Looking beyond the ordinary

Enhancing core business strategies

Following weeks and repeated rounds of explanation and clarification, the uproar provoked by two news items on Sime Darby is abating.

First, it was the conglomerate’s interest in taking over Institut Jantung Negara (IJN). Then, it was the prospect of selling land to AirAsia Bhd to build a new low-cost carrier terminal (LCCT), dubbed Labu@East. Both projects have since been shelved.

But Sime Darby’s president and group chief executive Datuk Seri Ahmad Zubir Murshid is not the sort to look back and lament. Neither can he afford such distractions as he pilots Sime Darby — a merger between Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd, Sime Darby Bhd and Negara Properties  (M) Bhd— through the global credit storm that has hit our shores.

“Our responsibility is to our shareholders and they represent 10.8 million Malaysians. In any decision we make (for all core businesses), we have these 10.8 million people on our shoulders,” Ahmad Zubir tells City & Country. Sime Darby’s major shareholders include Amanah Raya Bhd (36.92%), Permodalan Nasional Bhd (12.73%) and the Employees Provident Fund (15.96%).

The conglomerate will instead set up a heart institute that will take its healthcare division to a new level. The Kuala Lumpur International Airport and LCCT, meanwhile, will be the catalyst for the group’s planned Aeropolis or Airport City as envisioned in the Sime Darby Vision Valley (SDVV) master plan. The SDVV has been estimated to rake in a gross development value (GDV) of RM25 billion to RM30 billion over two decades.

“We will revert to our master plan in which we have identified the Aeropolis, and the 3,000 acres earlier allocated for the LCCT in Labu will now be replanned,” Ahmad Zubir says.

As for the current difficult times and a property market that is fraught with uncertainty, he agrees that the market is soft, adding that he thinks it will take at least two years to recover.

“In these challenging times, there’s not much you can do with the global economy. But you can look within as that is something you can control. Look at the efficiency, cost and review some of the strategies for every one of our core businesses,” Ahmad Zubir says.

The operating structure of the group’s property arm Sime Darby Property is being tweaked. Separate teams for each township are being set up to get closer to the customer and the market; centralised operations will soon be something of the past. By June this year, efficiency will be further enhanced by the installation of a common hotline for all of Sime Darby Property’s projects.

Ahmad Zubir agrees readily with the point that in a global property downturn, one has to look beyond the ordinary. “We are looking to customise, and not to be the same as everybody. Our Parade of Homes and attractive schemes could help soften the impact of financial burden on our potential buyers,” he says.
The group’s one-year-old R&D innovation team is looking into various cost savings, such as building in a shorter period.

The developer’s long-term vendor development programme is also bearing fruit. “We emphasise to our vendors to look long term, in good times and not so good times — a strategic partnership,” Ahmad Zubir says.

Economies of scale also work in Sime Darby Property’s favour in both cost and quality control. The price of paint, for example, has been brought down as much as 15%.

Investing offshore

Sime Darby Property had bought a 2,400-acre resort and residential community in Florida for US$31 million in 1992 and sold the property for a cool US$131 million five years later. Is it now looking for similar opportunities?

Says managing director Datuk Tunku Putra Badlishah Ibni Tunku Annuar: “We are seriously scouting around and it is a good time to look at the US, Europe and the UK as both property prices and foreign currencies have dropped.”

Still, the developer does not enter just any market; it only ventures into destinations where Sime Darby already has a presence, as an insurance of sorts, one might say.

Singapore will continue to be one of the developer’s most important overseas markets, says Tunku Putra Badlishah. “The timing of our venture into Singapore has been good. We managed to sell our properties at the highest prices and gain maximum value out of the projects just before the economic downturn,” he says.

An example is The Orion, a boutique condominium development within the vicinity of Orchard Road. The 27-storey project, with a GDV of RM283 million, was fully sold. It was launched in 2006 at S$1,500 psf, but prices doubled within a year.

The developer is now looking at the selective acquisition of prime sites in Singapore to enhance its landbank.   

Currently, Sime Darby Property has property-related interests in Singapore, the Philippines, Vietnam, China, Australia, the UK and Indonesia, with business activities that include asset management, hospitality and leisure, property development and strategic investment.

The Sime Darby group has a footprint in 20 countries and employs over 100,000 people worldwide. In fact, the bulk or 70% of the group’s revenue comes from its overseas operations, although this is being tweaked for more local contribution.

Hit by lower crude palm oil prices and a property down cycle, the group recently reported a pre-tax profit of RM1.7 billion for 1HFY2009, or 24% lower than in the same period a year ago. The decline was attributed mainly to its plantation division, which saw a record dip of 28% in operating profit following lower average selling prices for CPO.

There is no doubt that Sime Darby’s plantation division will remain the group’s biggest contributor. As a local research analyst points out, the SDVV is a long-term plan that is not about to impact the group significantly in the short term.

