Here you will see 135 images on 13 hillside and seaside excavation or development sites on the northern coast of Penang, Malaysia. The Overview Map (image 00_1) indicates the specific locations. They include luxury housing developments, a granite quarry, three tsunami evacuee longhouses, and land reclamation.

Some of these sites pose significant risks of landslide, run-off pollution, traffic problems, and damaging tourism. Any major landslide at Site E, for example, could paralyze traffic to Batu Ferringhi which hotels have served international conventions. Most sites have accelerated excavation since 2005, and we may be caught off-guard by the pending consequences. These images also portends worse to come from Penang Outer Ring Road, where the concessionaire will not be as constrained by the aesthetic demands of tourism and upscale property market.

This hillside "Alila" "tropical house" project south of Jalan Lembah Permai (and above a Boon Siew Group landed house project) is developed by the Hunza group. Image a_01 shows the untouched hill in Nov 2003. Image a_02 shows excavation near its peak at April 2005. By Jan 2006, images a_04 and a_05 show retaining walls had substantially stabilized the hill side, probably motivated by the need to assure an upmarket house-buying clientele. Image a_11 indicates the project includes high-rise and low-rise residential properties.

Images a_24, a_25, a_26 taken from the north show intensive excavation in April 2005. The stream of trucks were apparently selling earth to reclamation sites, which may include those at Tanjung Tokong, Koay Jetty, and along Jelutong Expressway (east Penang island). The lorries have slowed down recently but have not stopped. The inset in image a_05 shows a loaded lorry leaving the site in mid January 2006.

Note that image a_26 implies there was a large number of lorries on the move at any point in time in April 2005. The extra revenue from selling earth may have been one incentive to develop the project aggressively and early. Is it possible that some of the projects surveyed in this article may not have been presently economical if not for the added revenue of selling earth for reclamation projects?

This is a long-time granite quarry on a giant granite surface behind the TAR College, southwest of Site A (see image b_00). A landslide in late 2003 at the right corner exposed yellow earth, which was then washed away, exposing more rock surface. Images b_02 (Jun 2000), b_03 (Nov 2003), and b_04 (Jan 2006) show the changes.

Images b_12 (Nov 2003), b_13, b_15 (both Jan 2006) show the overhanging rock, earth, and primary jungle that are waiting to collapse during the next monsoon. Site B is also upstream of Sungai Kelian.

Images c_10 and c_11 below show that in Apr 2005, a path had been cut discreetly through the green slope. A constant stream of lorries were seen in mid 2005 trucking earth from this site and a nearby project (the new towers to the right), apparently to the Tanjung Tokong reclamation, at the rate crudely estimated to be 3-5 lorries every 10 minutes.

Across the road from the tsunami longhouse and Site D, in image d_20, is the otherwise idyllic and the original Shamrock beach. The two sides are separated by a winding seaside roadway, one lane in each direction - once compared by a tourist to the similarly winding Palos Verdes Drive near Los Angeles made famous in Hollywood movies. But given the above and below images taken at road level, it will be a wonder if any tourist would make that connection now and want to return for more.

Site E is a hillock to be developed into 28 "Hill Top Homes" (image e_00). Site E rises from road level (images e_41 to e_45) to the top of a small hill (images e_11 to e_15). The existing hill has apparently been sculpted to create a steep wall (images e_64 to e_66) rising up to allow the building of houses perched high on a hill top, to create views similar to those of existing houses such as that in image e_17.

This "boost-the-hill" feature probably increases its risk as a landslide hazard, as least during development. Site E has apparently recently suffered from land slippage and has to be covered with blue plastic sheets.

The priority at site E may be to pile up more rock and earth to gain height, rather than to export earth to reclamation. Developer is Solid Tribute, but the main contractor Asia Green is more prominent in the banners. This site is very close to Site F of Ivory Properties (which has a sign at the entrance road) but the two are different.

