Time to buy or sell?
Consumer confidence remains the key
With the global economy stuck in limbo, 2012 is expected to be a less robust year for the property sector. But the local market will stay relatively stable overall, say developers who participated in The Edge Roundtable on Property 2011 entitled “What’s next for the Malaysian housing sector?”
The roundtable panellists comprised the heads of both listed and unlisted niche property development companies. They were Selangor Dredging Bhd managing director Teh Lip Kim; Low Yat Group executive director Low Su Ming; Sunway Bhd executive director (strategy and corporate development division) Sarena Cheah; TA Global Bhd executive director Kimmy Khoo; and The Clearwater Group managing director and founder Datin Dian Lee.
The Edge CMO and former executive editor of property and retailing Au Foong Yee was the moderator.
Au also acts as a judge of The Edge Top Property Developers Awards, The Edge-PEPS Value Creation Excellence Award and The Edge-PAM Green Excellence Award.
Although tightening measures such as Bank Negara Malaysia’s implementation of the maximum loan-to-value ratio of 70% for third-house purchases — to curb “excessive investment and speculative activity in the residential property market” — since November 2010 has reined in speculative buying, Malaysians looking to own homes or invest in property are expected to continue to buy good products in good locations, the panellists concur. This was evident in the strong response to some recent property launches that may seem contrary to the “prevailing” cautious sentiment.
The panellists attribute this to the affordability of the product based on its absolute pricing. The unit may be small and the pricing per square foot high but buyers do not seem to mind as long as they can afford the price of the unit. The project’s location is another attraction as buyers believe it would benefit their investments in the long term — as a hedge against inflation.
Then, there is the overarching emotional desire of each Malaysian to own his or her own home. The panellists believe the housing sector will remain resilient as Malaysians will continue to buy homes simply because they want the security of having a roof over their heads. So long as liquidity in the market remains high and the low interest rate environment continues, the residential market will see good demand. What is more, unlike equities and bonds, property is considered a safe haven for most investors, especially when the stock market is as volatile as it is now.
Hence, the panellists do not expect the economic slowdown to turn into a “bloodbath” with demand and prices falling because they see Malaysians buying homes, albeit selectively.
Housing prices will hold steady but the panellists believe where there is an oversupply of a certain product type on the secondary market, values may dip. Ultimately, it is about location.
Penang emerged as a hot spot for investment for almost all the panellists. They like the state for what they call its all-encompassing attractiveness — it has something for everyone with its strong manufacturing sector, varied culture, heritage and nature.
Prices will continue to rise
The values of new homes offered by developers, however, will continue to rise due to rising costs, from that of land and building materials to construction and the processes entailed in property development.
While the panellists agree that business processes have improved slightly over the years, much is left to be desired when it comes to the government’s delivery system. Red tape and delays in getting approvals continue to be a stumbling block for property developers.
Malaysia, the panellists say, still has much catching up to do with some of its more developed neighbours, such as Singapore, when it comes to providing a conducive environment for doing business in the country. Among its shortcomings are the lack of clear guidelines and set timelines for approval processes and such, and a level playing field.
Things need to change to make Malaysia a more attractive place to invest and do business in, the panellists say.
While 2012 will see buyers become more cautious and selective, developers too will have to be more careful when it comes to the kind of products offered and the timing of their launches.
To compete for buyers, developers have to be more innovative, not just in terms of their product design and facilities but also marketing, which would squeeze margins, say the panellists. At the same time, developers should take advantage of the downturn to plan future projects so they are ready to launch at the appropriate time.
At the end of the day, the panellists agree, how the property market fares will boil down to consumer confidence. And this will depend on news on the global front and how resilient the local economy is.
All the plans the government has unveiled, such as those under the Economic Transformation Programme, must go on amidst the weak and uncertain external environment, stress the panellists. As one points out, this is the time for Asian countries to look at the opportunity side of the crisis and see how they can coax expatriates from affected countries where unemployment is high to come here.
The panellists hope Malaysia’s strong fundamentals and its low unemployment rate will continue to expand the economy because then people will keep buying houses.
Read on for the roundtable.
The Edge: What is the state of the Malaysian residential property market? Where are we in the property cycle?
There is talk that the market will crash, that there is a property bubble. So, are we looking at a ‘bloodbath’? Or is it a golden opportunity to buy?
Sarena Cheah: There will be no bloodbath per se. The fundamentals of the economy are still strong. The global economy has shaken a bit of confidence; people will take time to consider whether to buy property or not. In Malaysia, we (still) do get a good mix of homebuyers and investors. Of course, the tightening by Bank Negara Malaysia has made people sit back and think about it. However, it is still conducive to buy, especially if it is something that you really want, in a good location and a good product. In that sense, there will not be a bloodbath. Prices are not sky-high — maybe in certain segments and specific locations they have gone higher but there are corrections happening here and there (already). If you have a good product, people will still buy.
Teh Lip Kim: In certain localities, there could be an oversupply. But I don’t think there will be a bloodbath in the general market. Prices in Malaysia generally are low. Prices have gone up because of rising construction costs . That would be the same for the region as well. Commodity prices have gone up; construction costs have gone up by 45% to 70%. Building material prices regionally have been rising over the past five years because we all need the same thing — we need steel, sand, concrete, cement.
Why rising prices have been highlighted is because in Malaysia, land prices in relation to construction costs are low. Whereas in Hong Kong and Singapore, land prices are pretty high. So, it is a proportion of total cost and it would seem there is an anomaly. But in reality, [prices] everywhere would have caught up.
So, oversupply is location-centric.
Kimmy Khoo: There is definitely an oversupply in the KLCC (Kuala Lumpur city centre) area. There are many condominiums coming up and many units have not been rented out. The bigger units are going off in the market very slowly. In Mont’Kiara (in Kuala Lumpur), there are so many condos, it is looking like Hong Kong. Definitely, there is oversupply in certain areas.
An oversupply should pressure prices. How does that reconcile with rising prices?
Datin Dian Lee: It very much depends on location. For example in the KLCC area, there is definitely an oversupply, so prices are expected to be hit.
