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City&Country: The Edge Top Property Developers Awards 2009-- Gearing for growth

Sunway City has big plans and while the global financial crisis may have decelerated some of these plans, the developer has its sights firmly trained on the future.

Three things excite Sunway City Bhd. According to its managing director (property development) Ngian Siew Siong, they are “property development, our real estate investment trust (REIT) and our regional expansion”. As excited as he is about what’s on the drawing board at Sunway City, Ngian is cognisant of the fact that in property development, timing is everything.

What’s more, depending on the macroeconomic conditions, plans can — and need to — change.

Just a year ago when City & Country caught up with Ngian for The Edge Top Property Developer Awards 2008, he revealed Sunway City’s plans to launch new developments in India and China as well as unveil its much-anticipated RM4 billion REIT. While the US subprime mortgage crisis that then swept the world into financial turmoil decelerated those plans, one year on, it appears as if the company has survived the crisis largely unscathed. Net profit for the 12-month period of July 2008 to June 2009 stood at RM141 million, up from the RM129 million recorded in the previous corresponding period, says Ngian. This, he adds, is the result of the continued strong showing from its commercial and retail properties as well as unbilled sales from property development that stood at RM1 billion at the beginning of 2009.

He acknowledges that the growing contribution from Sunway City’s property investment activities has also buoyed the company’s financial performance and helped it weather the uncertainties in the property development sector.

“For the first time, our income from property investment [contributing 60% to the total revenue] has surpassed that of property development,” he says. This, he points out, is largely due to the completion of Sunway Pyramid’s expansion at end-2007 and subsequent registering of 100% occupancy in 2008. Sunway City also completed the RM20 million refurbishment of Wisma Denmark on Jalan Ampang (since renamed Sunway Towers KL) in June this year; with the refurbishment, the building, with a net lettable area of 260,000 sq ft, is now commanding net rents of RM5 psf, up from RM3 psf previously.

“With the retail and office market being stable, we’ve been able to enjoy the best of both worlds,” adds Ngian.

However, he says up until August this year, the property market has been relatively quiet as evidenced by the lack of new launches and the less-than-encouraging take-up rates for existing offerings. “Up until a month or so ago, there were not many new launches,” he says, adding that new launches are an indication of the return of market confidence.

Sales, too, have been slow, especially in the upmarket segment, he says, pointing to Sunway Vivaldi in Mont’Kiara. Launched at end-2008, to date 40% of the 98 units of condominiums and duplexes have been sold. The condos, with built-ups of 2,500 sq ft, are pegged from RM2.2 million while the duplex units boast built-ups of 3,200 sq ft and a price tag of RM2.8 million onwards.

Lessons from previous recessions
While Sunway City has felt the effects of the global financial crisis like many others in the property sector, Ngian — who’s been with the company for more than two decades — says the present challenges are different from those that cropped up in the wake of the Asian financial crisis of 1997/98. “This time around, we’ve been lucky in that we’ve been quite insulated from the effects of the global financial crisis, banks are also flush with liquidity and the interest rate is the lowest I’ve known in my entire working career,” he says.

An artist's impression of one of the developer's latest projects, Sunway South QuayHe adds that lessons learnt from previous recessions have also taught developers to be more prudent. The company, he says, has maintained a low gearing at 0.6%. While this is still higher than that of other developers, he points out that the debt has been put to good use for the purchase of investment property. “We also have strong reserves; our cash reserve stands at RM442 million.”

He says unlike the previous recession, which saw a large oversupply of properties, this time around many developers have opted to defer new launches. “Property is not something perishable and if you have prime land, it doesn’t make good business sense if you cannot realise its full potential,” he says.

He observes that new launches are meeting demand rather than speculation and as such, the property market isn’t faced with an oversupply of properties. That the property has to meet demand is fundamental to the way in which Sunway City approaches property development. “We carry out R&D and conduct tests on our focus group of customers,” he says, adding that the R&D department that has been in existence for some time is an integral part of the company. “The product has to be right… the identification of the market segment has to be correct.”

