The Edge Top Property Developers Awards 2009: Doing well no matter how the market turns

While strong financials have been an asset in weathering tough economic times, IOI Properties is also looking to property investment for future growth 

IOI Properties Bhd executive director Datuk Lee Yeow Chor isn’t one to dwell on the past. While he obliges in discussing the financial uncertainties of the past year and how these have affected the company’s performance, it’s really the future that excites him. Taking out a folded piece of paper from his shirt pocket, Lee is eager to share IOI Properties’ vision of the future — that of a property developer and property investor. He’s even coined a phrase that would best describe the company: “property de-vestor”.

“This is just something I thought of... you may find a better word,” he says, as he slips the paper back into his pocket. His excitement, though, is palpable.

In explaining the rationale behind the company’s emphasis on property investment, Lee doesn’t deny that such an approach is a means to insulate the company from the highs and lows of property cycles.
“The property industry is usually fairly segmented as there is a strict delineation between both types of activities. For example, a developer is one who develops and sells while property investors are like real estate investment trusts or property funds that buy properties after they are completed. We are going on a two-pronged approach…we own the land, we develop to suit our needs and then we hold and manage for investment. The attractive factor is that the income is recurring and it’s consistent,” he says.

He adds that IOI Properties — which was taken private earlier this year by IOI Corp Bhd, and since delisted from Bursa Malaysia — began looking at property investment in earnest three years ago when embarking on its most significant commercial developments to date, namely, the Puchong Financial Corporate Centre (PFCC) in Bandar Puteri and IOI Boulevard in Bandar Puchong Jaya.

“We feel that given our relatively low land costs and the maturity of our location (Puchong), we have been seeing good returns. The properties are also yielding good returns because of the expertise in property management that we have acquired over the years,” says Lee.

Currently, he says, some 15% to 20% of the company’s income is derived from property investments. These comprise three shopping malls (such as IOI Mall in Bandar Puchong Jaya and Bandar Putra in Kulai) with combined net lettable area of 1.35 million sq ft, five office blocks (IOI Square and PFCC) with a net lettable area of 700,000 sq ft, as well as leisure and hospitality investments, especially hotels (Palm Garden Hotel and Marriott Putrajaya) and golf courses (Palm Garden Golf Club, Putrajaya and Palm Villa Golf and Country Resort).

The aim, says Lee, is to further increase the contribution from property investment. To this end, the company has already embarked on the second phase of the PFCC project that consists of a retail podium and the remaining three office towers with a net lettable area of about 650,000 sq ft. “At IOI Resort, we are also planning to build some office towers which we will start sometime early next year,” he adds.

Prevailing sentiments
As much as Lee prefers not to dwell on the past, he acknowledges that the downturn in the property market has had an impact on the company. In particular, the deferment of its much-awaited Sentosa Cove project in Singapore that was to have been launched at end-2008. “But we’ve proceeded with the construction activities and are building ahead of the launch,” he says, disclosing that the launch is now slated for 1Q2010.

All, however, is not gloom in Lee’s opinion. “From March this year there has been a marked upturn in the market felt by quite a few players including us, which was helped by attractive financing and marketing packages,” he says.

Lee adds that there is pent-up demand for property given that many prospective buyers deferred their purchases at the onset of the global financial crisis a year ago. Today, with the stock market recovering, buying sentiments in the property market have become more favourable.

This, he points out, is evident in the company’s financial results for 2009 which show revenue improving in 2HFY2009 ended June, to RM418 million, from RM281 million recorded in 1HFY2009 ended December 2008.

“We think the property market, like the stock market, is a precursor to the country’s economic condition. So, if you think that the nation’s economy is on the road to recovery then there is reason to be hopeful. And I am hopeful,” he says.

Buoying his optimism is the response to the developer’s latest offerings. Last month, IOI Properties offered 183 units of 2-storey terraced houses at Bandar Puteri Puchong at an average of RM590,000 — the selling price was 10% higher than the year before. So far, 75% of the units have been sold.

Lee says some buyers queued for several hours to buy the units of their choice. “Two months ago, we launched a mix of 3-storey and 4-storey shop offices at Bandar Puteri Puchong, with prices from RM1.5 million and RM2 million respectively. To date, we have sold 80%,” he says, visibly pleased.

Are the current uncertainties different from that of the Asian financial crisis in 1997? From the financing perspective, Lee thinks so.

“In the 1997/98 crisis, Asian banks were suffering and as a result, banks squeezed credit and hiked up interest rates. This time around, local and Southeast Asian banks were not affected by the crisis, so interest rates are still competitive and banks are keen to lend on favourable terms. This is a more favourable situation for the property market compared to 10 years ago,” he says.

But Lee points out the company was “little affected” during the Asian financial crisis of a decade ago. “Our profits dropped by 20% at first, but from 1999 to 2000 we chalked up record profits,” he says.

This time around, the company has also been fortunate in that prices of building materials that escalated from the beginning of 2007 through to 2008 have since dropped. “This drop in materials prices has helped to increase our profit margin,” he concedes.

Strong balance sheet vital
Notwithstanding the economic climate, Lee stresses that the company has always maintained a fairly strong balance sheet to support its building construction activities.

“We did not leverage until recently, and we are very efficient in carrying out changes to respond to changing market trends. With our large piece of mixed development land, we can offer a variety of products and within each sub-segment too we can vary the built-ups to cater to different markets. These factors have helped us to do relatively well no matter how the market turns,” he adds.

However, Lee recognises that there is no room for complacency. “We need to improve on our branding and promotion efforts, especially in promoting community spirit, safety and environment friendliness,” he says.

This, he adds, involves incorporating energy-efficient features in the design and fixtures of its commercial buildings. “For Phase 2 of PFCC, we want to be meticulous in ensuring that energy-efficient features are incorporated. We are also aiming to obtain Green Building Certification. For residential property, we are looking into the use of building materials and designs so that energy efficiency is considered,” he says.

On the issue of safety, Lee says the company’s “safe city concept” is an integral part of ongoing efforts; these entail providing adequate areas for pedestrians to walk, railings to guard against snatch thieves, CCTVs, patrol cars, and even the setting up of mobile police units (the most recent being at Bandar Puteri Puchong). “Residential developments are also planned on a precinct basis with 200 to 400 units, and a single entry and exit point with extra-wide road for the guardhouse at the entrance. We are also promoting community policing units,” he adds.

Fostering the community spirit is also uppermost on the company’s agenda so much so it has set up a dedicated unit within the company to support the respective resident associations in organising community activities.

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