City & Country: Cover Story: Time to raise the game

Big players are getting bigger and even though small players still have their niche markets, they are probably slowly being squeezed out. But I think the competition will drive all developers forward. We have no choice but to move ahead of the game." - Chen

WE want to tell the public the MKH story," declares Tan Sri Eddy Chen, group managing director of MKH Bhd.

As he puts it, it is about how a small-time builder became a force to be reckoned with in the fast-growing town of Kajang and how it is slowly transforming itself into a metropolitan developer.

MKH is a name that has long been synonymous with Kajang and understandably so, considering that the group has built eight townships there over the past 34 years.

In recent years, MKH has ventured into more high-profile projects outside Kajang, such as the 5.53-acre Saville Bangsar condominium and the 2.65-acre mixed-use development Saville Melawati that have a gross development value (GDV) of RM321 million and RM193 million respectively.

Chen, dressed in a crisp white shirt with the sleeves rolled up, says MKH has not shouted out its accomplishments so far and that that is about to change.

"Do you know that we have never lost money, even in the worst of times? We stand head and shoulders with some of our bigger peers, but we have kept a low profile all these years. We shouldn't be shy about our accomplishments and what we can do. Being low profile means you don't get noticed," he observes.

Citing Pelangi Damansara in Mutiara Damansara and Pelangi Utama in Bandar Utama, Chen says not many know MKH has delivered more than 5,000 apartments in these two developments.

The developer has already taken steps to create a regional brand with broader marketplace appeal and scalability. It is worth noting that it changed its name from Metro Kajang Holdings Bhd to MKH Bhd in April 2011. However, that effort is still facing "transitional issues".

"Whenever we mention MKH Bhd, people ask, what is MKH? Then we have to tell them it's Metro Kajang, which, of course, defeats the purpose of the branding exercise," remarks Chen.

While admitting that the company's brand recognition still needs some work, he believes market perception has improved.

"We are moving forward and restrategising the way we advertise. We want to emphasise our logo and our story in our new promotional materials."

As the industry has become very competitive, there is a need to raise their game and generate more publicity, says Chen.

"Big players are getting bigger and even though small players still have their niche markets, they are probably slowly being squeezed out. But I think the competition will drive all developers forward. We have no choice but to move ahead of the game."

The integrated commercial area of Kajang 2 is envisioned as the 1Utama of Kajang

The importance of concept and quality
Advertising is just one aspect of MKH's brand building. Of equal importance to Chen are the concept and quality of its products.

"Although all our projects have their own concept, we need to talk about it more. Even though we don't sell our products at a very high price, we still give a quality built environment. In fact, one time, I sent someone to do a presentation on our products to a property expert who asked, why wasn't this told to the market?"

Concept-wise, MKH is moving into integrated lifestyle and green developments. Saville Bangsar and Saville Melawati were designed to meet Green Building Index certification.

As for integrated lifestyle developments, the 270-acre Kajang 2 is a prime example.

"Kajang 2 will not be like most of the townships in the area. It will be integrated with a commercial centre, which we envision as the 1Utama of Kajang. It will be a leading retail player with better-grade tenants," Chen says.

Phase 1 of the freehold Kajang 2 was launched in December 2010. The overall development has a GDV of RM2.6 billion and will be built in five phases over eight years. The residential component includes super links, semi-detached homes, bungalows, condominiums and townhouses while the commercial component comprises a shopping mall, serviced apartments, offices and hotels, which will surround a proposed KTM station. Next year, MKH expects to launch Phase 2, consisting of 274 terraced houses and bungalows, and Phase 3, comprising four blocks of serviced apartments.

Set to start operating in the township next January is Rafflesia International School, which, says Chen, will draw the wealthier group in Kajang.

The need for quality was a lesson MKH learnt the hard way, when the first phase of Pelangi Damansara was under construction. In the early part of the decade after 2000, the government decided to clamp down on illegal workers.

"The authorities raided every housing estate they could, arresting and deporting the mainly Indonesian workers. This caused the workers, legal and illegal, to run away because they were afraid," recalls Chen.

The crackdown left many in the construction and property development sectors, including MKH, in the lurch.

"Then the government realised the adverse impact of the crackdown and started to bring back and legalise the workers. By then, work on our project had stopped for six months. We were faced with a huge late delivery charge and had to rush the work after the workers came back," Chen says.

"I remember our workers plastering the walls at 10pm. We rushed so many things and because of that, our quality suffered. To resolve the defect issue, we had a team of people on standby for almost three years after delivery."

MKH World in Serdang will have a GDV of RM764 million	MKH Boulevard comprises serviced apartments, shops and offices

It is a mistake Chen vows never to repeat. Quality is a priority in all of MKH's products, regardless of the price.

