IN A builders environment today where it seems hip to be viewed as an up-market high-end developer, it has been interesting to watch MK Land Holdings Bhd flaunt its focus on building affordable houses. And it has made some steady profits from it as well, having emerged a strong player in the country's property scene and one of the largest capitalised property companies too.
“Our Damansara Damai (in Petaling Jaya, Selangor) project was launched in 1998, at the height of the Asian financial crisis, and yet we did it ... we made a profit even during the recession period,” boasts MK Land's group executive chairman Tan Sri Mustapha Kamal Abu Bakar.
In terms of sales, affordable housing projects currently contribute some 50 per cent to group's total sales while the rest comes from high-end residential and commercial property projects.
All that, however, looks set to change as the appeal of high-end developments gets too strong for MK Land to shrug off, particularly given that most of its remaining land bank in the Klang Valley is in prime areas in Petaling Jaya. In fact, the group expects sales from products priced above RM100,000 to contribute a bulk or 80 per cent of its total sales over the next five years. (MK Land defines “affordable” as those units priced between RM100,000 and below, while medium range is between RM150,000 and RM250,000. Anything above RM250,000 is categorised as upmarket.)
A tad too late to move into the high-end segment, particularly given that most of the prominent developers in that area had begun the ground works some two years ago? Not quite, says Mustapha in an interview with BizWeek.
“MK's strategy has always been based on demand and the external environment. To date, we have already launched 6,233 high-end units so it's not as if we are new in this segment. We just didn't emphasise it at the time because then, there was not much demand for this product. It is only of late that we've started to stress on this segment as we see the demand for more upmarket offerings.”
MK Land's chief operating officer Peter Chan says most of what is left of the group's land bank in the Klang Valley is located in Damansara Perdana and Cyberjaya, Selangor. “This is prime land we have in our hands. Thus we feel it makes more sense for us to now focus more on medium- to high-end products.”
Still not too late
“Zerin Properties principal Previndran Singhe reckons it is still not too late for MK Land to reap some gains from home buyers' current affinity for high-end properties. “The group's focus here is more on products priced around the RM500,000 range, which still has good demand. It is only the ones priced RM1 million and above that are getting harder to push off. MK Land has also come up with some innovative products like the serviced apartments and duplex apartments in Damansara Perdana,” he says.
Another point riding in the group's favour, according to Previndran, is the design and layouts for its high-end projects. “They are quite exciting as they incorporate great landscapes and facilities. The group has employed the best landscape designer in the region for its Armanee project,” he adds.
In the upmarket segment, MK Land is able to take credit for the Armanee condominium project in Damansara Damai, Petaling Jaya, which it launched in November 2000. The Armanee units, priced between RM273,000 and RM395,000, are designed to resemble double-storey homes in the sky. Nevertheless, the units come equipped with condominium-type facilities and security system. To date, the two blocks launched there have garnered a take-up rate of 65 per cent.
Following on the heels of Armanee was the launch of MK Land's even more upscale Armanee Terrace project in Damansara Perdana last September. An intermediate unit offering a built up of 2,176 sq ft is priced from RM450,000. A corner unit, meanwhile, with a built up of 2,778 sq ft fetches a selling price of RM550,000 and above.
If things go according to plan and the external environment affords no more unpleasant surprises in the months to come, MK Land will launch its strata bungalows and townhouses priced from RM2 million and from RM750,000, respectively, in July.
Ironically, the group's reputation as an innovative property developer for affordable housing may help it carve a niche in the high-end market. “Just think, if I'm already able to offer innovative and value-added features in my low- and medium-cost housing projects, imagine what I'll be able to offer home buyers in my upmarket projects?” Mustapha says.
It is true. Take MK Land's Damansara Damai project. Generally, the project is perceived as an affordable housing project although it does include upmarket Armanee double-storey apartments.
Mustapha claims that the group cannot be faulted for discriminating between the lower and higher income homebuyers. “We have offered quality amenities to even the lower-end segment.”
Although the group's low cost units in Damansara Damai are priced at RM42,000, they include a picnic area and courtyard while its RM80,000 medium-cost units come equipped with a swimming pool.
In addition, the group converted four tracts of land in the surrounding area, measuring a total of 48 acres into urban parks complete with park rangers, nature trails, picnic areas, playgrounds and tree houses – to be enjoyed free of charge by residents of Damansara Damai.
The difference is ...
“Now how many other developers would even think of doing such a thing or, for that matter, can even afford to offer such amenities for products that come with such low prices attached?” Mustapha poses.
So, how does MK Land do it?
It's all about apportioning costs over more products. “We are talking about thousands of units. Property developers in Australia, for example, concentrate on launching between 30 and 40 housing units a year. For them, this is a big deal. But here at MK Land, we talk of launching around the region of 5,000 units a year. Just imagine if the 5,000 units averaged a selling price of RM100,000 per unit, this works out to a revenue of RM500 million for us,” he says.
Also, a factor riding in MK Land's favour is that most of the infrastructure cost, which usually sets developers back quite a sum, has already been sunk into the project. “When we finally embark on the projects, we realise clean profits immediately because we’re entering into an area that is mature and has the necessary infrastructure.”
In addition, a large portion of the land, which the group now holds, was acquired previously by Mustapha's private vehicle through privatisation schemes with the Selangor and Perak state governments. (Mustapha has a direct stake in MK Land of 10.44 per cent and an indirect stake of 44.82 per cent as at October 25 2002.)
Under these schemes, companies are awarded the land at a low premium on condition that 75 per cent of the land is developed into low, low-medium and medium-cost housing. The balance 25 per cent is left to the developer's discretion.
As for the Damansara Perdana project, the development of that land fell under a varied privatisation scheme. Initially occupied by squatters and Orang Asli settlers, the land is straddled between Damansara Damai and Sri Damansara. Both these areas have already been developed.
“The Selangor government didn't see fit to leave this particular piece of land undeveloped and thus invited MK Land to participate in its development,” Mustapha says. On one condition – instead of paying a premium for the land, MK Land will relocate the Orang Asli families to the bungalow, link house or apartment units, which it has done.
“It is because of this that a lot of other property developers are not able to compete with us. Because of the low premiums attached to our projects, we are able to sell them at lower costs,” he reasons.
Thus far, the group's affordable housing projects are all focussed in Perak and Selangor. It is, however, keen to expand into other states. “The government has indicated that there is a dire need for more affordable housing projects. With our proven track record, I reckon we have an edge over other developers. We are in the midst of discussing with a few states to offer the same scheme that we’ve undertaken in Selangor and Perak,” he says.
He adds that the group's strategy all along has been to embark on projects in a big way and on a sustainable basis.
“But while we require large tracts of land in order for a project to be feasible for us, location is also critical. A lot of things still need to be ironed out but we should be able to come up with something concrete by the end of this year.”
How it all began
MK Land's foray into property development began in 1999 when it acquired three major projects – Damansara Damai, Taman Bunga Raya and Bukit Merah Laketown Resort – all of which were then owned by the EMKAY group – Mustapha's private property development vehicle. MK Land then used Perfect Food Industries Bhd as a vehicle for its backdoor listing on the Kuala Lumpur Stock Exchange main board in August 1999.
This was followed by a second major injection that was completed by MK Land on June 26, 2002. As a result, the group now holds the entire equity stake in six property development outfits that previously came under the EMKAY umbrella.
Worth noting is that one of these companies, