Introduction

The Group’s property businesses are principally carried out by the Company’s 71% owned listed property arm, IOI Properties Berhad. The main stream of the property business is the development activities that contributed approximately 91% of the overall property business’s operating profit (excluding a fair value gain on investment properties in FY2007 ). Besides, the Group is also involved in property investment and most of the investment properties held by the Group are mainly in respect of retail complexes and office buildings developed as part of our township development.

Over the years, the Group has been reputed as a successful township developer with our mainstay being the Puchong growth
corridor and southern Johor.

Operations Review

Despite the resilient showing by the Malaysian economy, property market activities had dropped by 5.3% in value and 5.7% in number of transactions respectively in Year 2005. In line with the slowdown in property market activities the construction sector experienced a negative growth of 1.6% in year 2005 (2004 - 1.9%).

The Malaysian housing market continued to be affected by higher stock overhang in secondary locations in 2006 and this has inevitably lead to slower take-up rates for new launches. With ample options to choose from, buyers were generally not in a hurry to buy, resulting in an increasing trend of houses being sold only when they are in advanced stage of construction, rather than “off plans”. However, whilst this was the prevailing trend for the broad base market, the upper tier property market was enjoying a completely different demand scenario.

The global surplus in liquidity and the formation of REITS helped ignite sharp price increases in commercial and retail properties as well as prime residential properties for the rich and super rich in major global cities such as Singapore and this has a spill over effect, albeit relatively on a smaller scale, in the Klang Valley.

Capitalising on this trend firstly, we continue to focus on commercial / retail spaces for sale in our twin townships, Bandar puteri and Bandar Puchong Jaya, in Puchong, by offering products such as shop offices. These products were very well received as Puchong is clearly establishing as a very vibrant hub of commercial activities for the sizeable and rapidly growing population catchment.

Secondly, in terms of land-banking, we are supplementing our township development by venturing into niche development of luxury homes in prime locations; hence the reason for 50:50 joint venture with Ho Bee Investment Ltd. for the Sentosa Cove condominium project in Singapore and for the planned development of a condominium project in Jalan Ampang, Kuala Lumpur.

For the financial year under review, the Group sold a total of 1,373 units of properties for a total sales value of RM636.9 million
against the previous year’s 1,266 units at a total sales value of RM533.1 million.

The Group sold a wide range of products during the financial year, with higher sales mix recorded for unit prices above RM350,000, which made up of 77% of total sales value for FY2007 (FY2006 - 82%). As a result, the average price per unit has increased by 10% from RM421,000 to RM464,000.

The Group’s property investment portfolio comprises mainly of retail and office space totalling approximately 1.6 million sq ft of net lettable space (FY2006 - 1.6 million sq ft), of which about 100,000 sq ft is located in Singapore.

The overall occupancy and rental rate for our investment properties, especially the retail complexes, have also improved during the financial year. The higher occupancy and rental rates have increased the property investment’s contribution to Group EBIT by 10%, from RM37.0 million for the previous financial year to RM40.5 million after excluding a fair value gain of RM160.7 million as a result of restating the investment properties at fair value as required by Financial Reporting Standard, FRS 140.

The combined operating profit of the property development and investment activities, inclusive of the fair value gain on investment properties of RM160.7 million, totalled RM598.4 million for FY2007, against RM368.3 million for the previous financial year.

Outlook & Prospect

In line with the positive outlook in the Malaysian Economy and the Government’s initiative to enhance the robustness of the property market by introducing favourable policies, such as the removal of RPGT, 50% stamp duty rebate for transactions of low and medium cost properties, withdrawal from EPF for monthly housing loans repayment, the broad base housing market is expected to reflate whilst the higher end market remains buoyant. We are in a good position to capitalise on these positive developments.