THE property rush across the Causeway in the past couple of years has seen prices in Iskandar Malaysia double or even triple. Despite talk of a bubble, investors unwilling to jump onto the buyers' bandwagon can still take bets on property developers themselves.
Jubilee Industries Holdings - formerly loss-making plastic injection mould producer JLJ Holdings - appears poised to be the latest intriguing Iskandar play on Singapore Exchange.
A proposed reverse takeover (RTO) announced in mid-October will see Singaporean businessman Dennis Ng inject Tenderside Ventures, a subsidiary of his Malaysian property development company Jewelstone Properties, into Catalyst-quoted Jubilee.
The deal gives a well-connected and established family a foothold in a listed entity in Singapore.
Mr Ng is executive director of United Malayan Land (UMLand), of which his father, Ng Eng Tee, is deputy chairman and also executive director.
UMLand, a Johor-based property developer with decades of track record, was an associate company of property giant CapitaLand and listed on Bursa Malaysia. It was privatised last year by the elder Mr Ng and his business partner, Syed Mokhtar Al-Bukhary, a well-connected bumiputera entrepreneur who is said to have close relationship with the current Malaysian political leadership. UMLand also has an undeveloped land bank of about 810 hectares in Johor, according to media reports.
Tenderside will be acquired by Jubilee for RM150 million (S$59 million) through an issue of new Jubilee shares to Jewelstone. The deal, which will boost Jubilee's issued shares to around 508 million, will result in Tenderside gaining a 54 per cent stake in Jubilee.
Rising condo prices
And here's where it gets interesting.
Tenderside owns a 60 per cent stake in Viridea Lakeside Sdn Bhd. Viridea will acquire the Viridea @ Medini Lakeside project in Johor on roughly three hectares of land. For comparison, the Medini area comprises 890 hectares of land. The estimated gross development value of the mostly residential project, or what it can be sold for when completed, is RM800 million. Out of that, a profit before tax of RM300 million is expected to be generated, out of which 60 per cent or RM180 million will be guaranteed to Jubilee.
This guaranteed profit before tax works out to about 14 cents a share.
Investors and developers, however, have some concerns about Iskandar plays.
Numerous aggressive launches of high-rise condominiums have pushed prices to Kuala Lumpur property levels.
On Oct 25, the Malaysian government's budget included measures to cool the property market that is fast rising out of the reach of ordinary Malaysians.
Notably, a 30 per cent real property gains tax will be levied on gains on property disposed within five years. The minimum price for foreigners to buy a Malaysian property will also go up to RM1 million from RM500,000.
Developers in Medini, however, have a unique advantage.
The area is a special zone in Iskandar that is exempt from price caps and bumiputera quotas which can affect developer profits - a deal introduced several years ago to attract foreign investment. Developers there also enjoy various income tax incentives.
Medini is also a short 10-minute drive from the Second Link connecting Johor to Singapore, so investors who prefer to live there have quick and convenient access to the Republic.
Iskandar's planners envisage Medini to be a commercial and business district, with malls, offices, high-end homes and a hospital. Theme park Legoland is located just a stone's throw away.
Not surprisingly, properties there have been selling like hot cakes. In June, Afiniti Residences, a 147-unit wellness themed condominium project that is a joint venture between Temasek Holdings and counterpart Khazanah Nasional, was sold out on launch day. Selling prices for the project, located beside Legoland, were RM850 to RM1,000 per square foot.
How much might Jubilee be worth?
The company's last reported net asset value by end-June was 19.6 cents, before the completion of a deal that saw former Novena Holdings CEO Toh Soon Huat lead a group of investors to inject $15 million into the company.
Mr Toh and company bought in at 15.4 cents a share then. On Oct 29, he bought another 750,000 shares at an average price of 17.7 cents.
Meanwhile, the company placed out shares to Jewelstone at 22 cents each.
Currently, the company is trading at around 17 to 18 cents. Support might be found around the 15 cents level that Mr Toh originally bought in for, giving opportunities to investors if prices fall to or below that.
Investors, however, have to note that the RTO process usually takes around half a year, and there is never a guarantee that any takeover will go through.
Any investment in Jubilee - or in similar Iskandar developer plays such as Rowsley and Albedo - is also a bet on the long-term economic sustainability and political stability of the Iskandar region. Sentiment in Iskandar property might already be affected after Malaysia's latest budget measures. Also, the next few years could see more supply come up on both sides of the Causeway. Then there is the prospect of a potential tightening of US monetary policy.
That said, Medini enjoys special exemptions from the Malaysian authorities.
If and when the RTO goes through, Jubilee will need to build and sell its residential project fast.
Although the company could be vulnerable to short-term fluctuations in share prices in the event of a property market downturn, with the UMLand pedigree behind it, Jubilee is a long-term play. This is a company worth watching in the years to come.