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Lend Lease Eyes Malaysia as Australia Boom Peaks: Southeast Asia

Lend Lease Eyes Malaysia as Australia Boom Peak
Customers walk through the Sunway Pyramid Shopping Mall in Petaling Jaya, Malaysia. “With a growing middle class, there will be demand for a consumer experience at shopping malls,” said Nicholas Mak, Singapore-based executive director at SLP International Property Consultants. Photographer: Goh Seng Chong/Bloomberg

Lend Lease Group, Australia’s biggest developer, plans to expand in Malaysia to make up for a slowdown in residential sales and mining-related infrastructure projects back home.

The company is in discussions to invest in about three development projects in Malaysia and expects to complete the first agreement by June 30, Chief Executive Officer Steve McCann said in an interview from Melbourne yesterday.

Lend Lease wants to lower its dependency on the home market to about 60 percent of earnings in five years from 73 percent as of Dec. 31, McCann said. Malaysia’s growth exceeded 5 percent in each of the five quarters through September, outpacing Australia’s average 3.4 percent expansion in the same period. Lend Lease’s Asian Retail Investment Fund in May opened Setia City Mall in partnership with Malaysian developer SP Setia Bhd.

“Over time, say about five years, we’ll invest more capital overseas,” McCann said. “There are a few encouraging signs in the Australian residential market and there’s a bit more enquiry off the reduction in interest rates but there won’t be a material turnaround soon in the land subdivision market.”

The Sydney-based company’s future developments in Malaysia will be mixed-use projects dominated by retail space, McCann said. Two of its planned projects in the country will be in Kuala Lumpur and one elsewhere, he said.

Lend Lease in October agreed to jointly develop a 10.9 acre site in a project that will include office, retail and hotel space and homes with Naza TTDI, according to an e-mailed statement from the closely held Malaysian developer.

Consumer Experience

“With a growing middle class, there will be demand for a consumer experience at shopping malls,” said Nicholas Mak, Singapore-based executive director at SLP International Property Consultants. “Some of the shopping malls in Malaysia are fairly mediocre. So perhaps that’s where Lend Lease sees opportunities if they can acquire the land and get a good partner that might be a good expansion opportunity.”

Malaysia’s gross domestic product probably increased more than the government’s 2012 goal of 4.5 percent to 5 percent, and the economy has proven to be “resilient and robust,” Second Finance Minister Ahmad Husni Mohamad Hanadzlah said earlier this month.

Credit Suisse Group AG also raised its forecast for Malaysia’s expansion this year to 5.5 percent from 5 percent previously, citing a better outlook for exports, according to a Feb. 6 report from the bank. The government is scheduled to release its GDP data tomorrow.

Still, the benchmark FTSE Bursa Malaysia KLCI Index has fallen 5.6 percent this year, making it the worst performer in Asia and the third-biggest decline among 94 stock markets tracked by Bloomberg. Lend Lease shares have risen 9.5 percent since the start of the year.

Malaysia Elections

Prime Minister Najib Razak must dissolve parliament by April 28 for an election to be held within 60 days. At the 2008 polls, his governing National Front won the vote by its narrowest margin since the Southeast Asian nation’s independence in 1957.

The occupancy rate for retail properties in the capital Kuala Lumpur rose 0.6 percentage point in the three months ended Dec. 31 from the previous quarter and a year earlier, broker DTZ Holdings Plc. said in its fourth quarter 2012 Property Times report. Retail sales climbed a 5.5 percent in each of the last two quarters of the year, according to the report last month. Global brands including Sweden’s H&M and Japan’s Uniqlo expanded in Malaysia, it said.

Growth in Australia’s gross domestic product will slow to 2.4 percent in the three months through March 31, the least since June 2011, according to the median of 22 economist estimates compiled by Bloomberg. GDP expanded 2.9 percent in the past quarter, the surveys show, and the RBA predicted “below trend” growth of about 2.5 percent for 2013.

Full-time employment in Australia declined for a third month in January while part-time jobs rose, government data showed this month.

Long-Term Game

Other than Malaysia, Lend Lease is seeking opportunities in China, where it may add capital partners to invest in a new development fund, McCann said.

“China is a long-term game and with the astonishing growth coming out of that market, which we don’t expect to stop, there’ll be significant growth for some time to come,” he said.

In China, Australia’s biggest trading partner, demand for iron ore and coal has fueled a resource investment boom that the Reserve Bank of Australia predicts will crest later this year. BHP Billiton Ltd., the world’s biggest miner, shelved three major projects in August, costing an estimated $68 billion to build, and Rio Tinto Group, the world’s second-biggest mining company, said in November it will cut $5 billion in costs by 2014.

The government’s tax on iron ore and coal profits raised A$126 million in the six months to Dec. 31, Treasurer Wayne Swan said on Feb. 8. That compared with a Treasury forecast in October of A$2 billion for the year to June 30.

The RBA reduced its benchmark interest rate to 3 percent in December, matching a half-century low, as it tries to spur investment in industries outside of mining as it prepares for the peak in the nation’s resources boom.

Yesterday, Lend Lease reported a 39 percent jump in net income to A$302.3 million ($311 million) in the six months ended Dec. 31, driven by earnings from its Barangaroo South development in Sydney. Profit in the Australian development business more than doubled, accounting for 73 percent of profit.

In Europe, London housing is a “pretty strong market” and will remain a focus for the company, McCann said. While Lend Lease is scaling back its operations in Europe, it will retain its hospital developments in northern Italy, and is unlikely to exit the continent completely, he said.

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