet, the oversupply situation in the office space and shopping complex segment continued to persist despite some pickup in rental rates for selected shopping complexes in choice locations. (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2018, Bank Negara Malaysia) The construction sector is projected to grow 7.5% in 2018 (2017: 7.6%), primarily supported by the ongoing civil engineering infrastructure projects. Meanwhile, the residential subsector is expected to expand further with several new planned townships by private developers. In addition, the subsector will also benefit from various affordable housing programmes by the Government such as 1Malaysia Civil Servants Housing, MyBeautiful New Home and 1Malaysia People-Friendly Houses. On the contrary, the nonresidential subsector is forecast to grow moderately following property overhang, particularly in the shops segment. (Source: Economic Report 2017/2018, Ministry of Finance Malaysia) 4.3 Overview and outlook of the property development and property investment industries in Kuala Lumpur The property market in Kuala Lumpur softened in the first half of 2017 indicated by the contraction in market activity and construction activity. The review period registered 6,826 transactions with a total value of RM14.11 billion, down by 8.4% in volume. On the other hand, total value increased substantially by 32.9% over the first half of 2016 (7,455 transactions worth RM10.35 billion) attributed to several major development land dealings that were concluded in the review period. Residential sub-sector retained its lion market share, contributed 76.1% of the total transactions followed by commercial (21.4%), development land (1.8%) and industrial (0.7%) sub-sectors. 16

17 Market activity across all sub-sectors was on a downtrend led by industrial sub-sector (- 56.4%), development land (-33.3%), commercial (-9.8%) and residential (-6.3%) subsectors. On the contrary, in terms of transactions value, development land and residential sub-sector witnessed positive growth whereas commercial and industrial sub-sector recorded otherwise. Residential sub-sector market performance eased slightly in the review period with 5,192 transactions worth RM5.04 billion, indicating a marginal decline of 6.3% in volume. Transactions value saw a positive growth of 12.1% against the first half of 2016 as the market saw higher number of transactions in the RM1.0 million and above price bracket. Condominium and apartment units continued to propel the residential market, contributed 45.6% of the total transactions. The overhang situation saw a positive trend as market gradually observed the unsold completed units. The overhang volume increased slightly to 746 units worth RM1.11 billion in the first half of 2017 against the second half of 2016 (717 units worth RM1.14 billion), up by 4.0% in volume. On the contrary value portrayed a mere drop of 2.1%. Similarly, the unsold under construction and not constructed showed a significant increase of 37.8% to 7,313 units (H2 2016: 5,307 units) and 93.4% to 6,118 units respectively (H2 2016: 3,164 units). The residential rental market showed mixed movements. Rental firmed up in prominent choice locations mainly due to tenancy renewal and rental revision. Houses especially highrise units located nearby higher learning institutions, along Light Rail Transit and Mass Rapid Transit routes also experienced rental gains. The commercial sub-sector recorded 1,459 transactions with total value of RM3.94 billion, indicating a decline of 9.8% in volume and 4.1% in value respectively as compared to the first half of Shop sub-sector recorded 214 transactions worth RM million in the first half of 2017, accounting for 14.7% of the commercial property transactions and 13.4% of the total value. Its market activity was on a similar down trend, reduced by 17.1% in volume whereas value witnessed a slight gain of 1.2%. The state was unencumbered with any shop overhang in the review period. On a better note, the numbers of unsold under construction showed a mark decline to 60 units (H2 2016: 374 units). Prices of shops were stable with increases noted in established commercial areas served with efficient road linkages. Similarly, the rental market sustained its firm performance for ground floor shops and office space across the board. (Source: Property Market Report First Half 2017, Valuation and Property Services Department, Ministry of Finance Malaysia) 4.4 Overview and outlook of the property development and property investment industries in Selangor The state s property market softened in the first half of The review period registered 29,683 transactions with a total value of RM18.96 billion, down by 7.3% in volume. Transactions value however recorded a marginal increase of 4.2% over the first half of Residential sub-sector retained its lion share of the market at 76.9%. Commercial sub-sector ranked second with 8.4% market share, followed by agriculture (7.6%), development land (4.7%) and industrial (2.4%) sub-sectors. Market activity witnessed downward movements across all sub-sectors except agriculture sub-sector. The development land sub-sector led the downtrend with 15.1% followed by commercial (-8.8%), residential (-8.1%) and industrial (-1.6%) sub-sectors. Contrarily, transactions value saw an upward trend across all subsectors except residential, down by 5.3%. 17