Being big has its upside. Compared with its competitors, Sime Darby Property has a vast landbank that totals 142,000 acres, which stretches from the Guthrie Corridor in the Klang Valley to Nilai in Negri Sembilan. So, this giant of a developer can afford to “wait and see” when it comes to launches.

Over time, some of the plantation player’s tracts have become prime development land. Enter the SDVV.
“If we do not develop our own land, someone else will develop it. It’s a defensive strategy to maximise returns to our shareholders,” Ahmad Zubir explains. With a master plan, the land will have to be acquired by interested  parties at a premium price.

The SDVV sits within the Kuala Lumpur conurbation under National Physical Plan (2005-2020), spanning 1.2 million acres from Kuala Selangor in the north to Port Dickson in the south. It is a call for the growth of Kuala Lumpur and is targeted to provide for a potential population of 8.5 million by 2020. Of the 1.2 million acres, Sime Darby owns 126,000 acres. Of these, 80,000 acres are for the development of the SDVV (see map).

The SDVV brainwave came when the government chose Sime Darby as the master planner for the Northern Corridor Economic Region. “If we can be the master planner for four states, why not our own land?” asks Ahmad Zubir.

Sime Darby is indeed one of Malaysia’s largest property developers in terms of landbank, and will continue to be so in the foreseeable future due to the cheap estate land that can be converted for property development, an analyst at ECM Libra notes.

Although the property development earnings of Sime Darby are significantly higher than even S P Setia Bhd’s, the division’s contribution to group revenue is less than 10%. “With land cost being cheap and virtually ungeared, Sime Darby Property is not compelled to launch properties just to cover interest costs,” says the analyst.

“Furthermore, given its large landbank in diverse locations, the developer has operating flexibility — it can launch products to cater for current demand. It also enjoys decent profit margins and financial flexibility to offer attractive end-financing and sales incentives to attract buyers without greatly jeopardising its bottom line.”

Commenting on the SDVV, the analyst says it is a project for the very long term and describes it more as Sime Darby Property’s “packaging and branding” of its massive landbank in the Klang Valley and Negri Sembilan. “Given the subdued property market conditions, we do not expect significant impact from the SDVV per se in the immediate future. Overall, we expect Sime Darby Property to turn in lower earnings in the current financial year,” he adds.

No mere property play

The Sime Darby Vision Valley (SDVV) cannot be mistaken for just another exciting property play. The mammoth project spanning two decades and expected to generate a gross development value of RM25 billion to RM30 billion is about maximising the diverse synergies within the Sime Darby group, which will put Sime Darby Property on a new plane in the property development arena.

While returns on investment are a given for any project, Sime Darby has 10.8 million shareholders to answer to. It is thus heartening to note that the concept embraced by the developer is focused on making more liveable living spaces. Even existing townships the likes of Subang Jaya will be given a shot in the arm.


What will the SDVV entail?

The SDVV comprises the Selangor Vision City (along Guthrie Corridor), including Bukit Jelutong, Denai Alam, Elmina and Lagong Logistics Hub, Subang Jaya and Putra Heights, Carey Island, Ampar Tenang and Sepang Estate, and the Negri Sembilan Vision City. The latter includes the 13,000-acre Labu Estate, which will see the emergence of Bandar Gemilang, a sports cluster, a healthcare and wellness centre, an education cluster, an aeropolis and a high-tech park.

“We have changed our concept and are no longer township developers. We plan to bring property development to the next level. Our strength is our landbank and as the master planner/master developer of the SDVV, we would not be competing against anyone. We are seeing it as a bigger picture — like a jigsaw puzzle. We welcome other developers to buy land within the SDVV and develop it as long as they follow our guidelines,” Sime Darby Bhd’s president and group chief executive Datuk Seri Ahmad Zubir Murshid tells City & Country.

Talk in the market has it that Sime Darby Property is in talks with TH Properties Sdn Bhd, a subsidiary of Lembaga Tabung Haji, which is developing the ongoing @Enstek in Sepang. Other parties interested in being catalyst players in the SDVV, specifically in the entertainment and medical areas, are believed to have approached Sime Darby Property.

In the SDVV master plan, besides townships like Subang Jaya and Bukit Jelutong that are 90% complete, certain tracts have been identified for specific developments. Multi-sport training and educational facility IMG Academies has also been identified as a possible catalyst for the sports cluster.


Bandar Gemilang

An outstanding element of the SDVV is Bandar Gemilang Sime Darby in Labu, Negri Sembilan. This is no ordinary township in the making. Apart from housing the workforce vital to meet the needs of upcoming business activities within the SDVV, this urban town will also showcase Sime Darby’s corporate social responsibility.

Bandar Gemilang, unveiled in 2007, sits on a 584-acre tract and will comprise 4,159 homes and 227 shopoffices.