In addition, the developer places importance on customer loyalty and through a customer loyalty programme, rewards repeat customers with special previews to view and select choice properties as well as discounts of 2% to 3%. “For some of our developments, repeat customers make up 70% of the buyers while in general, it’s quite common to have 30% to 50% of buyers being repeat customers,” says Ngian. He adds that Sunway City’s database of repeat customers total about 15,000 and this grows by about 20% a year. “Developers cannot rely on advertisements alone… your customers are your best advertisers and marketers.”

Having weathered previous periods of slowdown, the developer recognises that even in a downturn there is no room for complacency. That is why despite having had to defer some of its launches, Ngian and his team have not been idle.

“In the last year, apart from building the relationship management team, we have also been building capacity… we have been aggressive in recruiting management trainees and developing our mid-level management talent,” he says. On the product development front, the developer has also been reviewing and redesigning its property offerings in anticipation of the economic upturn.

Going green
For Sunway City, building green homes isn’t just a buzzword or part of a marketing strategy. “As a responsible corporate citizen, we must embark on green [initiatives] to not only save the environment but also because customer demands dictate this,” says Ngian.

He says green buildings are important, especially for commercial developments, where very often potential tenants, in particular multinational corporations, ask if the property is a green building. He says two of Sunway City’s developments — Sunway Palazzio at Sri Hartamas, KL, and Sunway Challis Damansara in Petaling Jaya — have the distinction of being awarded the Building and Construction Authority of Singapore’s Green Mark certification.

Elaborating on the green features at Sunway Pallazio, he says the condominium development boasts deep balconies for sun shading, large windows to promote natural light and ventilation as well as rainwater harvesting, among others. He adds that with these green features — which set a new benchmark where environment-friendly features are concerned — more than two million kWh of electricity can be saved in a year which translates to RM625,990. This, he points out, results in 1,250 tonnes of carbon dioxide saved or an equivalent of 57,000 trees.

He says Sunway City has also been implementing environment-friendly features in its developments from the very beginning, starting with the orientation of its properties to avoid the rising and setting sun.

On the cards
Going forward, Sunway City has a few developments on the drawing board that it plans to launch once the property-investing climate improves. These include Sunway Velocity, a 22-acre development on Jalan Peel in KL, and Phase Three of the Sunway Pyramid development comprising SoHo (small office and home office), retail units and generous car park facilities to complement the existing mall.

The developer has also trained its sights on the overseas markets, particularly India and China. Ngian says the soft launch for its Sunway Opus Grand, a condo development in Hyderabad, India, is slated for sometime this month. The project, he adds, is a mid-end development. “As it is our first entry into India, we wanted to venture into something less risky… this gives us the opportunity to learn about the local business culture and understand the local market sentiment.”

In the meantime, construction on its project in Jiangyin, China, is also expected to begin this month with the launch slated for mid-2010. “We’re also looking at Vietnam, but we’re more excited about India and China, given the market size,” adds Ngian. He anticipates that in five years, 30% of Sunway City’s revenue will be derived from its overseas projects.

While the launch of the much-anticipated REIT has been delayed, Ngian assures that the launch is on track. “It’s still in the pipeline; it’s just a matter of timing. It also depends on the investment climate. It’s too early to tell where it’ll be listed, most probably Malaysia as we’re quite patriotic,” he says.

While the properties to be included in the RM4 billion REIT have not been finalised, Ngian stresses that the developer is eager “to unlock the value of our assets”.

“After that, my guess is the company’s gearing will be very much lowered, almost zero, and these proceeds will then be used to invest in landbanks, both local and regional, and reinvested into incubation projects,” he says. These would include Phase Three of Sunway Pyramid as well as a purpose-built office building located on the one-acre vacant land adjacent to Sunway Towers KL (formerly Wisma Denmark).

With these plans, he projects that in five years, Sunway City will be a regional player. “With the REIT, we will be one of only a few property players that are active in property development, investment and REIT.”


This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 776, Oct 12-18, 2009.

 

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