Top Property Developers on outlook for 2014 - ‘Opportunities in a challenging environment’

AS we bid farewell to 2013 and welcome 2014, questions abound as to what the new year will bring. Judging from the views of some of the winners of The Edge Malaysia Top Property Developers Awards 2013, next year is going to be challenging for all. However, whether in good times or bad, the top developers always find a way to stay ahead of the pack.

Since 2003, The Edge Malaysia Top Property Developers Awards have given recognition to developers based on their qualitative and quantitative attributes. Listed developers are automatically eligible for consideration while private developers participate by providing audited accounts and documents. The judging panel is made up of respected and experienced property developers who have their finger on the pulse of the property industry.

Below, 2013’s top property developers offer their views on the challenges and opportunities in 2014, how property prices will fare and their strategies for the new year.

Datuk Izzaddin Idris
Executive Director, UEM Sunrise

In 2014, the implementation of ETP (Economic Transformation Programme) initiatives under the Greater Kuala Lumpur NKEA (National Key Economic Area), such as the mass rapid transit, proposed high-speed rail link to Singapore and the aim to increase the population of Greater KL to 10 million by 2020, will continue to create demand for properties. Also, a growing younger population, low unemployment rate and relatively low interest rates will support demand in the longer term.

At present, there is still a gap in mid-market and affordable residential properties, especially in the Klang Valley. In line with the National Housing Council initiative on affordable homes, UEM Sunrise shall be launching more than 10,000 such units from 2014 in phases, depending on the demand pattern. To leverage green tax incentives, our projects are to be Green Building Index-certified.

However, there is still uncertainty in the market arising from the property cooling measures announced in Budget 2014. Buyers are likely to adopt a more careful approach and the recent announcements on increases in electricity tariff, cost of fuel and sugar price are also expected to add to the cautious sentiment.

Developers will also need to adapt to the changes in rules, such as GST (Goods and Services Tax) implementation, removal of the developer interest-bearing scheme (DIBS) and increase in the floor price for foreign buyers to RM1 million.

At the same time, developers continue to face industry-wide challenges, including shortage of skilled labour, higher labour costs and inconsistent supply and rising cost of building materials. These will continue to put pressure on margins.

Our strategy for 2014 is to focus on our projects in Nusajaya as demand for the next few years is well supported by various catalytic projects such as universities and industrial parks continuing to mature. We are also working on securing several new strategic collaborations for our new developments in Gerbang Nusajaya to further accelerate the development momentum in the area.

We also plan to introduce new landed residential developments in Nusajaya, such as D’Estuari, and develop affordable homes in Gerbang Nusajaya to be named Nusa Citra.

In the Klang Valley, there is our new residential development located near Bangi, called Serene Heights, which has the potential to attract investor interest with products attractively priced for the mid-market.

We recently purchased two parcels of land in Central Melbourne, Australia, in line with our strategic regional expansion plan. And we are on the lookout for new strategic land to further diversify and expand our presence in new geographical areas and markets as well as to replicate our success in Vancouver, Canada.

Chow Chee Wah
Managing Director, Gamuda Land

The property market is going through a consolidation phase as the government has put in place various cooling measures, such as RPGT (real property gains tax), foreigner ceiling price, further tightening of loan approval and the possible increase of the base lending rate in the new year.

But there are still opportunities in the property market as it is the best hedge against inflation. With the proposed increase in the electricity tariff and reduction in various subsidies, the cost of materials is expected to go up. Hence, any chance of property prices falling is very slim.

The implementation of GST will also add to the development cost, hence property prices can be expected to rise in the coming years. Opportunities are still out there to acquire properties to hedge against inflation.

In the Klang Valley, landed homes and condominiums will still appreciate in price as land is becoming more expensive to acquire. For retail and office, the prices will stabilise. In Iskandar, landed properties are expected to appreciate but at a slower pace. However, the condominium sector may be in oversupply.

As the property market is consolidating, it is still the right time to acquire more landbank for the future and for sustainable growth. Gamuda Land will roll out more mid-range products in our ongoing developments, such as terraced and cluster homes.

As for high-end products, we will adopt the build-then-sell strategy. We will also be focusing on our Gamuda Walk neighbourhood mall in Kota Kemuning and the wholesale centre development in Bandar Botanic.

