IOI Properties: Reaching new heights through diversification

IOI Properties Group Bhd, the property development arm of IOI Group, was established in 1980. One of the country’s most established developers, it is a popular brand among homebuyers.

The developer began with building terraced houses in Taman Megah in Petaling Jaya, Selangor, and moved on to build the Bandar Puchong Jaya township in Selangor, propelling it into the big league.

Besides property development, its property investment as well as leisure and hospitality business is also shining bright. Last year, it opened the largest shopping mall in southern Klang Lumpur — IOI City Mall — near Putrajaya.

This year saw the opening of Four Points by Sheraton Puchong, a partnership with Starwood Hotels and Resorts, at Puchong Financial Corporate Centre in Bandar Puteri Puchong.

Chief operating officer Teh Chin Guan says over the past three decades, IOI Properties has evolved from a pure property developer into a group with a portfolio that includes investment property, retail as well as hospitality.

Overseas, the company is making its presence felt in Xiamen, China, while in Singapore, it is turning itself into a multinational corporation. The group currently has a 10,000-acre landbank here and abroad.

Teh says 2016 will be a challenging yet busy year as the company plans to introduce a series of developments in the next 12 months.

“At home, we have numerous products to offer in 16 Sierra, Bandar Puteri Puchong, Bandar Puteri Warisan and Bandar Putra in Johor, while overseas, Xiamen Palm City development will be unveiling its second phase of development soon,” he says.

Although Teh feels that the market will remain slow next year, he sees this as an opportunity for the company to grow further.

“As one of the oldest developers in Malaysia, we have gone through downtrends and financial crises, but we grow stronger after every downturn. We believe change is constant; you have to change with the times in order to stay resilient,” he says.

Teh shares with The Edge the developer’s upcoming plans.

 

The Edge: For FY2015, IOI Properties’ revenue increased 31% year on year. What contributed to the strong sales performance?

Teh Chin Guan: The company has three main businesses — property development, property investment, and leisure and hospitality.

Property development is our core business, contributing 82% to the group’s revenue. During the last financial year ended June 30, 2015, we launched our new township project, Bandar Puteri Bangi, and some new developments in Bandar Putra Johor and 16 Sierra in Puchong.

These projects have received overwhelming response. For instance, 3 and 4-storey shopoffices in Kubica Square at Bandar Puteri Bangi have enjoyed a take-up rate of 85%.

Our overseas development in Xiamen was also well received with 170 landed residential properties in Phase One of Palm City fully sold since their launch in May. Phase Two is targeted to be launched next year.

The remaining 18% of revenue comes from our property investment properties, such as shopping malls and offices, as well as the leisure and hospitality business — hotel and golf courses. IOI City Mall and Four Points by Sheraton Hotel have become new drivers of revenue growth.

 

Although FY2015 revenue showed strong growth, profit growth remained flattish. Do you think there will be significant improvement in FY2016?

If we exclude the fair value gain on investment properties and the one-off gain on acquisition of properties, our net operational profit for FY2015 registered a 22% increase compared with FY2014. For FY2016, I would say it’s not all doom and gloom and we are still hopeful of maintaining our current performance. Although next year will be challenging as there are a lot of uncertainties, we will be able to maintain our pace of growth. This is because our overseas development — Phase One of Palm City in Xiamen — has recorded overwhelming response, and we are ready to launch our second phase, which has a gross development value (GDV) of RM630 million. In Xiamen, we still have 37 acres of undeveloped land.

Back home, we still have our bread-and-butter business, which is our landed residential development that supports our revenue growth. In Puchong, Le Pavillion, a mixed-use development with a GDV of RM515 million that was launched in October, has recorded sales of 60% for Tower B. It offers 606 units of freehold serviced apartments [at prices starting at RM703,000] and 101 units of commercial lots [RM920,000 onwards].

The residences have built-ups of 983 sq ft to 1,256 sq ft while the commercial lots range from 1,195 sq ft to 1,350 sq ft. Le Pavillion will be built on a 5.47-acre parcel and is scheduled for completion in November 2019.

This financial year, we also plan to launch 400 two-storey terraced houses in Bandar Puteri Warisan in Sepang. This project is currently in an advanced stage of construction. It is close to the future Xiamen University Malaysia campus and has great potential for capital appreciation.

During a time of uncertainty, people will still want to buy properties to hedge against inflation. Now is a good time to buy as buyers can have better bargaining power and developers are more willing to offer attractive packages.

