THE EDGE Property Excellence Awards 2013: Building more than just townships

The Edge Top Property Developers Awards 2013: No. 3 - Sime Darby Property Bhd

WHAT’S your perception of us? Just a builder of landed homes right? Well, that’s something we want to change,” declares Sime Darby Property Bhd (SDP) managing director Datuk Abd Wahab Maskan as we sat down for this interview.

Wahab, who is also Sime Darby Bhd group chief operating officer, along with his team at SDP want to prove that the group is capable of rolling out more than just housing estates. To this end, the group will build a number of retail and industrial properties, starting with Melawati Mall in Kuala Lumpur and a clean, green and smart industrial park in Bandar Bukit Raja, Klang.

Besides diversifying its portfolio, the group is also seeking more assets for income generation in a move to prepare the property developer for an eventual listing on the Main Board of Bursa Malaysia.

The group has also embarked on numerous joint ventures as part of its “knowledge sharing” efforts. Besides the RM40 billion rejuvenation of the Battersea Power Station (BPS) in London that it is jointly undertaking with S P Setia Bhd and the Employees Provident Fund, the group has inked a deal with CapitaMalls Asia Ltd to build and manage the aforementioned Melawati Mall and is looking for partners to build the Bandar Bukit Raja industrial park.

SDP has ranked among the top 10 eight times since the awards started in 2003. It retains its third place from last year, but it has risen in the quantitative rankings by one place to first place, while its qualitative rankings have especially improved to seventh place from 10th place last year.

Wahab shares the company’s plans his views on the property market and what needs to be done to build more affordable homes with The Edge.

On the property market, we believe the government must create opportunities to enable developers to build outside traditional hot spots through better infrastructure, mitigating the cost of utilities and so forth. - Wahab

The Edge: What are the properties that will be in demand?
Datuk Abd Wahab Maskan: Most people fall into the middle-income group, based on statistics from the government and independent researchers. We know that prices of affordable homes in this country should be around RM300,000 to RM500,000. That is what people are demanding.

There is great demand for affordable homes and I believe this is an area many developers will focus on. But the challenge is, where and how can we supply this type of homes?

At the same time, there is always demand for higher-end products, even if the percentage of buyers is not very high.

So the products that are in demand are basically landed residences, which are really popular but very scarce in more central areas.

Why is SDP using strategic partnerships as a way forward?
It is one way to diversify. Right now, we are heading into the retail industry through two developments — a shopping complex in Melawati and another one in Subang Jaya, as part of our Subang Jaya City Centre (SJCC) mixed-use project.

Melawati Mall is a 50:50 joint venture with CapitaMalls Asia Ltd that fronts the Middle Ring Road 2. The mall will have a net lettable area (NLA) of about 620,000 sq ft. The project has a gross development cost of RM670 million. Construction has just begun. The mall will open in October 2016.

The mall is not very far from Ampang. We are estimating a catchment of 800,000 people within a 5km radius. In terms of footfall, we are conservatively looking at close to 400,000 on a daily basis. On the weekends, we expect more visitors, obviously.

Based on our studies, the average disposable income per household in terms of sales per capita is RM10,000. But in this area, it is RM13,500, so the buying power is very much above average. That is why we are very confident of the prospects of the mall.

I would say our competitors are Wangsa Walk and nearby malls. At the same time, the concept and the product mix that we are putting in is distinct from other malls there, which is why we call it ‘city shopping at your doorstep’.

The residents in the area go to KLCC to shop because they cannot get the same feel and environment here. That’s why it will feel like going to KLCC. We will have every kind of tenant that KLCC has, except super-luxury brands, plus other interesting brands that will make their debut in Malaysia.

SDP has no experience in retail management though.
We are going to manage it with CapitaMalls as well. We have already set up a retail management company that is jointly owned and staffed by both companies.

Initially, its CEO will be from CapitaMalls. But our people are also involved so we are growing into a new area of expertise as well, hence the knowledge-sharing.

CapitaMalls is very established — it has interest in, and manages, 103 shopping malls in 52 cities in Singapore, China, Malaysia, Japan and India. But our people are not inexperienced either. We have chief investment and marketing officer Tan Kok Heng, who was from CapitaMalls. Now you know why we took him in!

I too have retail experience, albeit more on development than management. My first project was Bukit Bintang Plaza. That was in the late 1970s, which tells you how seasoned I am!

