The Edge Property Exellence Awards 2014: Creating progressive communities

tetpda_2014No. 1 - Sunway Bhd & Best in Qualitative Attributes

SUNWAY BHD takes number one spot in The Edge Top Property Developers Awards this year, for the first time. It also won the Best in Qualitative Attributes Award.

Despite a slowdown in the property market, Sunway has had a strong 2013, posting a net profit of RM1.50 billion for its financial year ended Dec 31, 2013, an impressive increase from the RM438.83 million posted in the previous financial year.

Sunway’s first-half financial year 2014 ended June 30, net profit grew by 9.82% to RM286.52 million from RM260.9 million a year ago on the back of RM2.23 billion revenue.

The company recorded sales of RM628 million in 1H2014, an increase of 28% y-o-y, with unbilled sales of RM2.4 billion. This puts Sunway on track to achieve its sales target of RM1.8 billion this financial year ending Dec 31, 2014.

Its launches in the past 12 months have done well. The Citrine office suites, in the 1,800-acre Sunway Iskandar development in Johor, have sold out despite declining buyer sentiment for the Iskandar region due to concerns about oversupply. Citrine has a gross development value of RM73 million, while Sunway Iskandar has a GDV of RM30 billion.

Sunway has 3,400 acres of undeveloped landbank with an estimated GDV of RM50 billion. Sixty-one percent of its landbank is in Johor, 21% in the Klang Valley, 7% in Penang, 4% in Singapore and 3% in China.

Sunway also has a property investment portfolio. Its most recent completion is the 600,000 sq ft The Pinnacle in Sunway Resort City, which is projected to be 80% tenanted by year-end. In the pipeline are the RM500 million Sunway Pyramid 3 hotel and mall extension and the RM1.6 billion Sunway Velocity shopping mall in Cheras, among others. Both developments are scheduled to be completed next year.

Joint managing directors of Sunway Bhd’s property division, Sarena Cheah and Ong Pang Yen, tell The Edge that the company is a unique developer with a ‘Build, Own, Manage’ business model and a property-construction collaboration. Describing Sunway as a ‘master community builder’, Cheah believes the company has correctly positioned itself in today’s crowded market. It has the expertise and experience to provide contemporary buyers a holistic package rather than a mere building.

Cheah and Ong share their thoughts on how Sunway differentiates itself from the competition to stay ahead.

The Edge: What have the past 12 months been like for Sunway and what are its priorities now?

Sarena Cheah: It’s been an interesting period, with [Bank Negara introducing] cooling measures due to the overall concern over rising household debt, but it’s been quite a good year for Sunway due to our strong foundation and our people. All three of our business regions (central, north, south) achieved something in the tougher business environment. The central region had average sales figures of close to 80% for launches. In Ipoh, our bungalows Lakeside Mansions achieved a benchmark price of close to RM4 million. In Sunway Iskandar, Johor, we sold out our maiden launch of Citrine office suites.

Ong Pang Yen: Since Cheah and I took over as joint managing directors more than a year ago, we have fine-tuned the property-construction (prop-con) collaboration model and successfully implemented the ‘three gates and two audits’ system to deliver customer-centric, quality products and to ensure minimum wastage.

The ‘three gates’ relate to a design process not unlike that of Mitsui Fudosan Co Ltd, one of Japan’s leading property developers. Design efficiency ensures we can meet the increasing requirements of ever-more demanding customers.

Since January this year, we have embarked on two quality audits. One audit benchmarks quality standards such as Singapore’s Construction Quality Assessment System (Conquas); the other audit is on safety. We are also ISO 14000 certified. So, the ‘three gates, two audits’ system takes a leaf from The Edge Top Property Developers Awards’ five criteria.

What are your priorities now?

Cheah: One very important priority is to get the company Goods and Services Tax (GST)-ready ahead of its implementation next year.

Sunway has built a very strong brand as a master community builder to differentiate itself in an increasingly crowded market. We have different types of expertise in our group, from construction and property development to investment and real estate investment trusts (REIT). This strong foundation enables us to do a diverse yet integrated range of businesses.

We’re seeking landbank on which to build more flagship towns and communities, and complement these with standalone projects. New and ongoing infrastructure projects [by the government] will open up new locations. That’s something to explore as well.

In every region, we want to leave a mark in the communities we are building. There will be a flagship property project each in Penang and in Johor, to fuel our growth in this segment.

Internally, because of the impending implementation of GST, we have to be more lean and efficient. Most developers will be affected by the rising cost of construction. It’s key that we drive efficiency.

Ong: In the long run, our focus is to differentiate ourselves in the market to keep ahead of the competition. We’ve partnered with Mitsui Fudosan, the number one quality developer in Japan, from whom we can learn a lot. For innovation and creativity, we have tied-up with Japan’s Daiwa House Industry Co Ltd to build prefabricated (prefab) homes.

The advantage of prefab homes is currently not great because labour is still cheap, but their benefits will show in the long run. Given a build-then-sell business model, the prefab system is the best because we can deliver homes in six months. It will ease our holding cost and fit in nicely with the country’s future housing policies. Innovation in the use of alternative materials and in design can lower costs, the savings from which are passed on to buyers.

Some  developers have reported slower sales in the current economic environment. What has contributed to Sunway’s strong performance in the past year?