18 The residential sub-sector recorded 22,836 transactions worth RM10.64 billion (H1 2016: 24,839 transactions worth RM11.24 billion), indicated a decline of 8.1% in volume and 5.3% in value as compared to the first half of Terraced houses transactions dominated 43.3% (9,890 units) of the residential property transactions attributed to single storey terraces (2,717 units) and double storey terraces (7,173 units). The residential overhang recorded increasing numbers. There were 3,664 overhang units worth RM3.03 billion recorded, increase more than double in volume and value against the second half of Similarly, the unsold under construction increased to 13,664 units up by 9.7%. On a better note, the unsold not constructed declined by 2.4% to 332 units. Prices of residential property both landed and high-rise remained firm with marginal movements in selected areas. Houses located in established areas served with efficient road linkages and adjacent to higher learning institutions experienced capital appreciation. As at the second quarter of 2017, the All House Price Index for the state stood at points, up by 7.0% from points in the second quarter of The average All House Price for the state as at the second quarter of 2017 stood at RM450,812, increased from RM456,817 in the second quarter of The residential rental market was generally stable with positive movements recorded in several areas. New tenancy and strategic locations nearby commercial centres served with efficient connectivity were among the factors contributed to the rental gains. Terraced houses and high-rise units located adjacent to industrial area and hypermarket also charted good gains. The commercial sub-sector recorded 2,480 transactions with a total value of RM2.98 billion, indicating a marginal decline of 8.8% in volume though value saw a significant growth of 28.3% against the first half of Shop sub-sector recorded 981 transactions worth RM1.18 billion in the first half of The market activity shrank by 6.2% in volume and 3.2% in value respectively. The shop overhang improved as the numbers reduced to 289 overhang units worth RM million, down by 15.7% in volume and 18.4% in value (H2 2016: 343 units worth RM million). Conversely, unsold under construction increased by double digit to 1,059 units (H2 2016: 444 units). The state was unencumbered with unsold not constructed unit. In general, prices of shops were stable with exceptions recorded in several locations. In the rental segment, similar stable trend was recorded with increases charted in several established locations due to rental renewals. (Source: Property Market Report First Half 2017, Valuation and Property Services Department, Ministry of Finance Malaysia) 4.5 Overview and outlook of the property development and property investment industries in Johor The state s property market performance remained soft in the first half of 2017 as indicated by the moderation of market activity and construction sector. There were 19,111 transactions recorded worth RM9.4 billion, decreased by 7.6% in volume and 13.6% in value against the first half of 2016 (20,680 transactions worth RM10.87 billion). Residential sub-sector continued to steer the property market, capturing 63.6% of the total transactions followed by agriculture with 22.4%, commercial (7.4%), development land (4.6%), and industrial (1.9%) sub-sectors. Market activity across all sub-sectors varied in the review period. The development land, industrial and agriculture sub-sectors showed rebound, increased by 8.9%, 2.5% and 1.1% respectively. However, the residential and commercial sub-sectors decreased by 11.2% and 10.2% respectively. On a similar note, in terms of value, all sub-sectors recorded contraction with the exception commercial and industrial sub-sectors. 18

19 For residential sub-sector, the market activity shrank recorded 12,162 transactions worth RM4.08 billion, indicated a reduction of 11.2% and 5.2% in volume and value respectively as compared with the first half of The residential overhang exacerbated as more units were recorded. There were 3,803 overhang units worth RM2.59 billion in the first half of 2017, indicating an increase of 3.6% in volume and 0.9% in value. The unsold under construction and not constructed witnessed an increase of 12.4% and 5.8% to 13,238 units and 948 units against the second half of Prices of residential property remained firm with upward movements recorded in selected areas. As at the second quarter of 2017, the All House Price Index for the state stood at points, up by 7.4% from points in the second quarter of The average All House Price for the state as at the second quarter of 2017 stood at RM318,937, increased from RM297,001 in the second quarter of The residential rental market were largely stable with a few exceptions. Rentals of terrace and high-rise units in good location, adjacent to city centres and served with efficient road linkages obtained substantial increase particularly those located in Johor Bahru. Other notable increases were recorded in Batu Pahat and Segamat due to its proximity to higher learning institutions and rental revisions. The commercial sub-sector continued to soften. There were 1,421 transactions recorded worth RM1.81 billion, indicating a decline of 10.2% in volume but value showed a marginal increase of 2.4% (H1 2016: 1,583 transactions worth RM1.77 billion). Shop