If you continue on the seaside road without entering the entrance of image e_01, you need to round a large rocky cape, before you reach the other side of Site E at the road level, pictured below in images e_41 to e_45. Left of image e_41 is "Moonlight Cafe" (e_50) below the cliff at beach level.

Site F is developed by Ivory Meadow as the Moonlight Bay housing scheme. Its sign board in image f_01 has revealed no property type details. In mid January 2006 when these images were taken, personnel were measuring and cutting down the shrub. Excavating work looks like about to begin.

This may be a major supplier of earth for landfill and reclamation currently. In the 10 minutes that these images were taken, two lorries entered and one exited loaded from the dirt road beside Eok Hua school. Eok Hua is located about 200 meters from the Teluk Bahang roundabout, in the direction of Butterfly Farm, and across from a mosque. The hill being excavated is about 1-2 km inward from the main road.

There is no obvious housing development. Site H appears to be purely meant for potentially large volume of earth supply. Lorries from this site are zipping through Penang's busy and winding north coast roadway, which are mostly one-lane in each direction.

Site J is the largest of three tsunami evacuee temporary longhouses on the northern coast. It is perched above an extended and elevated, "finger-shaped" cape, at the western end of Miami Beach, across from entrance to Site E (Hill Top Homes), and eastern end of Moonlight Bay.

Although those affected by the Dec 2004 Indian Ocean tsunami deserve the assistance, it would be a more worthy and coherent effort if there are clear plans for their future housing. Without any future plan, these wooden longhouses which are effectively located at the northern-most tip of Penang (see Overview Map image 00_1) at 15 meter height, unprotected on three sides, will likely be at the mercy of harsh elements during the monsoon season. The grassy slopes look hastily built with rocks and dead trees bull-dozed down to the base (image j_04 and j_05).

The longhouses serve valuable service to the tsunami evacuee. But if they are to become permanent, they should be more refined and sturdy. It is not clear how effectively sewage is handled.

Developers for both Sites E and F must have seen the marketable value of their developments suffer because of the possibility that the state government may not be able to relocate these residents elsewhere, into permanent low-cost housing that will still satisfy their need to be close to their livelihood, ie, fishing, trades, and work at the hotels.

This is a stretch of seaside redevelopment in Teluk Tikus in Tanjung Bunga, west of Sungai Kecil, east of the Water Sports center, and downhill of Site C and Ratu Mutiara apartments. It apparently involves the development of the area around the "floating" mosque (image k_22) and relocation of tsunami-affected squatter fishing families (images k_23 and k_24).

This is the smallest of three longhouses built after the December 2004 tsunami, and is apparently reserved only for fishermen. It is located far away from the public's view, at the center of the Teluk Tikus (Bay), between Sungai Kecil (River) and Sungai Kelian (River), in Tanjung Bunga. Image l_00 is a view from the west, looking east at the longhouse, Crown Jewel hotel, and Paradise hotel.

But looking at the way it is built, it is not clear whether this longhouse had been built to house tsunami evacuees, or to settle fishermen evicted from nearby developments, perhaps even built with tsunami donation.

Persona Heights' "The Cove" under construction (images m_01 and m_02), next to Copthorne Orchid hotel, may become the tallest apartments in Penang, and second in height only to the KOMTAR office building. However, it may not be the highest from sea level because it is located near the beach, only 5-7 stories above sea level (while there are other 30-over-storey apartments built on hillside northwest of Site C).

The project is noticeable for the height of the four slim towers, each 41-42 stories including parking and podium, mostly containing a single apartment unit per floor. See image m_00 (taken in March 2005) for these details. Note that this sign is no longer seen at the site entrance, even though it is required by the law for development sites.

The high profile and location out on a small cape may impose a long shadow on tourism, and dominate the Tanjung Bunga skyline. Unlike the other high rises west of Site C nested on hills and away from the shoreline, The Cove is situated on a small protrusion into the sea and will likely block sea and sky views from Pearl Hill, Hill Side, the three hotels, and housing projects in Tanjung Bunga.

The height may also raise fire hazard risk. The penthouses of a nearby apartment were completely burned about two years ago, because the fire department couldn't obtain enough water pressure to control the fire, even with only mild morning breeze. (The two penthouses are now rebuilt and visible in image n_11 at the lower right corner with yellow walls and red roofs, with Persona Heights construction site at the upper-left corner.) Those penthouses were only 12-storey high, although the ground floor is about 10 floors higher up the Pearl Hill northern slope compared to the ground of The Cove.

This phallic enlargement project is located between Penang Swimming Club and Tanjong Club. The project had been inactive since images n_00 and n_10 were taken in mid 2000, until expansion resumed in earnest recently, as pictured in images n_11 to n_26 taken in January 2006.

In general, beach developments and obstacles such as this have sectioned off the public beach and made them inconvenient for tourists and the public to explore. The increasingly health conscious Western, Asian, and Middle East tourists (eg, from Copthorne, Paradise, and Crown Jewel) looking to jog and stroll leisurely are thrown off every few hundred meters by these semi-legal hurdles, besides facing Sungai Kelian and Sungai Kecil where there are no bridge over the polluted waters (the latter has an unstable plank walk).

Although beaches are legally public areas and developers are required to reserve public access paths to the beach, in Tanjung Bunga there is no public access to the beach for one km from the eastern fence of Penang Swimming Club (a dilapidated staircase) to the western fence of Crown Jewel hotel (two decent paths). In between, the public can only access the beach by walking through hotels or trespassing through clubs and private land.

Where have all the earth and rock gone? Mostly to land reclamation stretching east from Tanjung Tokong to Gurney Drive, and along the Jelutong Expressway (JE). The Overview Map (image 00_1), and images x_00 and x_01 (from the PORR Terms of Reference document) show the areas to be reclaimed in Penang's northeast and east side.

Image x_02 is a view eastward from Pearl Hill in January 2006. Images x_10 and x_11 were views north-eastward in late 2005 near hiking trail Point 3 above Youth Park (err ... renamed "Taman Perbandaran" - as though there is any greatness to commemorate in the unelected administration of this city ... err ... town ).

Image x_20 below shows the western beginning point of the Tanjung Tokong reclamation, and the previously seaside road, which view of the reclaimed land is now blocked by tall metal fences.

We do not yet have any photographs of this large reclamation project on the east side of Penang island. This project stretches south of Pengkalan Weld (Quay) near the ferry terminal, along Jelutong, to the Penang Bridge. See the Overview Map (image 00_1) and image x_00.

The above images illustrate risks of landslide, run-off pollution, traffic problems, and damaging tourism in Penang. Many sites' activities have accelerated since 2005, and we haven't seen the full environmental and tourism impacts yet.

Why not blog Jelutong Expressway (JE) project yourself?

Monitoring Penang's progress is not the job of a few. With digital cameras, high rises you have access to along the JE, hillside vantage points, free blog/photo/blog content aggregation services (see links at the bottom for example), why not keep your own weekly tab on the JE unfolding right under our nose?

We also encourage you to take digital photos of the pre-excavation hills along the future PORR route, for future comparison, using information from x_00 map. It is useful to snap distant and zoomed-in views, under various sunlight conditions. Morning sun will probably be most helpful for the PORR route, which is mostly on east-facing slopes. Presenting you images in a blog will keep the chronology neat. If you need to present many images on a Web page like this one, we recommend using ACDSee's HTML Generator plug-in under Menu>Activities>Create>HTML.

PORR Missing the Boat?

An earlier question was this: Is it possible that some of the projects above may not have been viable so soon if not for the additional revenue of selling earth to reclamation projects? Is that partially why PORR has been routed through hills and paired with the reclamation of Gurney Drive, so that hill cutting can supply Gurney Drive with earth?

Had the PORR concessionaire also expected to sell earth to Tanjong Tokong and JE reclamation to finance its construction? Has PORR missed the boat - now that it is delayed, apparently due to the "intended" concessionaire's poor organization? (PORR has been delayed for years even though the power-that-be is supremely determined to hand it the concession, to the extent that the authority will provide hundreds of millions of ringgits in tax-money plus loans, without open tender, transparency, and proven financial strength. See below link to "Bosses of PORR").