Even further? Or will prices stay flat?
Lee: Next year, they will be slightly hit because of the market and what is happening in Europe.
This is unique to the KLCC area?
Lee: That area will be hit first because it needs a lot of expatriates — a lot of foreign money. In other areas, like our property, Heritage in Seri Kembangan (in Selangor), we actually have a waiting list because of the universities around there. So demand varies with the location.
Low Su Meng: The global economy is so dynamic; what sort of property cycle are we talking about? Every week, we hear about financial crisis and natural disasters. Quite honestly, that (property cycle) is in the past. The market is so dynamic we have to take another look at how the whole mechanism works.
Have we even experienced a real upside in property prices in Malaysia? Development costs are still going up; overall, land prices have gone up. Sentiments are uncertain — there is a lot of liquidity out there but it is more about sentiment, so it is about managing your investment risk more prudently.
In Malaysia, we are unique — we are driven by domestic demand but investors are coming in looking for bargains. There is a large investment market out there, such as foreign buyers under the Malaysia My Second Home programme (MM2H) or people coming in for en bloc bargains.
Are there plenty of bargains out there?
Low: No, plenty of investment interest in bargains.
So, we all agree there is no bloodbath on the horizon?
Teh: I don’t think we are looking at a bloodbath. As for bargains, it is a very dynamic situation. There will still be vultures out there and people desperate to sell. This is healthy for the market. I agree with Su Ming [Low] that property cycles are a lot shorter now as we are no longer talking about 5 to 10-year cycles. They are very short. For developers, we have to be opportunistic enough to get all the approvals and products ready, and when it is the right time, we just need to push the button. This is what we are trying to do.
I feel that there is no bloodbath. Why I say that is because in Malaysia, compared with other countries, we have not gone up, so how can we go down? Relatively in the region, compared with Singapore and Hong Kong, we have not gone up as fast, so how can we go down fast? Our cycles are flatter.
SPECULATIVE BUYING DIPS
Are the speculators still out there?
Khoo: There are always speculators around looking for good bargains and the right time to buy. We do have people knocking at our doors wanting to buy en bloc. These people are either speculators or have a lot of funds. Where else do you want to put your money today other than in property, which is more stable? Currency has a lot of risk, the safer haven is always property.
They are trying to hedge against inflation?
Cheah: Property is a good hedge against inflation — there will always be investors. (However) we sense that speculation has been reduced because of the ongoing crisis. There are also opportunities externally. People are now not just looking here but in the region and globe as well.
Speculation has declined a bit because of tightening (measures), with the third property having a 70% cap on the loan-to-value ratio. We have seen some people pulling back because they were not buying for thir own use. It is good because the market takes a breather. But prices haven’t really gone up that much. The key question is, have prices really come down?
I agree that it depends on the holding power of the developer. Now that land is scarce, its cost is going higher. If you have a good piece of land, depending on your outlook and timing, you can put more into the product to make it more valuable — so it is how we preserve the value.
Lee: I agree. Speculation has definitely come down. The Malaysian mentality always comes down to ringgit and sen. Not just in Malaysia but speculation has also come down in Singapore.
There are reports that quite a number of newly launched projects are doing well. For example, Sunrise’s Arcoris Suites, OSK’s The Atria SoFos (small office flexible office) and Sime Darby’s Isola project were 70% to 90% snapped up even before their respective launch. On the flipside, some real estate agents complain that the secondary market is pretty quiet, although there are exceptions. What is happening?
Teh: Absolute amount in the pricing is important. For me, it is not more than RM1.7 million. There are people who are buying smaller units but these are priced higher on a psf basis. There is a lot of domestic demand led by the fact that ‘my children will not be able to afford one themselves so I better buy one for them’. This is the trend. Smaller units are going. Anything more than RM1.7 million, from my personal experience, would be tougher to sell; so buyers are going for smaller units. In Singapore, they have Mickey Mouse units, about 300 sq ft, until the government said that no one could live in a shoebox like that. We are seeing this trend (here). At the end of the day, for any developer, even if we build shoebox-size units, we have to make sure that owners or buyers would have space to breathe and be comfortable.
Why RM1.7 million?
Teh: It is based on my experience ... I’m doing a preview now of our Penang project. We are looking at absolute amounts.
That seems to be the price threshold.
Khoo: When we sold Damansara Idaman, we had bigger units, with an absolute value of about RM3 million. We also had smaller units, way below RM1 million. On the day of the balloting, we sold all the smaller units priced between RM600,000 and RM700,000. For anything more than a million (ringgit), we see some resistance and it takes longer to close a transaction.
Low: We also hear a lot about very attractive payment schemes that have been locking in the sales — 5% down, balance upon completion, further discounts when you sign the sales and purchase agreement. Marketing strategies come into play as well. The risk is three years down the road. That is probably why the subsale market is less attractive.
That is an interesting point. What does it mean for the build-then-sell concept? Would it work?
Khoo: Why wouldn’t it work? In Australia, you pay 10%, you just wait until it is completed then you pay the balance 90%. All I do is come up with the 10%, ride the market and wait 18 to 24 months before I start paying. Six months before completion, you start looking for a loan. People tend to speculate.
Is this healthy for a market like Malaysia’s?
Low: We have developments in Australia. It is a different market. Recently, with Asians going in with developments, a lot of the buyers are Malaysian or Asian — for example, the recent S P Setia development in Melbourne. In Australia, their build-then-sell works, it has been working and has been the policy for Australians, predominantly in the Australian market. When you go to a place like Australia, you have to have far deeper pockets to wait it out because it is so tightly regulated.
'PRICES WILL NOT DROP'
Back to property prices, so there is no way prices will come down, considering the rising cost of land, construction, labour and so on?
Teh: I don’t think prices will come down, given what it takes to build — construction costs, land costs.
Khoo: I definitely don’t see prices coming off in the long term. For developers, their pockets will be squeezed as they have to come up with innovative things, throw in more facilities and more freebies to make their product more desirable.
So, margins are being squeezed?