"Just because a house is priced below RM300,000 doesn't mean the quality should suffer. Although the materials we use may be cheaper, they must be durable. Cheap doesn't equal poor quality," he says.

Measures taken to ensure quality include the adoption of the Quality Assessment System in Construction (Qlassic), which MKH started using eight years ago. Qlassic is a system that measures and evaluates the quality of the workmanship of construction work based on approved standards.

"Ensuring quality is something we have grilled into our people. We want them to be proud of the work they have done," says Chen.

He doesn't believe, however, that zero defects are possible as construction is carried out in situ in Malaysia, which means a lot depends on the skills of the workforce.

"There will be defects under the current construction system. But if developers adopt the Industrialised Building System (IBS) where the majority of the work is done offsite, it will lower the number of defects," he says.

This does not mean MKH does not strive for as few defects as possible and ensure they are remedied within 15 to 30 days, he stresses.

"We are using IBS in our high-rise developments. I believe this contributes to the quality. We are looking at using IBS for our landed home developments as well."

A balancing act
MKH has been building affordable homes - which Chen describes as its bread and butter - for years.

"Affordable homes are becoming the mainstay of the industry. Many developers that have been doing high-end and niche developments are now looking at affordable housing because there is strong demand," he points out.

But a consequence of the rising cost of materials and land and MKH's focus on quality and affordable pricing is tighter profit margins.

"For some products, we may make a profit margin of 10% to 11%. Some developers will probably ask, why bother? We look at it differently - this will be compensated by the higher-end products, which give us 25% to 30%, so on average, we are looking at about 18% to 20% profit margin," Chen explains.

MKH is constantly studying the designs of its products and looking at areas where cost can be reduced while maintaining the quality.

"For example, glass railings may look good but they are more expensive. We can find cheaper alternatives that look just as good. Simplify things Ö these days we tend make things very complicated but sometimes, it's best to be simple," Chen comments.

Growing competition
Kajang has attracted much attention since the Sungai Buloh-Kajang mass rapid transit line was announced in 2010. The town will be home to three of the stations at Saujana Impian, Bandar Kajang and Kajang.

According to Chen, the town was growing even before the MRT project was announced. "Kajang is the fastest-growing township in Malaysia. At one time, our population growth was 8.6% compared with the national average of 2.1% to 2.2%."

A contributing factor was escalating house prices in prime areas in the Klang Valley, forcing potential buyers to look further afield for affordable homes.

The MRT project has boosted Kajang's profile and potential, prompting big players such as S P Setia Bhd and Mah Sing Group Bhd to acquire land there.

Chen, however, is not worried about the growing competition. In fact, he welcomes it.

"We have been here for a long time and are regarded as a reliable developer. I believe we can stand up to any competition. Actually, competition brings the value up and we benefit too."

He notes that affordable homes by some developers in Kajang are priced at RM500,000 to RM600,000, compared with below RM500,000 for similar products from MKH.

"We can price our products lower because we bought our land at cheaper prices. Some of the other developers acquired land in Kajang for RM22 to RM28 psf, while we bought ours for RM8 to RM9 psf only about three to four years ago. It goes to show how much prices have gone up.

"We are not in a hurry to finish developing our land in Kajang because we realise with more competitors coming in and pushing prices up, we are in an advantageous position. And because our land is in better locations, I believe we can sell better."

MKH currently has about 600 acres of undeveloped land in Kajang and is on the lookout for more. It has an overland landbank of 1,181.5 acres and has developed 1,350 acres in Kajang, Semenyih, Shah Alam and Kuala Lumpur.

"We can wait. We are not going to compete with other developers for land and push prices up. We have enough landbank in the Klang Valley to chew on for the time being. We will continue building townships and we will also look at developing higher-end commercial and residential developments in the Klang Valley," says Chen.

Projects in the pipeline include the 12-acre integrated development MKH World (GDV: RM764 million) in Serdang, the 550-acre Hillpark (RM1.23 billion) in Shah Alam, the 138.7-acre Kajang East (RM580 million) and the 3.146-acre MKH Avenue (RM147 million) in Kajang.

MKH World is scheduled to be launched in 3Q2014, while the others will be launched in 4Q2013.

In May, MKH soft-launched MKH Boulevard in Kajang. The 3.38-acre mixed-use development comprises serviced apartments, shops and offices, with a take-up rate of 47% and 30% to date respectively.

"Because we have been building quality products that give good capital appreciation, customers will keep coming back and new customers will come to us. The key is to stay ahead of the curve as the market grows more competitive," Chen sums up.

 

This article first appeared in The Edge Malaysia Weekly, on August 05, 2013.