Would Tanjung Tokong and JE reclamation be filled with earth from elsewhere, such as Site H in Teluk Bahang? Would PORR only be able to supply to Gurney Drive reclamation, thus facing revenue and cash shortfall during the construction phase, and even less financial capability to remedy any environmental damages?

Shouldn't any bankers have second thoughts about PORR's viability even during the construction phase? It's not like the future banking industry in Malaysia will have so many banks to jump ship to without the bosses knowing a banker's past tainted by a failing PORR, like in the cozy pre-Internet, pre-merger, pre-globalization 1990's.

Fat Contractors

Here is an admittedly simplistic estimation, based on the observation that the larger excavation sites observed above have had 3-4 lorries dispatched every 10 minutes loaded with earth at peak period. Assuming that 18 lorries are dispatched per site per hour, 8 working hours per day, 25 working days per month, and RM300 per lorry ex-site net revenue after middleman, the total revenue from selling earth could be RM1.08 million per site per month. Further (again simplistically) assuming that there are five such sites along the entire PORR route at any time, and peak-level work is carried out over 2 years, then the total earth revenue can reach RM130 million, a speculative but mind-boggling amount that is about 13% of the total project value.

But Gurney Drive reclamation alone probably cannot fully absorb that large amount of earth from PORR. To the extent that Tanjung Tokong and Jelutong Expressway have earlier been filled with earth from alternative sources, a Johnny-come-lately PORR risks millions of ringgit of revenue shortfall.

But the potential of PORR losing money does not matter much to any insider who may sign middleman contracts to trade/transport the earth. For a few pieces of paperwork, and by marking up the earth by another RM100 per lorry, for example, any powerful but opaque entities could siphon off RM40+ million based on the above speculative estimation. And as we like to say ... laugh all the way to the banks. The result would be a financially troubled PORR likely to borrow more and fail during the construction phase, require tax-money rescue, and demand toll hikes sooner.

Who cares? Who can check? Who can tell given all the secrecy around PORR? All that is needed to dispel such public suspicion is to make the PORR project more transparent through open bidding. This is because those who bid down the project cost and put their own equity money on the line will be unlikely to tolerate skimming contractors. Scrap this "intended" concessionaire; it's not too late to do the right thing for Penang.

The Principal-Agent Conflict of Interest

The same fate of losing money to contractors may await the reclamation and housing projects along the Tanjung Tokong and Jelutong Expressway sites. The "principals," or the ultimate owners of the projects, will be whatever "trust," "funds," "amanah," "permodalan," "yayasan," cooperatives, or corporations owning shares in the projects. More accurately, it is the individuals investors who passively invest equity in these pools, and hope to retire with some nest eggs. These are the "principals" - the ultimate beneficiaries or losers in this game. Shareholders of banks that lend to the projects are also in a similar position through potential bad debt exposure.

Little do many "principals" realize that the interests of their "agents" (ie, the executives, professionals, and lead investors who control the projects through a leverage structure but put up very little of their own money) are simply not aligned with their own interest. The agents position themselves to control the project cash flow with as little equity as possible, leveraging on OPM (Other People's Money, ie, the principals' money) to run the projects.

The easy money making is in contracting for reclamation work, trading of earth, land formation, infrastructure, building construction - all the civil engineering works the agents are all expert at not doing - but only to subcontract out at a fat margin.

The difficult money making is in actually selling the houses at a profit. Whether the added layers of subcontracts hike the costs and prices, making the properties difficult to sell profitably, is not much of the agent's concern. Whoever can manoeuvre to control the contracting decisions is the big winner. The unwitting principals are likely to be left holding the baggage of unsold and delayed property projects.