Low: Developers are better prepared. They hold off launches and look at timing. It depends on when you want to launch. If you are launching in the first quarter (2012), you would have to take into account market sentiment. Marketing strategies such as deferred payment schemes will eat into margins.
So, the market can expect fewer new launches next year?
Cheah: Developers will definitely look at timing. They will be even more careful than before. Of course, when things are selling well, people are more confident. Now you’re being more careful. We really have to think about the right product, the absolute amount of the pricing is one. Secondly, if you go smaller, how do you make it functional? How do you make it so that people want it. It would force the developer to be more innovative in terms of the product design, packaging and pricing. All these have driven primary market sales better than secondary market sales.
There have been two components of the Malaysian overall price index in the last 10 years. Volume has always been cyclical but prices are quite stable. Whether prices go down or up, it is gradual — not like in Singapore or Hong Kong. This makes the market conducive for owner-occupiers.
For us (Sunway), we are going into integrated developments where you want to do products that are surrounded by amenities and where accessibility is good. Then people will buy not only for the functionality of your product but also for the appreciation value in the longer term — value creation. All that is part and parcel of how you want to sell the product rather than just the product itself.
In other words, prices will not dip but developers are getting more innovative and throwing in more freebies.
Khoo: That’s right. People are very discerning today. In today’s market, there is no frenzy where you queue up waiting to buy. Today, they can afford to hop around and ask what’s there for me.
Low: You can’t (just) disguise it with better payments or better furnishing. They know what they’re getting.
Khoo: Prices may not come down. We can hold the price but we tend to give more than what we would have earlier.
Low: Even for landscaping — a landscaping consultant can cost RM200,000 to RM1 million. Quality consultants [come with] a cost.
Khoo: Purchasers’ expectations are different today.
That is healthy — when purchasers become more knowledgeable and discerning ...
Lee: I agree with everyone that prices won’t come down. Everything is expensive now. Innovation is key at times like these. As a boutique developer, we look at niche markets. For example, we have a project that is sandwiched between two buildings. For the unit facing the wall of another building, we packaged it as a super-pad or a bachelor’s ultimate pad with a Jacuzzi outside and a view of KLCC. Another example — as a niche developer, if you are offering homes to a young family, you make sure the baby’s room has a smaller toilet seat and that everything is child-friendly or child-proof, so products like these would still work and attract demand.
So innovation and creativity are key to differentiate one product from another. But prices in good locations will continue to rise?
Low: I think that is quite accurate.
Khoo: You can’t reproduce location, can’t reproduce land. Once you sell it, that’s it. So you tend to see it appreciating.
Low: Also, the developers’ ability to create confidence in a development. Investors are looking at that as well for their long-term investment.
Cheah: Typically, for good locations, people like to stay there. In some ways, a good location can be created over time if the necessary economic activities are put there. But it takes time.
Low: That’s what differentiates the big-scale property developer from the smaller niche ones.
Teh: I think prices will go up in certain areas. In Mont’Kiara and KLCC, prices won’t go up as fast as in some areas.
As a developer, we can ‘create’ an area. For us in SS2, PJ [Selangor], we managed to create Five Stones and Ameera in a place full of landed homes. It is up to developers how they want to see the market. Should we do the same or do something different? When we do our market research, we have to be very mindful of certain things. Everyone is building terraced houses so do we build terraced houses? Or do we see what is not available here? Maybe we should build something different here and build a high-rise. So it is up to developers to differentiate themselves and decide whether they dare to differentiate themselves or not.
Low: Malaysian developers have shown that they are very innovative. They are well travelled.
Teh: Competition is very healthy. Gone are the days when people would just buy off the plan or just look at the model. Now everyone has to build not only just one show unit, you have to build a few. It is good for the industry. At the end of the day, the purchaser buys knowingly.
One of the main concerns of buyers these days is whether developers will resort to cutting corners to keep prices down.
Low: The build-then-sell concept will eradicate that concern. Again, the bottom line is pricing. You buy off a plan, you won’t know until you get your product in a few years’ time.
So, what is your advice?
Teh: Do your research on the credibility of the developer — who has been there longer. Now everyone can check everyone out.
Khoo: Check developers’ track record. Check them out, see what they have built, the quality, look at the commitment of the developer to live up to its name or branding and after-sales service.
On abandoned projects and the proposed amendment to the Housing Development Act, are the proposed stiffer penalties sufficient? Where do we go from here?
Low: It is very important that the market regulates itself. At the same time, the government steps in to help safeguard the interest of the buyers and the property market. In general, it (proposed amendment) is good.
Cheah: Abandoned projects are not good for the industry. Something should be done about them. Why were they abandoned in the first place? Smaller developers, if they can’t sell, (they) can’t afford the building costs.
It comes back to the argument, can you afford to build the whole building before you collect money? Here, we may want to look at build-then-sell to protect buyers. It (the concept) would be very difficult for developers unless they’re big and strong. That leaves only a few (developers); is that what we want? Then there may be less new supply on the market and prices would be high. Bigger townships will become even costlier (to build) and land prices will reflect that. We really have to study the pros and cons (of the concept).
IMPACT OF GLOBAL CRISIS
Global economic growth impacts our market. The key question, are foreigners coming in?
Low: They have been doing their research and groundwork over the past few years — just that the neighbouring markets seem more exciting.
Are we doing enough to attract them?
Low: More can be done. As for developers, we’ve done a lot.
If you have your wish list, what would you like to see being done to woo them?
Teh: It has not just got to do with property development. It’s got to do with the perception of the whole country. If I want to invest in a foreign country, I would want to know, from A to Z, a set of guidelines on investment. When the investment rules are very clear, everyone knows what to do, there’s transparency, then they will bring their people in. It is natural.
We have started improving ourselves already — is it a case of us doing too little too late?
Teh: In life, it is never too late. We have a lot of plans for the next few years, like the MRT (mass rapid transit). We need to get certain things off the ground. When all those things happen, naturally there will be demand for property. It is the natural, multiplier effect of a moving economy. But we need to have a kick off, we need to start something. The government can be the first to start. At the same time, we need entrepreneurs to run it. The government can take the lead, but entrepreneurs must be able to invest in it. They must put the money back into the country.