Tan Sri Liew Kee Sin
President and CEO, S P Setia Bhd

It will certainly be a challenging year in 2014 with many uncertainties, both global and domestic, which may dampen demand in the first half of 2014. Among the issues faced are increasing cost pressure as a result of skilled labour shortage, reduction in subsidies beginning with petrol in 2013 and electricity tariff [hike] in 2014 as well as policy changes recently announced by the federal and various state governments. Nevertheless, challenges always come with opportunities.

One positive factor is that fundamental demand for properties in Malaysia remains high and for developers that are able to adapt their products and prices to suit this demand, the outlook is still good.

In S P Setia’s case, we are in a solid position with RM9.6 billion in unbilled progress billings from sales secured. This gives us the luxury of time to wait for costs to stabilise and market participants to adjust to new realities before we reveal our strategies for 2014.

Meanwhile, we will focus on ensuring both the quality and timeliness of products delivered to our customers and adding value to all our developments. We are confident that this will stand us in good stead as the developer of choice, whether in good times or bad. Thus, we look forward to 2014 and the many opportunities it will bring.

Tan Sri Leong Hoy Kum

Managing Director-cum-Group Chief Executive, Mah Sing Group

Generally, buyers are taking some time to digest new measures to be implemented post-Budget 2014. We believe this means buyers will take a slightly longer time to shop around rather than defer or call off their purchase. Our property buyers are mostly buying for their own occupation or for long-term rental income; speculators are not a significant number.  

Industry-wide, there are concerns over the continued availability of both skilled and unskilled labour. While the government has been taking steps to reverse the brain drain, the talent pool in Malaysia is quite tight — this is why we engage both local and international consultants and human capital management is a key agenda in the company. To this end, we are gratified to have won the HR Asia Best Companies to Work For in Asia Awards 2013.

In terms of opportunities, there is still steady demand for properties by reputable developers in strategic locations. Malaysia has strong fundamentals — a young population that will lead to new household formation, rising middle-income group, supply-demand gap and stable employment conditions. Buyers are also increasingly more discerning, which means trust and premium are accorded to a branded developer.

In 2014, we shall continue our focus on products for the middle-income group and have a host of well-designed properties at attractive price points that will appeal to the mass market. Currently, 77% of our residential properties are priced at RM1 million and below while 55% are RM700,000 and below. Over the past two years, our landbanking strategy has been more focused on locking in large tracts of township land for the affordable range of mid-end products and we were able to launch well-located properties with a very attractive value proposition.

Sarena Cheah
Joint Managing Director, Sunway Bhd Property Division

In the short term, we expect recent cooling measures, such as the raising of the RPGT, removal of DIBS, stricter bank lending guidelines and new price thresholds for foreign ownership, to slightly weaken sentiment.

We also expect higher cost pressure caused by subsidy rationalisation, increasing regulatory and transactional costs and the impending GST.

However, there are opportunities in new infrastructure spending and government promoted economic corridors will create new strategic locations. Meanwhile, support for the tourism sector in tandem with Visit Malaysia Year 2014 will spur greater traffic for leisure and entertainment components in integrated developments that are well located and holistic.

As for property prices, overall, we think inflationary pressures, including material costs compounded by GST, will result in property prices going up or staying flat at best. End users will continue to buy properties for their own occupation and cash-rich and savvy investors will continue to invest in properties that can fetch good yields as properties remain the best hedge against inflation.

Our strategy for 2014 is to provide customers with exceptional value by getting a better understanding of consumer needs, offering services that they value and focusing on total quality management. We will offer integrated ideas, where we will continue to offer integrated service offerings within the townships we build and operate to boost real economic activity to drive yields. And our 1,800-acre integrated township in the thriving Iskandar is Sunway Group’s largest to date and it presents an exciting opportunity as the Medini zone has been exempted from RPGT.

In short, we will remain mindful of the market forces and will launch in phases to cater for the different needs of users.

Datuk Seri Robert Tan
Managing Director, IGB Corp Bhd

The year 2014 is expected to bring significant challenges to owners of commercial buildings due to increased costs from assessments levied by local authorities, utilities, wages and a pull-back in consumer spending. Furthermore, there will be a significant expansion in retail and office space supply, which will compete for clients and tenants.  

We have taken steps to leverage our strong retail and office base. Our strong promotions, higher-value services, upgrades, continuous improvements and dialogue will take IGB’s offerings and value to higher levels. At the same time, our steady determination to achieve greater efficiency through IT and better management processes will allow us to mitigate some of the rise in costs.