Cheah: The environment is tough but our products have done well overall. The locations and integration of our products make them attractive to consumers; community and infrastructure play a role in the success of our developments. People are comforted to know what they bought has more to offer than just a product. Sunway Geo, from example, has done very well [because] it will have the elevated bus rapid transit (BRT) service and the commercial components of Sunway Resort City (where it is located), such as hospitals, shopping centre and educational institutions, among others. Our customers buy into a product in a growing location.

With our range of expertise, it only makes sense for us to build more communities, which provide the holistic experience of home that people want, where the family can grow together. As a developer, we grow together with the consumer and the community.

The group sales target for this year is RM1.8 billion in revenue. We are constructing investment properties worth another RM3 billion in GDV. We have the best of both worlds: we sell products, and we build products to serve the consumer. Investment products have the potential to be put into a REIT. When you add it all up, Sunway commands a strong market presence.

What is your long-term vision for the company?

Cheah: We should be known regionally as the true master community developer. We already have the key expertise to develop communities.
Sustainability is on people’s minds. We build communities but how the community will be sustainable in the longer term lies in how people live within it. We can offer services that allow them to live more sustainably.

Ong: Our legacy and biggest contribution as a township developer is in making townships livable. Unlike green buildings, townships are  more encompassing. The Economist Intelligence Unit’s criteria for a green township considers its stability, crime rate, infrastructure, walkability, employment opportunities, and whether cultural, social, recreational, medical and educational needs are met. If provided, they make the township more livable. That’s the key difference with Sunway; we build communities and a livable environment.

What are some of the measures being taken to make Sunway’s developments more sustainable?

Cheah: In Sunway South Quay, where we pump water from the lake every day, we are investing in a water treatment plant that will allow us to supply our own water to all the commercial precincts. This will enable us to be self-sustaining. The next big thing could be recycling waste from the township. We already incorporate passive green design into our architecture, and now want to take sustainability to the next level.

Ong: It’s a very competitive market but the concept of livability is seeping through to people. The property market can go up and down; what’s important is how we differentiate ourselves — and that people see value in it. So even if the market is down, hopefully our market share rises because people appreciate the value in our differentiation.

Is the Sunway brand and business currently at the level you envision, regionally?

Cheah: No, we’re not there yet. The contribution from overseas business to the property segment is very small.

Singapore and China are a start and, for now, our focus, until we gain a better foothold there. Opportunities will always present themselves. We’ve done relatively well in Singapore, where we have a minority stake in projects there, and interests in trading and manufacturing as well. Singapore continues to be on our radar but it will be an opportunistic property play because it is an island state.

On the other hand, we have to continue to deliver in China where we have two developments. The China market, like Singapore and Malaysia, is softening; but in every cycle, there will be opportunities.

What are some of Sunway’s upcoming projects?

Cheah: We recently launched our serviced apartments in Sunway Velocity in Cheras (V Residence 2), which was very well taken up. We’ll launch the next phase soon.

Our future launches will still be within our existing townships, but we will consider developing more investment properties, such as the mall in Sunway Velocity that will be completed by end of next year, and the medical centre in another one or two.

In the Klang Valley, the main hubs of business include Sunway Velocity, Sunway Damansara and Sunway Nexus. After Sunway Giza and Sunway Nexus, we have 15 acres of another integrated development to be built.

In Penang, the hubs will be Sunway Wellesley in Bukit Mertajam and the launch of a project on the 24.46-acre land for which we acquired in December last year. We’re also building a hospital in Seberang Jaya where the Sunway Carnival Mall and Sunway Hotel Seberang Jaya are located. These will complete, integrate and enhance the two developments.

Ipoh will be exciting as we will launch an outlet mall, and superlink and courtyard homes.

As for Johor, we’ll be making some announcements soon.

We’ll be launching something in Mont’Kiara, and continue developing our projects in Ampang and Serdang.

What do you see as the challenges for the property market in the coming year and how will Sunway address them?

Cheah: The National Property Information Centre report of 2011 to 2012 shows that the volume of transactions has declined while its value has increased. The new supply of homes in the residential segment has shrunk; the property market closely tracks the level of consumer confidence around the country.

If the country grows at a projected 5.5 to 6%, private investment and employment will grow. The issue then is the affordability of property, because of fiscal tightening measures. Developers will reduce the number of launches, so there will be some pent-up market demand over the next two to three years. Then we have to look at catching the cycle again. I personally don’t think there will be a crash; developers are launching projects of different levels of affordability.

As for Sunway, 80% of our launches this year are priced at less than RM1 million. We will ride the market, and this is where our investment portfolio comes in very handy. Property development and investment, and construction, contribute about 85% to our group earnings. If the market slows down, we will drive our investment property portfolio.

There’s no point launching many retail products during a soft market. Even if the market does badly, it won’t hit us so badly because of our diverse earnings profile. Then there’s the option of transferring our investment properties into our REIT, which is similar to a sale for us.

Ong: There’s a time for everything. We have the expertise, and quality is our focus. Today, Sunway is on top in terms of quality and customer satisfaction.

Cheah (left) and Ong. Photo by Patrick Goh

This article first appeared in City & Country, The Edge Malaysia Weekly, on October 20 - 26, 2014.

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