WITH the number of unsold properties in Johor still high, several land acquisitions announced over the past month have drawn interest and may be an indication that it is not all doom and gloom in the southern state.

During the third quarter of the year, property developers were still clearing existing stocks, particularly high-rises, in the state. Johor property consultants estimate that there are 34,000 unsold high-rise units there.

So, why are Eco World Development Group Bhd, Ekovest Bhd and Paragon Globe Bhd acquiring land in Johor if the market has not yet picked up?

“It depends on the strategy of the company. For EcoWorld, the land that it is acquiring is just next to its first township in Johor — Eco Botanic. Many of its townships are left with small parcels, so it makes sense for the company to acquire the land,” says a Johor-based property developer.

To recap, on Nov 21, Ekovest announced that its subsidiary, Timur Terang Sdn Bhd, had entered into a conditional sales and purchase agreement (SPA) with Iskandar Waterfront Holdings Sdn Bhd (IWH) to acquire parcels measuring 36.81ha in Danga Bay for a total of RM1.05 billion.

Then, on Dec 5, Paragon Globe announced that its subsidiary, Paragon Globe Properties Sdn Bhd, had entered into a conditional SPA with Iskandar Capital Sdn Bhd to acquire freehold land measuring 31.1 acres near Edu­City in Iskandar Puteri for RM60.96 million, or RM45 per sq ft.

On Dec 16, EcoWorld announced that its subsidiary, Melia Spring Sdn Bhd, had entered into a conditional SPA with River Retreat Sdn Bhd for the acquisition of 200 acres of freehold land in Iskandar Puteri for RM304.92 million or RM35 psf.

In the announcement of its acquisition, Paragon Globe says it is in line with the group’s strategy to diversify into the property development sector. The group says it intends to develop the land into a commercial area.

Note that Paragon Globe was formerly Goh Ban Huat Bhd (GBH), a distributor of sanitaryware. In 2017, its then largest shareholder Tan Sri Robert Tan Hua Choon sold his 51% stake in GBH to Paragon Adventure Sdn Bhd at RM1.40 per share.

Paragon Adventure is owned by Datuk Seri Edwin Tan and Datuk Seri Godwin Tan, who are well known in Johor’s property development sector through Joland Group, founded by their father Datuk Tan Eng Boon.

Hence, the recent acquisition is a normal expansion of the group’s property business.

However, Johor still has the highest commercial property overhang in the country, with as much as 15,000 units unsold as at the second quarter of the year, making up 58.7% of the overhang in the country, according to data by the National Property Information Centre.

So, it is not clear what strategies the Tan brothers will deploy for Paragon Globe’s commercial development in Iskandar Puteri, although the land’s proximity to EduCity could be a unique selling point for the project.

Meanwhile, EcoWorld’s land acquisition will see the group developing properties targeted at the middle 40% income group, says its president and CEO Datuk Chang Kim Wah in a statement to The Edge last Thursday.

The structure of the deal is interesting in that EcoWorld must pay 20% of the profit after tax (PAT) from the development of the land to Permodalan Darul Ta’zim (PDT), a Johor state investment agency.

According to Chang, this is because PDT had earlier secured the right to purchase the land from the landowner with a view to constructing a residential development for the benefit of the M40 group.

“PDT is a state investment holding company — it is not a property developer. In order to develop the land, it has to find a development partner to undertake the project.

“Given our good track record of development at Eco Botanic and the extensive amenities we have made available there, PDT approached us to collaborate with them,” says Chang.

EcoWorld is acquiring the land from River Retreat, which is a wholly-owned subsidiary of Iskandar Coast Sdn Bhd. Khazanah Nasional Bhd’s Iskandar Investment Bhd holds an 80% stake in Iskandar Coast, with the remaining 20% held by IWH.

Apart from the 20% share of PAT for each phase of development on the land, EcoWorld will also have to pay a RM20 million nomination fee to PDT. It is not known whether PDT had any agreement with River Retreat for the right to develop the land prior to the acquisition by EcoWorld.

“The nomination fee and share of profit is arrived at on a willing buyer, willing seller basis, recognising PDT’s existing right to acquire the land from the landowner and benefit from the development activities on the land,” Chang adds.

He explains that with PDT being part of the state government and given both parties’ mutual objective to develop properties for the M40 group, PDT is in a position to assist EcoWorld in fast-tracking the process of securing all the approvals required over the course of the development.

EcoWorld will develop landed properties priced below RM1 million and high-rises priced below RM500,000 on the parcel for the M40 group. This was apparently the objective assigned by PDT when the joint development was agreed upon by both parties.

Meanwhile, Ekovest’s acquisition of land in Danga Bay from IWH is more of an asset injection from the latter into the former. Both companies are controlled by Tan Sri Lim Kang Hoo — he has a 29.81% stake in Ekovest and 63.13% equity interest in IWH.

Of the RM1.05 billion consideration, only RM200 million will be satisfied by cash while the rest will be settled via the issuance of 849.89 million irredeemable convertible preference shares (ICPS) at an issue price of RM1 per ICPS to IWH.

IWH has nominated Kang Hoo, Ekovest Holdings Sdn Bhd and Tan Sri Lim Keng Cheng to receive 90%, 5% and 5% of the ICPS respectively. Assuming full conversion of the ICPS, which will only be done after year five of the acquisition, Kang Hoo’s holding in Ekovest will increase to 44.4%.

According to Ekovest’s announcement of the acquisition, the land has the potential to be developed into a commercial project with a gross development value of RM8.6 billion to RM11.8 billion, which will be spread over 17 years starting from 2021.