Isn’t this happening already?
Teh: I would like to see more happening.
Low: I would like to see the government taking on the role of facilitator. As more investments come in, local developers can plough back their profits to develop the country. What developers look for is healthy competition as opposed to unfair competition. We are talking about the government playing the role of facilitating the (building of) infrastructure. (Otherwise), small developers, how do they survive?
Dian, being a boutique developer, do you find the playing field level? Can you compete on a fair basis?
Lee: It goes back to the product. At the end of the day, buyers can see and compare the products and their track record. For a boutique developer like us, it is important that we deliver on time and quality.
What exactly can the government do?
Lee: Sending the right message. For example, the RPGT (real property gains tax changes under Budget 2012 ] was not very helpful. There’s a lot more that the government can do to help. I’m talking based on my experience from the projects that I have done. When we first launched Clearwater, we were not governed by the HDA (Housing Development Act) because at the time commercial property did not fall under the Act. It was a good thing that the government did (made the amendments) but we only found out two months later that the amendments to the HDA had been gazetted and that commercial property now came under it. We were not informed (about the gazette) and it was not in the papers, so we were frantic getting this and that because you cannot launch if conditions are not met! So being more consistent in general would be very helpful.
Low: I don’t know if you are aware of this, but now all our project names have to be in Bahasa Malaysia. If you are talking about projects planned for launch early next year, things (preparations) would have happened a year before that.
Khoo: It’s also the approval process.
Has that improved?
Lee: Especially if you’re a small developer, it is more challenging.
Why is that so?
Lee: Because we are a nobody.
Because the market does not recognise your name?
Lee: Not easily recognised and has not been around for long. There are areas that the approving authority can improve. When the guidelines change and they are not in the guidebook, they’ll say ‘we just changed it’.
So you’re talking about the need for consistency, transparency, communication, a level playing field …
Khoo: Some developers get their approvals fast while for some it take ages. Each time you submit (for approval), they don’t tell you what’s wrong, then they tell you that you need this, this or this. Then you put it in again and wait in a long queue. Then they tell you that you need more things. You are going in circles.
Low: These things are happening in all markets. We should improve (so as) to create demand for Malaysia as an investment destination. For instance, we should by now take our MM2H to the next level.
We need to move forward. There is a lack of continuity. It is a pity because the resources are there. Something like that can have a great multiplier effect. Why don’t foreign investors come here? They don’t mind paying more to go to a very expensive city like Hong Kong and Singapore — why not Malaysia? There are a few who have come and set up homes here. It is very real. We have a lot of good things. Of course, there are a lot of things we can complain about too.
We need to brand ourselves more at the international level?
Low: It goes beyond branding. It is branding and taking it all the way. The moment you step into the airport, from taking the bus or taxi, and getting into town and from there, connecting yourself to the mall. The traffic jams, the public transport and so on.
But there is traffic congestion all over the world.
Low: There are jams all over the world but it is about connectivity (for example) via pedestrian walkways. Where there are expatriates or foreign investors, for example in the KLCC area, the connectivity is coming but maybe that could have happened way back then. Today, we have an overhang of condos in the KLCC area. The pedestrian walkways and security measures in the KLCC, Bukit Bintang and Ampang areas should have been built in and provided for. Pedestrian connectivity in Tokyo, Hong Kong and Singapore is seamless — underground, overhead. All these things were talked about some 12 years ago. Not only the government but also private owners of these buildings do not have the will or are self-vested. If you are able to connect one end of the street to the other, I can park in your mall and walk indoors straight across to the other mall, and the mall owners can convert a lot of that into retail and commercial space. The public transport infrastructure is coming in — (but) we are talking about 2015; it takes years, money ...
Is this something the private sector can do and initiate — for example connecting one mall to another?
Low: It has been initiated by the private sector but it needs the authorities, with licensing powers to make it happen. Probably, all the developers will share the idea if it is organised and mooted by the authority. It has been talked about many times. Look at Japan. Despite all the challenges — railway lines, old infrastructure in the city, an 8ft-high ceiling in the railway station in Osaka — it works. They have a huge population. Despite certain compromises, it still works.
One of the objectives of the Greater KL plan under the Economic Transformation Programme (ETP) is to spur demand for high-end homes in the Klang Valley and to make KL city among the most liveable ones in the world. With the global economy uncertain, no thanks to the eurozone crisis and US woes, do you feel our plans will be derailed?
Cheah: They may not be derailed but we may have to take another look. We can look at the opportunity side of this crisis. The unemployment rate is very high in the West, so there are people looking for opportunities in Asia. We then have to compete with other Asian countries to attract them. What are the business opportunities, jobs available to them? The ETP is looking into this, whether in the oil and gas sector or biomass, to create technology-driven, service-oriented jobs and so on. If we look on the bright side and do that well, it could present an opportunity. Of course, if you look at the crisis and everyone is uncertain and holds back, that would be a bit of a setback in terms of timing. But if the plan is on track and we are set on doing it, I think it would still be okay. Ultimately, the ETP is quite inclusive, including looking into security (issues), which is a key concern for foreigners. They (the government) are doing what they can. It has to be all inclusive.
Teh: Sometimes in life, there will be setbacks. At the end of the day, at times like these, we should quickly get it all ready. So go ahead, get everything ready and start implementing. So when the good times come, you’re ready to harvest.
Low: We have to identify our competitive edge. What is our competitive edge? Have we really gone into that kind of real productive brainstorming analysis on what Malaysia or KL can offer? It is right in front of you but you don’t see it. It is not necessary to reinvent the wheel but to make it better, improve. When you’ve identified a sector, oil and gas for example, you have to study how you’re going to compete.
Singapore has absolutely no resources. They are importing cheap resources from Malaysia, branding them and adding value to them, including orchids lately. Why can’t we do it here? We do not have to reinvent the wheel.
As for the industry challenges?