But isn't this is a microcosm of Malaysian public works and massive privatisation projects, with the principals' (tax payers) interest pitted daily against the agents (elected and unelected officials), with the agents winning regularly because they set and enforce the rules on opacity, hijack the institutions, and muffle media and critiques? How else could so many "great" visions have gone so wrong so often in Malaysia?

Property Tsunami Waves?

With the "agents" pushing and the "principals" unwittingly financing a glut of reclaimed land and properties, Penang may be hit by several "tsunami" waves of properties in the coming decades. Agents are not keen to warn of pending waves because of the conflict of interest.

The great reclamation land grab of Penang has set in motion a cycle of cash and debt, which can easily consume the concessionaires. Reclamation-plus-housing project is more like a massive condo project, and less like a landed house project. In condos, the developer must proceed to construct the whole building - paying, borrowing, buying materials, for 100% of the building - even if only, say, 30% is pre-sold. The larger the condo and the lower the percentage pre-sold, the sooner interest payments overtake the margins and equity. Moderate-size projects of landed-houses are the opposite: They are more flexible (unless the developer has tied itself up by paying for a large piece of land, as in reclamation). The smaller developments have more breathing room to recycle internal funds, machinery, and personnel, in phases according to demand.

Our great Penang reclamation land grab is a lot like a massive condo project because, once a concessionaire has committed to reclamation, the result is a large piece of reclaimed land. This "sunken" investment forces the concessionaire to build to recoup investment as soon as possible, or sit on losses. This rush in turn creates more demand for funds, an overhang of housing supply, and eventually depressed prices and property market.

The weakly financed/organized concessionaire can't stop because lenders and bankruptcy threats would force it to go on reclaiming and building, just to have an excuse to ask the shareholders/lenders for more funds, even as it bleeds profit and shareholder equity. The game doesn't stop even when the concessionaire eventually succumbs to bankruptcy, because whoever takes over (at a discount, now that the first set of principals has suffered the loss of their equity) would have a lower cost base, and can afford to clear the housing stock at a lower price, and flood the market. That's why disinflation or deflation follows a bubble and overcapacity.

Therefore, once the game has started, the most likely initial play by the concessionaire (as it runs into trouble) is to delay, blaming everyone else from government to relocation of residents. The weak "agents" will try to avoid losing control by taking advantage of weak regulators on the banking, state, and federal fronts. When the inevitable new players take over years later, or a new set of "principals" cough up new money, supply floods the market.

To avoid the depressing outcome for Penang's property market, the yet-to-finalize PORR should be reopened to transparent bids to find the best concessionaire in terms of finance, organization, and creativeity. The need for a road like PORR is not a good enough excuse to hush and rush, when a failed PORR would cost Penang even more.

Coupled Waves

Further, each reclamation is creating two waves of properties. Not only is the earlier Bayan Baru side (Gold Coast) reclamation still supplying land and properties, the Sungai Dua hills cut down to fill it became accessible and tempted land owners to sell out to developers, who then must develop new housing or sit on interest loss.

Four reclamations (Bayan Baru, Jelutong Expressway, Gurney Drive, Tanjung Tokong) means an equivalent of eight waves of properties - from the sea and the hill. The Jelutong Expressway (JE) project, eg, is planning nearly 11,000 units of properties in three parcels, and taking earth from all over the island. All segments of the property market - high, middle, lower-income segments - will be hit over the next decades.

Overview Map (image 00_1) indicates the Tanjung Tokong and Gurney Drive reclamation is each comparable to the JE project in scale. Although the first two may supply a smaller number of units due to the higher-end market, the PORR route is also three times longer than the Jelutong Expressway, and is an unpredictable stretch, including substantially undeveloped foothill to tempt private developers (Hopefully, however, private developers will be more disciplined and creative, and more restrained by the banks, than the reclamation "concessionaire").

Not Clueless, Just Painless (For the Agents)

But how can any one be so dumb as to develop more reclaimed land, if this logic of over supply is so obvious? Why wouldn't greedy investors stop themselves if the coming damage is so clear? Answer: Because the agents won't be hurting.

