Friday, February 17, 2012

Bayan Mutiara - A Thorn in Dap's Flesh

Several Penang based analysts and leaders of Barisan Nasional have questioned the Penang government for selling 41.5ha plot of prime state land to a private developer (Ivory Properties Group Berhad) for RM1.07bil. 


A few of their concerns:


1) The land may be sold below the market value. Apparently, Ivory has been given 5 years to settle the full payment.
2) No transparent open tender was carried out and the sale was done via direct negotiation between the state government and Ivory. 
3) Would the sale benefit the people. Why can't the development project be taken up by PDC?



A number of Dap leaders including its publicity chief Tony Pua also joined in the fray to defend Lim. Tony tweeted; “It (the sale of land) was via open tender, sold 20% above reserve price, which was higher than the land office evaluation, apa lagi u nak (what more do you want)?’’ Pua asked Khairy.

According to Chief Minister Lim Guan Eng, has banked in an initial payment of RM20 million to PDC, with the balance to be settled in five years.


Based on this income, Lim recently handed over a cheque for RM500 million to PDC to carry out the development of affordable housing in Batu Kawan, where a ground-breaking ceremony for the construction of 12,000 houses was held today. Bulk of the payment came from the state's coffer and not from the sale proceed of Bayan Mutiara land parcel.

Teng Hock Nan, who is state Gerakan chief, said the state owned many parcels of land and could provide a "check-and-balance" in cases where the cost of private land and property escalated.


"The PDC should take up the responsibility to develop the piece of land in Bayan Mutiara," he said.


Despite the explanation given by both Lim and Pua, the controversial sale of Bayan Mutiara land parcel is set to become a thorn in Dap's flesh.


Why?


1) Why was Ivory Properties Group Berhad been given a 5-year repayment period? It gives an impression that the company may not have secured full financial backing to pay for the purchase. Is the state going to be benefit from any interest rate revenue during the duration? It was rightly pointed out by Teng that the land value is set to increase during the period. Land bank is scarce on the island. Is the state government entitled to the share of the higher valuation over the next five years?


It is fair to say that Ivory's financial position and its ability to raise enough funds for the purchase is a point of contention and worry. 


2) Ivory is set to bring another partner into the project, Dijaya Berhad. Ivory, like other developers, may also divide up the land and sell the lots to other developers at a higher premium. Lim has noted that the size of land does determine its market value. The smaller the size the more expensive per sq ft. By selling parts and parcels of the land is expected to rake in good profit for the private developer and further driving up property prices in Penang. Is there any arrangement between the government and Ivory to disallow any sub-sales?


3) The state government appears to be in a hurry. The government had wanted to use the sale proceed from Bayan Mutiara land parcel to finance its low cost housing scheme in Batu Kawan. The low cost housing project is much appreciated and welcomed. However, the financing method and the manner Bayan Mutiara land is being sold to finance the housing project is still subject to a rigorous debate.


MP Tony Pua should take note that it is not about selling above the current market value. The state government is expected to select the best option which protects the interest of the people.


4) Teng is not wrong to suggest that PDC could have taken up the development project on its own. I have told a few Dap leaders that it would have given the state more control over the development of the land if such control has been maintained at the PDC level. Afterall, the agency was instrumental in many housing and industrial projects in Penang. It has the necessary experience and ability to raise funds to ensure the smooth running of the project.


What guarantee does the state have to ensure the disposal of the land to Ivory is not going to inflate prices at the Bayan Mutiara area? How is it going to balance between commercial interest and public interest?


Chief Minister Lim Guan Eng has described allegations of wrongdoing over the tender award for the Bayan Mutiara mixed development project by the Penang Development Corporation (PDC) as “a pack of lies”.


Some of the criticisms are valid. There are no pack of lies in the feedback from Anil Netto, Teng Hock Nan and others questioning the mechanism and purpose behind the sale.


What stops the state from raising RM500 million to fund the low cost housing scheme since Lim had responded by saying that the state coffer has enough fund?


Shouldn't more thoughts be given prior to the sale of Bayan Mutiara land to Ivory?


Ownership of land is very crucial to the state government to drive the state's economy. We do not want a repeat of the past where high premium reclaimed land parcels were sold to private developers who raked in billions in profit. 


Dap should not merely depend on its popularity to rough through the tide and discontent over the Bayan Mutiara sale. It should provide a legitimate and detailed explanation over the decision. It is  a government elected by the people, for the people.

4 comments:

Anonymous said...

Lim Guan Eng should walk the talk.By not doing so would like be like teaching her wife(to be polite)how to suck eggs.

art said...

I find most of your articles very enlightening but can’t agree with you on some of the points raised here.

On your first point, it is fair to ask whether interest for delayed payments was built into the selling price. The state should use discount future payments to present value to confirm that they received a good price in PV terms. Also important for state to ensure future payments are secured. But no one has a crystal ball to insist that property prices will continue to appreciate in the medium term. Fair market value is what the market believes it is worth inclusive of expectation for appreciation. Just like share prices. If we believe a company is going to double its profits next year, the expected improvement in earnings will already be factored into today’s prices by the market itself. One bidder may pay more than another because he has a better development plan and a more positive reading of the future market. Which is why a high participation open tender is important to ensure the best price. But a buyer would not want to share future increase in valuation with seller, unless seller is also willing to share future decrease in valuation should the property market go bust?

On your second point, if big parcel sells for $90 per sq ft and small parcel sells for $100, but seller gets offer of $110 for big parcel, which even exceeds market price of small parcel, what should seller do? It is a no-brainer that the sells big parcel rather than incur the cost and hassle of selling smaller lots for less revenue in total. And if a bidder dis more than others because he has a higher value plan for the land, why should we clip his wings by insisting he cannot do this or that (other than things going against public interest). Restricting the buyer from pursuing valid value-creating ideas would only result in a lose-lose rather than win-win proposition.

I agree the state has to look at the best option judged against established decision criteria and based on logical assumptions. Such decisions can be subjective with pros and cons both ways, and we can only demand that good professional judgment has been exercised. More importantly, we should be happy if the state has acted with integrity and accountability doing what it believed was in the best interest of all. There are bound to be critics with different ideas, which is fine, but such debate should not be bundled together with unproven charges on lack of accountability or transparency.

Anonymous said...

cant beat UMNO during the days of Gerakan rule.

how much did the state govt get by allowing IJM and E&O reclaim vast tracts of seafront lands? why dont these people do some research before criticising LGE for getting more than 1b for the state albeit payment is in 5 years?

afterall, its an open tender. aint much better than negotiation promulgated by UMNO? btw, how did UMNO award the RM7b highway concession for 60 years to a group that gave >10,000 abandoned houses to selangor? mind you, thats 60 years which is more than 2 generations. There was not even an open tender!

Anonymous said...

If you are bn people what lge do is wrong but dap people everything is right.