Ahmad Zubir is clearly passionate about Bandar Gemilang. He says a commuter station has been approved in the township, adding that 30% of the land there will be open spaces.

The common perception is that Sime Darby’s properties are only the mid to high-end type, says Ahmad Zubir. But Bandar Gemilang offers mid and low-cost homes although they are not ordinary. These low-cost homes will boast a built-up of 900 sq ft. There are also mid-range cluster homes that are designed with the flexibility to be extended to 1,300 to 1,600 sq ft to cater for a growing family.  


Elmina
Going forward, Sime Darby Property is determined that all its future developments will be focused on sustainability and it will start with the 3,200-acre Elmina, a new township development in the Klang Valley. The first part — East Elmina — spans 1,160 acres along the Guthrie Corridor Expressway. Sustainable features include the replanting of tropical trees, water conservation through stormwater management and energy-efficient systems.

Expected to be put on the market at the end of the year, Elmina is located just 3km from the thriving Kota Damansara township in Selangor. Development plans were submitted to the authorities for approval last December, and these are expected to be obtained by August. Currently plantation land, East Elmina has an estimated GDV of RM6 billion.

Sime Darby Property’s managing director Datuk Tunku Putra Badlishah Ibni Tunku Annuar says Elmina is targeted at the middle-income market but indicative prices are not immediately available. The developer has applied to the local authorities to manage the township to promote and enhance its sustainability features.


Subang Jaya and Bukit Jelutong

Subang Jaya may have been around for a long time but Subang Jaya City Centre (SJCC), earmarked as part of the “rejuvenation plans”, will complete the development of the township by Sime Darby Property. SJCC consists of six plots of prime commercial land, totalling 29 acres. The linear-shaped commercial development fronting the Federal Highway is planned to offer integrated mixed commercial developments of over four million sq ft comprising offices, serviced apartments and retail podiums.

The project is targeted at companies in the Klang Valley, leveraging the existing KTM Komuter station. There is also a possibility an integrated KTM-LRT station will be developed within the SJCC, according to the developer. Emphasis will be on the provision of ample landscaping and plaza areas, which will be linked directly to the existing Taman Subang Ria parkland via pedestrian sky bridges.

The master plan for SJCC is pending approval. The proposed development, with a GDV of RM2.5 billion, will be carried out in stages over 8 to 10 years.

Over at Sime Darby Property’s 90%-completed Bukit Jelutong in Shah Alam, the Forte bungalows were recently put on the market. These have built-ups of between 5,516 and 6,186 sq ft and are tagged from RM2.8 million. The Mezzo semi-detached houses meanwhile are priced at RM1.4 million. At Bukit Jelutong’s commercial lifestyle centre San Antonio, units with built-ups of 500 to 3,000 sq ft are going for between RM500,000 and RM2 million.


Lessons learnt

Subang Jaya is a mature township synonymous with Sime Darby. The developer has come a long way since.

Ahmad Zubir says the Subang Jaya development has revealed that where there are good roads, people will tend to pass through. “That means more traffic, bigger roads, flyovers. But the residents do not get to enjoy these as many people are going through the township and creating traffic jams,” he says. All these could ultimately lead to higher crime rates, resulting in additional padlocks, grills and children being confined to the house due to security reasons.

Sime Darby’s huge landbank enables the group to plan a township and its amenities and facilities better. “Gone are the ‘pigeon hole’ days when developers maximised every square inch. We are moving away from designing in a matrix form as it could be too accessible,” says Ahmad Zubir, adding that Sime Darby now aims to build townships where “you want to come home and know your neighbours”.

Meanwhile, Sime Darby has unveiled its third Parade of Homes in a series of campaigns to boost sales. The first Parade of Homes, which was launched last year, raked in RM246 million in sales while the second, held last November, achieved RM146 million.

The current campaign, which started on March 6 in conjunction with the three-day Malaysia Property Expo (MAPEX) held in Kuala Lumpur, will end on June 15.

Tunku Putra Badlishah says RM75 million worth of properties were sold at MAPEX, which was organised by Real Estate and Housing Developers Association Malaysia (Rehda).

Among the notable features of the campaign is a guaranteed buyback scheme, under which, subject to terms and conditions, the developer will buy back properties at 95% of cost with no questions asked.

Another interesting plan is the “special downpayment scheme”, under which buyers can pay the balance of the purchase price less the loan amount in interest-free instalments over 12 months. However, this scheme is only available for launched products, excluding commercial and industrial land and low-cost properties.

Tunku Putra Badlishah says the developer is focused on selling existing stock and clearing its inventory before new products are launched. “Through aggressive marketing and sales campaigns, we managed to reduce our unsold properties by 32% between July and December last year. This represents a gross sales value of RM37.3 million totalling 71 units (excluding low-cost properties),” he adds.

Clearly, Sime Darby Property is a developer to watch.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 746, March 16-22, 2009.