Our Properties
Our property portfolio can be classified as shop offices, non-landed residential and landed residential. While we do not generally acquire properties for investment purposes, it is common practice in the construction industry for our clients to impose as a term in their Letter of Acceptance, ‘contra’ payment with the properties under their development up to a specified percentage of the awarded contract value. A ‘contra’ does not reduce the payment from which our client is liable to pay us under the contract, but is merely a payment method employed by our client. We generally accept ‘contra’ payment with properties valuing not more than 5% of the total contract sum. Nonetheless, depending on the value of the project and on a case to case basis, the value of the ‘contra’ payment may vary. Most of our clients impose upfront in the tender documents and Letter of Acceptance the terms of ‘contra’ payment, however, there are also cases where the ‘contra’ payment is agreed after the commencement of the project. Nonetheless, we endeavour to limit the acceptance of ‘contra’ payment to not more than 5% of the total contract sum. The value of the ‘contra’ properties is generally based on the selling price of the properties under their development. Settlement by way of ‘contra’ is common not only for contractors such as our Group but also for other consultants involved in the project. As at 31 May 2016, we have 11 properties which were received by us via ‘contra’. The audited NBV of such properties as at 31 December 2015 is RM15.26 million, representing 7.62% of our pro forma consolidated total assets of RM200.34 million as at the same date. The total rental income from 5 out of these 11 properties received via ‘contra’ for the 3 financial years under review amounted to RM0.03 million, RM0.13 million and RM0.19 million for FYE 2013, FYE 2014 and FYE 2015 respectively. 2 properties received via ‘contra’ are currently used by our Group and 4 properties received via ‘contra’ are currently vacant and thus not generating any income.
In some instances, our clients may also seek our support for their property development projects, in which, we may on a case to case basis, as a measure of building good client relationship, undertake an outright purchase of those properties under our clients‟ property development projects. Depending on the type of properties, we will finance such purchase through our internally generated funds and/or bank borrowings. As at 31 May 2016, we have 2 properties which we have purchased outright from our clients‟ property development projects. The audited NBV of such properties as at 31 December 2015 is RM3.28 million, representing 1.64% of our pro forma consolidated total assets of RM200.34 million as at the same date.
Our strategy for investment properties received by us via ‘contra’ and/or purchased by us as show of support for our clients‟ property development projects is to dispose them in the secondary market within 3 to 5 years from the handover of those completed properties to us or to deploy them for our own use such as for staff accommodation, if suitable. Our disposal strategy was arrived at after taking into consideration the impact of real properties gain tax and serves as a guidance for our management. The actual timing for the disposal of these properties will depend on whether we are able to identify suitable purchasers for these properties. Pending the disposal of such properties, we may rent those properties out to suitable tenants. The total gain on disposal of investment properties we received via „contra‟ amounted to RM0.41 million and RM0.32 million for FYE 2014 and FYE 2015 respectively. There was no disposal of investment property received via ‘contra’ payment in FYE 2013. The number of properties that the Group has disposed off in the financial years under review were 1 property for FYE 2013, 2 properties (both received via ‘contra’ payment) for FYE 2014 and 2 properties (both received via ‘contra’ payment) for FYE 2015.
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