This is where the market fails. The free market (including privatisation) is often wrongly demonized for these non-market problems - when vested political interest, suppression of information, and corruption of institutions conspire to reinforce the classic conflict of interest between the principal and the agent. This is how market bubbles repeat, despite their obvious silliness.

It is not that this author is especially smart for seeing the clues. It is that, despite the obvious clues, the agents will gain more by over developing than not, no matter what clues exist and what consequences to the principals' wealth. This destructive tendency exists all over the world, but is the worst here where there is a lack of transparency, free press, and independent institutions (like directly-elected municipal council, local transport regulator, tourism council, more professional and independent-minded state development bodies).

It is a classic observation that the first owners of any luxury hotel/resort/apartment, casino, mall - for that matter any grandiose property projects - will lose their shirts (because of optimistic expectation, entering at the peak of the market, and construction cost overrun). Only the third owner taking over at a substantial discount will be sure to make money.

Someone needs to wake up, especially the passive owners of the reclamation sites and of the lenders. If these waves of properties hit the Penang shoreline, there would be a massive transfer of wealth between groups. But not all the transfers will be so bad. If the old guards can't guard their wealth by demanding better governance, why not give the new generation a chance?

Massive Transfer of Wealth: Losers and Winners

If this over supply of properties comes to pass in the next decades, the first obvious group of losers would be the passive owners of the reclamation and housing projects (probably retirees investing in trusts and funds). The second group of losers would be the minority shareholders of corporations and banks that finance the projects. The third group would be Penang's ratepayers and federal tax payers, for having donated land and financing to the PORR concession, and then having to pay for toll, road tax, income tax, and face a more expensive business environment. The fourth group may be the late-coming developers who face depressed pricing, yet have not benefited from reclamation contracts.

The fifth group of losers will be less obvious: Existing property owners in Penang. As oversupply holds down property prices in many locations, investment-property owners looking for price appreciation will be disappointed. Additionally, middle-income, empty-nest home owners will be disappointed when they look to exchange a larger home for a smaller apartment, and to use the difference to pay for retirement and beat inflation. Due to a lack of alternative investments, a broad segment of Malaysians would likely be forced to invest in property and share in the suffering. Socialism with Malaysian characteristics: Concentrate the gains, share the losses.

The winners: Oversupply would turn Penang into a buyers' market at some point, when competition would dominate, after the reclamation contractors have gone to the banks, and losers been left behind.

The first group of winners is the contractors who pay up only a token amount of equity. This group benefits before the oversupply becomes obvious, during the reclamation phase. Eventually, however, hubris may be their downfall, as so many others could not resist the temptation to over invest their new-found wealth in the 1990's.

A second group of winners would be the professionals supporting the property industry. But what comes around goes around, as this group will find few alternative investments in Penang, and likely invest most of their wealth in properties, thereby losing from a long-term price slump.

More positively, a third group of beneficiaries will be future skilled workers who are currently younger than 25, who could buy homes at depressed prices in the next decades. Perhaps that is how Penang solves the home affordability problem for the next generation. (However, unskilled wage earners may continue to suffer, as they always do.) This is similar to how the chaotic repeal of rent control of 2000 eventually stifled town-center business, then pushed down rental again, softening the impact on tenants, at the expense of optimistic property investors (many of whom were well-connected and were sure of their ability to take advantage of their inside track to development information). When competition rules, justice is truly blind.

Wealth Creation Is The Issue

Some property agents will be citing statistics to support the case without oversupply. Officials will promote the idea of price appreciation because of access to PORR (all along fallaciously assuming no increase in property supply). Pockets of properties will benefit, indeed too many pockets will benefit from better transport - any form of cheaper transport - not just PORR. With the massive supply in multiple locations, the greater determinants of long-term property prices may be timing and adequate number of new value-added jobs from the electronic manufacturing industry - a prospect that looks challenging in the next decade.

An attractive environment fitting for tourists could also attract overseas property buyers to boost prices, but that line of sales pitch also looks particularly challenged now, given the hill-cutting and reclamation along the coast.