Teh: I agree with what Dian said. Many guidelines on the ground level are not updated and are left to interpretation. We need to have a whole set of guidelines that is clear-cut. In Singapore, when we submit for approval, there is a checklist. It is not left to interpretation. Four weeks down the road, you know you’ll get the DO (development order). Within a month, they’ll give you an answer. If no, you submit again and you’ll know in three weeks. There is certainty. As an investor, we know definitely when is the soonest or the latest we can launch. There is a degree of certainty so we can plan for the next few years. That is important for investors — when you put the money in, when you can press the button and go. Guidelines have to be in place for everyone who wants to invest in the country.
The call for transparency is nothing new and the processes are supposed to have improved. Is that not the case on the ground?
Teh: I would say we are trying. At the end of the day, we say one thing but execution is another.
Is that the challenge for you?
Low: It is never easy to have policies put down. We are not short of policies and guidelines but ultimately, it is the execution, enforcement and mindset. It is not only government bodies, it is the same with companies — the mindset, the culture or way of doing things.
Have things improved?
Low: Things have improved and of course, (it) could be better.
So, we moving too slowly?
Low: We are progressing but we could be faster. Of course, there is room to improve if you want to compete and bring in investors.
What do you see on top of the list of things that need improvement?
Low: Delivery system. For example, the one-stop approval centre is a move forward, we just have to see it through. It is the execution process. We need to address every party that is relevant and contributing to it.
Khoo: Lack of information. It would be good if the authorities could put information online on their websites and get them updated. Changes in guidelines often take us by surprise. Only the officers know when there are changes in the guidelines.
Low: They are even debating to have the name of projects in Bahasa Malaysia. If we want to sell to foreign investors, we translate (the names) into English? Little things like this are important to attract foreign investors.
Khoo: Look at China. When I wanted to set up a company in China, at least they tried to have things in English. You’d be surprised that you can get quite a lot of material on the website, which you can download. That would give you an understanding of how to move around. That is lacking here.
SKILLED LABOUR WOES
What about the availability of skilled labour — is it an issue?
Low: That is a challenge. The construction industry is a challenge. We are lacking in quality.
Khoo: The Indonesian workers we are using are cheap but not really skilled. We can’t always be watching them, there are a lot of issues in quality.
The cost of bringing them here is rising. Moving forward, what is the solution to get skilled labour?
Khoo: Overseas, you have to be licensed, go through vocational schools.
Low: There may be problems in attaining certain standards in construction and interpreting very good designs — no point having a good consultant who can design if we cannot make it happen. But I don’t think getting professional workers is a major challenge as there would be even foreign companies coming in to build for you.
Teh: Labour follows demand. If we want higher skilled labour, the prices of houses will go up. It is economics. The quality will be better.
We are now talking about higher management. Singapore and Hong Kong have taken a lot of talent from Malaysia. That’s because they pay a lot more. At the same time, it is important for companies in Malaysia to know how to retain their existing talent. What we should do is retain what we’ve got first before asking people to come back. It is up to the company to stop people from leaving.
Adaptive leadership is important. Now, everyone’s role is enlarged. Gone are the days when you just do this role. You need to bring your previous experience to this new company. Adaptive leadership is a talent we need to enhance in the country.
Cheah: This lack of talent is due to shortage. So shortage will increase prices and costs. On the other hand, we have a lot of costs embedded in inefficiencies, whether it is approval time or bad workers, as work has to be redone. If we have better skilled workers, remunerate and train them better, that would help a bit. That is difficult to do.
In Singapore, they also have foreign workers but somehow their quality is better. We have projects in Singapore and our colleagues there say it is the process; how we want to supervise and train them. We need to look into the whole process. It could be the same workers but it is how you lead the process, your talent managing them, your leadership. We are losing a lot of people because of the money. If we can get that right, it should be better. Ultimately, Malaysia still has a lot of opportunities for them if you give them a role in terms of career development. We have no choice now because of a lack of talent. A lot of emphasis is now put on the career development of the staff.
For a boutique developer, Dian, what would be your challenge to retain and attract new talent?
Lee: It is like a circle, everything is connected. What I’ve noticed is that big (construction) companies like the ones we have worked with, we are very happy with their work and we pay a slight premium because we want to make sure the project is of a certain standard. But they are not doing well here because they don’t have enough jobs. A lot of these big companies, their offices are shrinking in size. It goes back to the overall economy. If there are jobs, there will be talent, they will come in.
What about funding, is that an issue? Are banks ready to lend?
Khoo: So far, no issue with banks. So far so good.
Low: After what they have gone through, what has happened to their industry, there is more relationship building and they are more long term in thinking.
Teh: Banks need to work their money as well.
Khoo: Banks would look at the risk, the developer, the product, whether it will sell or not, and so on.
Is housing property investment still the flavour of the day — are people still buying? Or are the other segments of the market — industrial, commercial, retail development — getting more popular ? What are the investment options?
Teh: When the stock market is volatile, a lot of people will go back to property and they have lots of choices now on what property to buy. It is very subjective — whether for their own business, their children. There is an array (of choices).
Low: After you own your first home, you’d probably be looking for a second home or in other sectors — shophouses, upcoming hot spots and looking towards capital appreciation. There is liquidity and money going back to real estate. There are a lot more choices now. They are very savvy, discerning — no qualms about investing up north or south, across the Causeway. Malaysian investors are still buying but they are very selective, better informed.
Cheah: The residential market is still there. From our experience, we see quite strong demand for shops and retail so prices are holding well and even going up. People who buy shops tend to be people who want to run the shop, especially in good locations. Seeing the current environment, property is still something people will want to buy.
Another less risky alternative is REITs (real estate investment trusts). REITs present a very good alternative, especially in this sort of environment. So there are a lot of alternatives for consumers.
Or just buy land?
Khoo: I think houses will do well. It has a lot to do with the Asian mentality, which always believes you have to have a roof over your head, so we see parents buying for the next generation, young couples coming out and their priority is to own a house — a sense of security. Housing will definitely take priority. Shoplots will probably do well because of the Asian (mentality) as well. Some of them are business people who prefer to own rather than rent. REITs would be for those who are savvy investors, the younger generation. The older generation tends to go for houses and shops.