Next up is the SJCC’s retail mall, which will be developed by us. It has 400,000 sq ft of NLA. We will definitely be involved in managing the mall but the question is, do we manage it 100% or do we find another partner?

Top: An artist’s impression of SJCC, a mixed-use transport-oriented development (TOD) coming up in Subang Jaya. Bottom-left: An artist’s impression of Battersea Power Station which it is jointly undertaking with S P Setia Bhd and the Employee Provident Fund. Bottom-right: Oasis Square in Ara Damansara.

What else are you looking at besides retail?
Industrial properties. We actually sold industrial plots before, but we have not built on them.

We plan to develop and manage industrial parks. The first will be at our Bukit Raja township in Klang, which is a strategic location for industrial properties because of the numerous highways linked to the township such as the Federal Highway and the New Klang Valley Expressway.

Bukit Raja, which is currently 60% developed, is about 4,000 acres, of which 300 acres is for industrial purposes. We see a potential to put in a higher-end development there due to the location.

The park will be managed and gated-and-guarded, catering for light and clean industries or warehousing. It will be undertaken by us and strategic partners involved in this business globally.

So, instead of a retail complex, we are building an industrial complex! There will be common facilities. One that we are exploring is worker dormitories, which is a major, critical thing because many industrial parks don’t have this facility to support the businesses there. It is good for efficiency as they are nearby. It also keeps the neighbourhood from becoming like a hostel!

There is also another school of thought — that the higher-level executives and top management also want to be close to their factories, in case of emergencies.

We are also looking at facilities such as parks and executive golf courses, which are smaller than regular ones. That way they don’t have to drive out so far to exercise and maintain their swing. The parks and golf course will also act as a buffer between the industrial park and the town, which we can afford to offer because we have so much land!

There is another benefit to owning and managing industrial parks — you can control the environment and type of activities carried out there. So if the tenants break our covenants, then we won’t renew their tenancy!

Over at Johor, we also have nearly 4,000 acres of land in Kulai, near the Senai Airport. We are now drawing up plans.

The key point is, we are not going to sell the land, but to work with strategic partners who have expertise in managing industrial parks. It’s comparable to what we are doing with CapitaMalls in Melawati. So strategic partnerships is one way forward for us.

Besides BPS in London, where else in the world are you looking for opportunities?
There are a lot of developers in London because it is an international market. In the last few years, the market has been very positive. And that is good news for us.

BPS is a vehicle that we can use to further expand our landbank in London, as we will study the opportunities in the vicinity.

Through our associate company Eastern & Oriental Bhd, we have a smaller boutique project in London — it bought Princes House, an office and retail building in Central London for £20.25 million. It is leasing out the office now but may transform it into luxury branded residences or serviced suites in the future.

While there are a lot of huge regeneration project opportunities now, SDP is looking at more boutique and niche projects around London. That’s where the real value can also come in, both through development and ownership, for income generation.

How much land do you have left?
Our landbank is 15,000 acres. About 70% of that is left for development.

Some of the oil palm plantation land is already earmarked for property development. The decision to convert the land for property use is not really driven by the lifecycle of the plantations, but rather the development levels and potential in the area. Calculations have been done to determine if it makes more sense to develop a land currently used as a plantation.

If we know that the dynamics of the economy and development potential attributes are in sync, then the planning will immediately begin.

From the parent company’s perspective, when we acquire its land, it frees up cash to buy new and bigger land purely for plantations. That’s the beauty of our symbiotic relationship.

What’s your outlook on the property marke?
Well, I think 2013 to 2014 will be a more challenging period for the industry. It’s due to a few things.

There is the global economy that is still — despite some signs of improvements — showing potential for slower growth in certain parts of the world, such as China. Meanwhile, the economies of certain European nations are not doing as well as expected.

So we cannot be too optimistic nor can we be too pessimistic. But I think the world economy will improve.

As for our economy, I think the combined efforts of the government and private sectors will enable us to achieve the targeted GDP growth of 5% this year.

On the property market, we believe the government must create opportunities to enable developers to build outside traditional hot spots through better infrastructure and transport, mitigating the cost of utilities and so forth.

At the same time, property players also have a responsibility to the market. We must be able to continue to provide opportunities to buyers, whether for their own occupation or investment. We need to build supplies responsibly.

SDP has the ability to supply sought-after properties because we have ample land.

This article first appeared in The Edge Malaysia Weekly, on October 14, 2013.