As IOI City Mall starts contributing its full-year revenue to the group, we expect property investment as well as the leisure and hospitality segments to contribute more than 15% to the group’s revenue.

 

Industry players foresee the soft market to continue till next year. What are the group’s medium to long-term strategies to grow the business in such an environment?

In the medium term, our focus will be on medium-cost housing developments that fit middle-income earners’ budgets. In the long term, we will focus on transport-oriented developments (TODs), which could give fresh impetus to our township development.

We acknowledge that there is a serious shortage of affordable housing and we have around 10,000 acres of land across a few locations in Malaysia, China and Singapore. This allows us to launch different products to cater to market needs.

For instance, we plan to launch landed properties with a selling price of about RM700,000 and apartments for about RM400,000 in Bandar Puteri Bangi. Homebuyers looking for affordable homes can take this opportunity to own a property.

In the long term, TODs may be another catalyst for our townships, especially in Puchong as LRT2 and MRT2 will be passing by our development areas, with four stations.

TODs emphasise the ‘live, work, play and commute’ concept with activities centred around the stations. We have seen successful TODs in Singapore, Hong Kong and Tokyo, and now, we are building ours.

IOI Properties has a joint venture with Prasarana Malaysia to develop the parcels of LRT land in front of IOI Mall in Bandar Puchong Jaya — a mixed-use development consisting of retail and office space that will complement the transport system.

The public transport system will change the lifestyle of people who live and work in the Klang Valley. We are optimistic this will bring more opportunities for us, considering future demand for housing near the public transport system.

 

Projects in Johor are the second contributor to the group’s revenue growth. What is your outlook for the Johor property market, including Iskandar?

Iskandar’s high-rise residential property market has been saturated and there is a glut. For us, we are lucky as our land is located in Kulai, on the northern fringe of Iskandar and near Senai airport. This allows us to stay away from fierce competition in Iskandar.

IOI Properties has been in Johor for over 30 years and we have built our reputation and branding there.

Although the market remains cautious, demand remains strong as most people still see property as the best investment, especially landed property. Our recent launch of 

225 single-storey linked houses in Bandar Putra Kulai received overwhelming response with 70% of Phase One already taken up.

In Johor, our development will be focused on affordable landed properties. We plan to launch golf-view bungalows in Bandar Putra in the first quarter of 2016. We believe in the current weak ringgit environment — many Singaporeans will see Johor as an attractive investment destination.

 

The group’s developments in Singapore and Xiamen are gaining momentum. Any plans to expand to other countries?

Currently, we do not have plans for new markets but will continue to focus on existing markets and enhance our presence in these countries.

IOI Properties has high exposure in Singapore with its award-winning South Beach mixed-use development. There are two towers in South Beach, one of which is an office tower that enjoys 95% occupancy, with well-known tenants such as Facebook, Legoland, Rabobank and Boeing.

This investment property will continue to generate recurring income for the group. Currently, the average rent for the South Beach office space is S$10 psf while rental yield is about 3% to 4%.

The other tower at South Beach will comprise a 600-room designer hotel and a 180-unit super condominium. The construction of the super condominium is nearing completion. The smallest unit will have a built-up of about 1,500 sq ft while the average selling price is S$3,000 psf.

The Singapore market has been cooling down for the past three to four years after the government implemented the most stringent cooling measures in its history.

Another new project in Singapore is Trilinq, with 755 units of apartments in three high-rise towers of 33 and 36 storeys. This will be a medium-cost condominium, which should attract the locals.

In China, we are looking for opportunities to expand to other cities but our current focus is our second project, Palm City. Our first project in Xiamen — 643 Park Bay apartments — was fully sold and will be handed over to purchasers by the end of this year.

Palm City’s first phase of 170 landed residential properties with a GDV of RM500 million has been fully sold. We are now waiting for the right time to launch Phase Two as the land price around our development has doubled (commercial) or tripled (residential).

 

IOI Properties has a strong presence in Puchong. With more competitors coming into the area, will steps be taken to further strengthen your position there?

We still have 110 acres of undeveloped land in Puchong and with four MRT and LRT stops in our townships, there is great potential for them to grow.

16 Sierra will enjoy the biggest benefit as it has a MRT station in the middle of the township. This will definitely give our sales a boost. Currently, we have developed 40% of our landbank in 16 Sierra. The remaining 60% or 300 acres will take us 10 years to develop.

MRT2, which will join the high- speed rail train in Putrajaya Sentral, will become another catalyst for 16 Sierra as the MRT station in the township is just one stop away from the future bullet train station. TEPEA 2015