There is talk that the recent tragedies (earthquake and tsunami) in Japan and Bangkok (floods) have resulted in some industries looking at relocating to Malaysia. Is that true?
Lee: Malaysia is a very liveable place. We mentioned MM2H earlier — there is still room for the government to package it better. For some reason, we are the only Asian country where it is so difficult to get a PR (permanent residence). In Singapore, for instance, it is easier. A lot of people would love to retire in Malaysia. The cost of living is low and property prices are not that high.
Low: It is happening. For instance, in Japan, there is a mindset shift post-earthquake. They (the Japanese) are more willing to accept and adapt to the idea of investing in property overseas — for the average Japanese, buying a second home or possibly relocating to a place like Malaysia. In Thailand, with the floods, again it’s a mindset shift. It has such a huge population. The retail business, like in China, has so much domestic demand. But now they are seeking opportunities in Malaysia. The same will follow for residential interest (property investment).
Teh: The natural disasters have raised awareness but it will take time for them to decide to relocate. Thailand is the largest hub for automobile manufacturers and I would say Malaysia could be a beneficiary of these industries. It is something that our government should be aware of. We have to be opportunistic, although at other people’s adversity. This is part and parcel of doing business.
Khoo: The only problem is that we have too much red tape. A friend of mine was trying to set up an office in KL. (After) two to three months, he couldn’t even get a phone line, but setting up office in Singapore, within three weeks everything is done and you can just move in. If I were an investor, where would I want to go?
Low: The policies are there, we want more investors, we want tourists to come but the average tourist taking a taxi ride from hotel to mall gets fleeced. Going back to being beneficiaries, we won’t be able to seize opportunities as long as we are more reactive than proactive.
Khoo: Malaysia is a very conducive country for business, our people are educated, communication is in English. A lot of infrastructure is available here. If we know how to tap and position ourselves properly, we would be a beneficiary of a lot of things.
Realisation is one thing but the will to do it is another. On the micro level, what is your strategy going forward. How do you stay on top of the game? Is big beautiful or small and boutique is the way ahead?
Lee: We would still stick to what we have set out to do. We built the company (Clearwater) doing smaller niche developments, focusing more on design and quality. Moving forward, that would be our strategy. Having said that, the next project we are launching is a 800-unit development. We have over seven blocks, each block will have its own card access, own lobby. You don’t feel that you are in an 800-unit development. At the same time , you get to enjoy a larger swimming pool. We will still try to infuse the boutique element into the development. Also, management is very important. A lot of buyers look at how the property is managed.
Any plan to go overseas?
Lee: Not at the moment. We are looking for opportunities. Right now, we haven’t found anything.
A boutique developer would not have the economies of scale. How do you compete in pricing?
Lee: Because we are not a public-listed company, we don’t have the pressure to push for a certain level of growth, so we are flexible in terms of how much money we make. We are always on the lookout for land — but we only bite off what we can chew. We focus a lot on good design. At the end of the day, the product speaks for itself and buyers can see that.
Innovation and caution are the buzzwords now. Would it be any different five years from now?
Lee: I’m quite happy staying this size. My plan is one project a year. Because we are not listed, we do not have the pressure to launch, we take our time, we pay a lot of attention to detail. That is our edge.
Khoo: For TA, we are not the likes of S P Setia or Sunway. We have very small, niche-type projects in Malaysia. We consider ourselves a new kid on the block. As you can see, we also have a bit of diversification in income stream. We don’t depend on property development alone, we also have property investment in buildings and hotels. That would continue to give us steady yields, which would help us sustain (ourselves) because we believe property development is cyclical.
At times, it is not that your team is not up to par or (that) your product is not ready to sell; it is just that the marketplace is not ready to buy. There is a whole team whom you need to feed, who looks to you for bonuses, increment. If there is no revenue, how do you sustain that? Our strategy is to go on with consistent income from property investment that would provide the base to sustain us. And if the market is good, it’s a bonus for us. If the market is not good, that (the recurring income) would sustain us and we will continue and carry on our projects so our projects don’t stall.
What is the size of your income from investments?
Khoo: In our last financial report, property investment accounted for 60% of revenue.
That would be 60:40, but the ratio would depend on the market, wouldn’t it?
Khoo: Correct. The income comes in very lumpy, not because we don’t have projects but because of the timing. If it happens during times when you can’t make a profit, then your report card looks bad. Investment income helps us look better.
Are you looking at more investments abroad?
Khoo: TA Global means TA is going global. About 55% to 60% of our revenue is from Malaysia, the rest from overseas. We have a presence in Canada and Australia and we do have investment in properties in China and Singapore. We have hotel investments. If the opportunity arises, we would acquire more assets.
STRATEGIES GOING FORWARD
In a nutshell, what would be your strategy going forward?
Khoo: In global economic times like these, what’s most important is to be sustainable and complete whatever projects we have. Also to start planning, getting ourselves ready for the market. When the market is ready, we hope to roll out more projects.
So, you’re not putting on the brakes.
Khoo: No, we are not. We are already working hard getting ready.
Cheah: We look at what our strength is and opportunities in the market. We (Sunway) have recently merged our businesses. We will focus on integrated development. Going for strategic bigger sites where we can make a difference with a few components working together to
create value. Also, we have the REIT vehicle, which fits in nicely with our investment properties housed under the REIT. The business model is to look for landbank, to create a new address. If it is already an (acknowledged) address, then obviously to create better value. Other than giving a good product, we want to make sure that the value of the overall development goes up when we develop the adjoining amenities and other products that go with them. That would be our strategy going forward.
A more integrated approach?
Cheah: Yes. Other than building things, we want to own and operate them, then we want to put them under our REIT. We already have the whole business model set up, the team is there. All we hope to do is replicate this in key locations going forward.
What about investing overseas?
Cheah: We have been in a few different areas — Cambodia, Australia, India, China and Singapore. Moving forward, we would like to focus more on Singapore for developed country exposure and China as a developing country opportunity. For growth, we are looking at these two.