subsector recorded 1,075 transactions worth RM million in the first half of 2017, dominating 75.7% of the commercial property transactions. The state contributed the highest number of shops transactions in the country. As compared to the first half of 2016, the market activity declined by 5.5% whereas value grew by 16.0%. The shop overhang showed a rebound as the overhang units reduced number in the review period. There were 1,269 overhang units recorded worth RM million, down by 14.8% in volume against the second half of 2016 (1,489 units). However, the overhang value saw a substantial increase of 31.6% against the second half of 2016 (RM million). On the other hand, the unsold under construction increased by 16.1% to 1,663 units (H2 2016: 1,432 units). The unsold not constructed reduced to 12 units from 54 units in the second half of Prices of shops were generally stable with increases noted in established commercial areas served with efficient road linkages. (Source: Property Market Report First Half 2017, Valuation and Property Services Department, Ministry of Finance Malaysia) 4.6 Overview and outlook of the property development and property investment industries in Pahang The state s property market moderated in the first half of There were 7,640 transactions worth RM2.2 billion recorded in the review period, down by 10.4% in volume but value increased by a mere 3.0% against the first half of 2016 (8,528 transactions worth RM2.14 billion). Residential sub-sector retained its lion share of the market at 61.1%. Agriculture sub-sector ranked second with 27.0% market share, followed by development land (5.9%), commercial (4.9%) and industrial (1.2%) sub-sectors. Market activity in all sub-sectors was down led by commercial sub-sector which contracted 20.8%, followed by industrial (-20.0%), development land (-17.0%), agriculture (13.6%) and residential (-7.0%) sub-sectors. Transactions value witnessed mixed movements. Commercial and agriculture sub-sectors recorded growth whereas industrial and development land recorded otherwise. Meanwhile, the residential sub-sector remained unchanged. 19

20 The market activity for residential sub-sector softened with 4,666 transactions worth RM1.06 billion (H1 2016: 5,017 transactions worth RM1.06 billion). This indicated a decline of 7.0% in volume, whereas value remained unchanged against the first half of The residential overhang and unsold situation was less promising in the review period. There were 738 overhang units worth RM million recorded in the first half of 2017, increased significantly by 28.1% in volume and 72.1% in value against the second half of Likewise, the unsold under construction also recorded a mark increase to 5,107 units, up by 29.8% (H2 2016: 3,934 units). On a better note, the unsold not constructed recorded fewer at 334 units, substantially reduced by 47.2% (H2 2016: 633 units). Prices of residential property were stable with marginal movements observed particularly for single storey low-cost terrace and double storey terraced units. Prices also firmed up for houses in strategically-located schemes nearby commercial centres, shopping complexes as well as city centres. Meanwhile, prices for high-rise property were generally stable with downward movements witnessed in selected apartments. As at the second quarter of 2017, the All House Price Index for the state stood at points, up by 9.9% from points in the second quarter of The average All House Price for the state as at the second quarter of 2017 stood at RM331,869, increased from RM301,855 in the second quarter of The residential rental market was largely stable with upward movements recorded in several areas particularly for terraced houses. Rental of single storey medium cost terrace in Bera, single storey terrace in Temerloh and double storey terrace in Kuantan showed double digit growth due to new tenancy and good locations served with efficient connectivity. Similarly, rental of high-rise units was also stable with marginal movements witnessed in few locations. For commercial sub-sector, there were 374 transactions recorded in the first half of 2017 with a total value of RM million, decreased by 20.8% in volume whereas value showed a significant increase of 39.5% (H1 2016: 472 transactions worth RM million). The shop sub-sector softened in the review period with 285 transactions worth RM million in the first half of The market activity shrank by 28.4% in volume and 25.4% in value. The shop overhang and unsold situation was less encouraging in the review period. There were 335 overhang units worth RM million recorded in the first half of 2017, a mark increase of more than double in volume and more than two-fold in value against the second half of On similar note, the unsold under construction increased by 34.6% to 840 units (H2 2016: 624 units). On a better note, the unsold not constructed reduced by 41.7% to 35 units against 60 units in the second half of The prices of shops were largely stable with marginal increases recorded in Rompin District. On a similar note, rentals for ground floor shops were also stable with growth recorded in mostly in suburban prime area and suburban secondary area of Kuantan District, due to its good location and neighbourhood attractions. (Source: Property Market Report First Half 2017, Valuation and Property Services Department, Ministry of Finance Malaysia) 20