We see high-end hotel brands, such as St Regis, and efforts by InvestKL and so on to put Kuala Lumpur on the map for travellers and investors. This increased depth of the hospitality and investor market will benefit the broader real estate industry in the long term.

Significant infrastructure works, such as the MRT, LRT extension, klia2, highways (SKIP/DASH, West Coast Expressway), will ease transit bottlenecks and present opportunities for new residential corridors and better connectivity.  

The cooling measures announced in Budget 2014, together with Bank Negara Malaysia’s amplifications, will have a broad-based, slowing-down effect in the key markets of the Klang Valley, Penang and Iskandar. In addition, state governments have imposed separate levies and development charges while utility companies have shifted capital improvement costs to developers. Thus, developers will have to adjust to build more affordable houses in the RM400,000 to RM800,000 category in a rising-cost environment and may experience lower margins.

We see a dampening of the secondary market and smaller homes in the Klang Valley. Developers will necessarily raise prices on a per square foot basis but keep the total sum within the acceptable range of customers. Landed properties in the Klang Valley will remain strong while condominiums targeted at the preferred price range will sell fairly well at flattish prices. Integrated retail outlets and offices, especially those near transit modes, will remain strong, although growth in 2014 will be slower. Our developments in the city centre in Jalan Tun Razak and 3 Stonor will reflect this while our township developments in Kundang should have significant buyer interest.

We remain positive on our commercial and retail developments at Southkey Megamall in Iskandar.  The scale and good connectivity are positive elements for us. As for Medini, we are planning an integrated residential development for both local and global owner-occupiers/investors.

Our strategy for 2014 is to focus on timely completion of the projects that we have launched and look out for business opportunity overseas, in particular markets that are starting to turn around after the global financial crisis.

Datuk Jamaludin Osman
Group Managing Director, I&P Group Sdn Bhd

We are positive that overall, the property market, especially in the Klang Valley, will continue to grow, albeit at a much slower pace. This is due to the stringent measures of the government and the various local authorities. However, there will still be demand, especially for landed properties in strategic locations throughout the country.

The challenges will be in securing sales and achieving our sales target due to the stringent loan requirements and for us to offer  products that are affordable to the masses.

Despite the challenging scenario, there will still be opportunities in this sector of the economy because we are a young and growing nation with an expanding population and stable government. With this, the demand for housing, workplaces, retail and commercial space will continue to exist. In addition, continuous government initiatives on improving infrastructure, such as the LRT, MRT and new expressways, will continue to open up new areas and unlock the value of certain locations.

In the Klang Valley, landed properties will see steady growth, office space will hit a plateau while condominium prices will stabilise. Retail space in strategic locations will also see growth, especially in rental income.

Our strategy for 2014 is to be cautious in our approach and we will build products according to demand and affordability. In terms of construction cost, we will look at alternative materials and building methods to reduce it.

Datuk Abd Wahab Maskan
Managing Director, Sime Darby Property Bhd

In relation to the outlook for the Malaysian property industry in 2014, Sime Darby Property remains optimistic. We believe that, in general, the property market remains healthy, driven mainly by domestic demand.

We expect demand for landed homes in the suburbs to remain relatively strong. Market demand for landed properties priced between RM600,000 and RM800,000 and for high-rises priced below RM500,000 is sustainable.

We are especially optimistic about demand for our new and existing landed residential properties priced between RM600,000 and RM1 million that are located in the Klang Valley and Greater Klang Valley.

As for commercial properties, we expect the market for office space to be challenging in the immediate term. However, the industrial market should remain steady, underpinned by continued economic growth and demand for retail products. The recent government announcement on the formulation of a Logistics Sector Master Plan with RM3 billion in soft loans under the Maritime Development Fund through Bank Pembangunan Malaysia will spur the logistics sector’s development. This augurs well for the industrial and supply chain market at large.

Moving forward, 70% of Sime Darby Property’s residential offerings in 2014 will be within the RM300,000 to RM1 million price range. We are confident that these launches, which will involve mainly our existing townships in the Klang Valley and Greater Klang Valley, will do well in view of the demand. We will also provide commercial and industrial-type properties in strategic locations in selected townships and we expect them to do well.

Innovation, service and sustainability will be at the core of our differentiation strategy, apart from quality. We will remain focused on developing strategic themed townships, transit oriented developments as well as niche and integrated developments on our existing landbank and we will continue to pursue growth opportunities, including strategic partnerships.

This article first appeared in The Edge Malaysia Weekly, on December 30, 2013.

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