Low: I’m here today as managing director of Low Yat Group post-privatisation of AP Land. We do have a well-diversified portfolio. Property, both investment and development projects, contributes 60% (to the group), with the rest from the plantation component. We are still very much a property player in hospitality. For the group, we would like to consolidate our resources and take another look at the property sector. When you have a diversified portfolio in property, in order to excel, you do need to have multiple focuses. That’s the challenge. It is something that is not impossible.
Will development remain a key component?
Low: It would be one of the core components. Not unlike what Kimmy (Khoo) said, having your portfolio in investment properties like hotel and retail serviced apartments as part and parcel of hospitality does provide a stable recurring income source. Development projects, (we will launch) as and when. We are no longer pressured to maintain the growth momentum. It goes back to timing, getting your plans ready. Timing is more important than anything these days.
And your current interest in overseas projects?
Low: We have a project in China. It is 30% commercial and 70% residential. (There is) also one in Hokkaido, Japan, which has been set back one to two seasons, completing in 2012. It has a very niche target. Again, it is in Asia, the first international-type resort that is on a par with what you see in Europe and America. It is referred to as the Aspen of the East. Very niche and has all the potential to be a great international ski resort.
You would continue to look overseas?
Low: Yes. When you go overseas, there is a great deal of lead time and investment in settling in, takes up to two years or more.
Did you have to pay ‘tuition fees’?
Low: That is what I mean. The tuition fees, the learning curve; by the time you learn enough, you’re fed up. You’ve paid so much fees, taken up so many challenges, you have to take another look, add more resources and commitment to go further in those markets.
Teh: For us, branding is important, delivering what was promised. When we start off at the showroom units, it is important that when we deliver the product it is what was actually purchased. Making sure that the MC (management committee) is capable of running it (the project). It is a life cycle. Branding is not just buzz. We have to make sure we match the expectations. It is not a matter of just selling.
We started property development only seven to eight years ago. We have just bought our fifth piece of land in Singapore. Eventually, our income stream would be 50% Malaysia, 50% Singapore. We are investing in developed countries. We started just four years ago in Singapore. We are still learning. We want to do well in that country first before we move on to the next country. If we do go to the next country, it would be in a developed nation. (NOTE: The roundtable was conducted before Singapore announced its latest clampdown on property investment.)
Do you have any country in mind?
Teh: We have invested in London. Our first investment there was a few months ago. We are a landlord as we bought a building — HSBC is the tenant. We wanted to know the legal system, just as a landlord first, then for the next stage, do something more active, maybe refurbishment. When it comes to learning, we have to move step by step — baby steps — not just plunge right in. That is how I bring the company forward.
Our first piece of land in Singapore was very small. As we learn more, we get braver and buy bigger pieces.
Do you see your company keeping to its 50:50 overseas-local contribution from development?
Teh: It would be 50:50 for the next two years, then we’ll see how it goes. When we go overseas we bring some of our knowledge that could differentiate us overseas, and bring overseas knowledge back here that can make ourselves a bit different. This is what I mean by exposure. We go to different countries, we see something and bring it back here if we feel the market here is able to accept it. Not bring something that cannot sell.
Your pick of hot addresses.
Teh: I like Penang because I like the way it is managed.
Do you have any landbank in Penang?
Teh: We are launching a new project there.
What potential do you see in Penang?
Teh: The perception — Penang has received a lot of publicity overseas. It has been well received. The confidence to purchase property in Penang as investment is strong.
Going micro, is there any particular area in Penang that attracts you most, apart from the location of your project?
Teh: It depends on what you are looking for. There are a lot of international schools and that is very attractive to foreigners. The schools are not as pricey as in KL — that is what I heard. And there are industrial areas. We look at it in totality — industries, things for your family and outdoor life.
Do you see the interest spilling over into the mainland?
Teh: I totally agree with the last article I read in The Edge — the infrastructure needs to be improved. When that’s done, there will be (spillover) eventually like in Hong Kong. But it will take time.
Penang tops your list. Next?
What about Johor?
Teh: It has been made to be very attractive. We need to be able to see the infrastructure — not just the roads but getting the projects off the ground, the approvals, people moving there. We need to see physical activity. We need to see something coming out.
Low: We see the multiplier effects with government incentives.
(To Low) You like Penang too?
Low: I love Penang. SDB and YTL have announced prices for their projects — a quantum leap. Why? It is an island and land is scarce.
Are you looking for land there?
Low: We have projects launching next year.
Besides that, do you still have landbank?
Low: We have a hotel project as well as a gated residential project … that would be the last tract on natural terrain along the Ferringhi stretch. Again on hindsight, the timing. Even up to a year or two ago, any property more than RM500 psf was something new. Today, we are talking about developers coming in with the confidence to bring in better products to attract high net worth MM2H investors. In the initial phase, many were coming in, buying apartments, maybe US$200,000 to US$300,000 — enjoying cheap property prices and fresh air. Obviously, it has taken us nowhere by just being cheap. A lot of Penangites have migrated to bigger and more progressive cities like Hong Kong and Singapore (but) they want to come back. They want to own a home of a certain standard and quality they are accustomed to and want to come back to Penang. With all these projects coming up, it is great.
Besides Penang, what other addresses excite you?
Low: The LATAR expressway area is opening up. It is a major long-awaited infrastructure opening up the Guthrie corridor to the north. Southwards, a lot has happened. This connectivity means a lot. You see a lot of development coming up north.
Any particular area up north that you’re excited about?
Low: Towards the Rawang area. Specifically, we have landbank there. Better connectivity will take it to the next level. Connectivity means a lot. Our plans are well underway. Jusco has just opened up there.
If you were to acquire a piece of land in the next three to six months, where would that be?
Low: Johor. Because of its proximity to Singapore. Again, at the right price, whether north or south. In Semenyih, we’ve just completed an industrial park sale. We’re actively completing construction. It was not a hot spot up to three years ago.
Do you see potential in the areas in close proximity to the MRT alignment?
Low: Oh yes. Those would be the areas for retail buyers.
Cheah: For us, our strategy is going into the integrated development model or bigger townships. The Klang Valley, Penang and Johor would definitely be on our radar screen.
In that order?
Cheah: Sort of. Johor has an interesting tweak to it. We see good contention for the longer term. It is a matter of when is a good time to go in.
Longer term would be five years?
Cheah: In Iskandar, a lot has been put in. Maybe next year, 2012/13, there will be a lot of investment properties starting up. That would be key. We do feel with a better relationship with Singapore, there are a lot of opportunities there. Johor is one. In Penang, we have a lot of landed property. Most of the time, our launches there are landed and (they) always sell very well because land is scarce. We recently bought land there. We are likely to go primarily landed for Penang. The main ones are still going to be in the Klang Valley, along the MRT lines. We are fortunate that our developments are located next to it and we will build upon that. We would also look at good land next to the MRT lines. That is the key catalyst driving the traffic. Because we do things with a commercial component, it is very important to be near lines on top of (the development’s) accessibility.
Khoo: We don’t have any developments in Penang. I have been looking. It is difficult to get land there, it would be expensive if there are any available. Everyone is flocking there and it has become a hot spot.
What area would be on top of your list away from Penang?
Khoo: We don’t have any in particular. We are open, waiting for an opportunity.
But which area would you consider as a hot spot? Let’s narrow it down to the Klang Valley.
Khoo: Many people are moving out of the city and PJ. I do see opportunities outside, like Puchong. It is coming up.
Do you see the KLCC market coming back?
Khoo: Yes, but not now. It will take some time. Definitely, it will come back. Our landbank is strategically located. Prices are holding. Even today if I were to find land in KLCC, it would not be cheap. The prices are holding at RM1,500 to RM1,800 psf.
Low: If you were to live in KLCC, what sort of experience could you get? Yes, you are within walking distance, but it is hot. You don’t have public transport. What can we improve on? It has great potential. Some of these things can be made right. The expats are coming in. That is a great location. It will always be the city centre.
Lee: My first pick would be the Klang Valley, especially the city’s fringes. Not so much in a particular area. Property within RM200,000 to RM500,000 would do very well. Young people from the outskirts would want to live in the city, young families.
My second pick would be Penang. It is now the beginning of a trend for Malaysians to buy a second home in Penang. I can see Penang being a Hua Hin of Thailand. I, myself, am looking for a holiday home in Penang. Thirdly, Johor, because of its proximity to Singapore. A lot of Singaporeans are looking for a place to retire, a place with a garden. Probably in five years’ time.
Low: We talked about KLCC as the city centre. What used to be called the city’s fringes, Jalan Ipoh, Sentul, is very much part of the city centre now. It is progressing in that manner. Hot spots are opening up. I have a project there, our headquarters is there, right across KLPac (Kuala Lumpur Performing Arts Centre). You can see the rejuvenation of that area has lifted it. The day we launched, prices were as low as RM280 to RM300 psf. Right now, they are almost RM2,000. Again, the differentiation is having the opportunity now and the connectivity.
FORECAST FOR 2012
How will the property market fare in 2012?
Teh: I think the property market is going to be stable. I don’t think there is going to be a big dip.
What is the pricing range?
Teh: We are still going to grow. The price will increase about 5%, depending on construction material costs. At the end of the day, it is all about demand and supply. It is a very good time for purchasers to look and shop.
So, it’s not all that bad. Do you see a stable market only at certain locations and not across the board?
Teh: It would be location-centric — all factors come into play; whether it is high-rise, commercial, landed or retail. As a developer, we must also know who else is launching — whether there is too much of that property type around the area. A developer must be well researched. When it comes to location, we must know who is launching around us. Is there going to be a lot of supply of that property type or is it going to dry up?
Those hoping for a price dip will be disappointed.
Teh: There will be developers who would want to sell and those on the secondary market who need the money. Generally, I would say prices would be stable.
Low: Investors will be cautious next year. Cautious meaning being selective, they want the best bargain. On the one hand, they have the opportunity to be more cautious to assess their risk. On the other, they have to make decisions. But companies will have to move on, developers have to be more cautious as well.
Cheah: The market will be stable. Certain locations will go up 5% to 10%. External news plays a big part in confidence and sentiment. That is what we have to watch for. Secondly, as long as companies are still okay, unemployment is maintained, doesn’t move too much, that will also be an indicator of (increasing) confidence.
There will be certain locations where prices will move for various reasons. Property is about location. In the end, it is location that will give people the confidence. Like you said, even today, there is a cautious mood that we all feel. But there are projects that are still selling. It is the location and people do have the money. Liquidity is there, the savings rate is there. Is the interest rate still going to be reasonable like this? Can I still get my loan? Do I get better returns than putting (my money) in fixed deposit? If property is good, then I go for a good location. There would be no bloodbath. Certain areas will see a pick-up. The dips would be more on the secondary market.
Khoo: I agree with all of them. As long as there is employment, the economy is stable, the property market will continue to be stable. Prices will go up in certain areas and for certain product types. Generally, people are selective now; very cautious, sensitive to what is going on around them. It depends on how the world economy is moving.
Lee: One of the key things going forward is that property buyers want to see value for money. Prices are going to be stable in some areas. Malaysia, in general, is still an attractive place to buy property — reason being they are the cheapest in this region.
Yet foreign buyers are still not coming in fast ...
Lee: There are a few things that the government can do. We need a good campaign to create a good perception of Malaysia. But Malaysia is still a good place to invest in. With all the natural disasters (happening) in the world, Malaysia is very attractive.
We have not talked about the environment. How, as a property developer, we can make minor changes to one’s household lifestyle. This green trend is no longer just a trend, it is now moving forward. Every household should adopt a green lifestyle. Buyers actually ask what green features you have — is there a property you have that can help me save money in the long run? That is how we sold our second project. Developers are going more in-depth. It (going green) is not just a fad, and buyers are smarter as well.
Low: It is a question of supply and demand. If there is demand, there is recognition for what you’ve put in, the added value and the premium.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 890, Dec 26-Jan 1, 2012
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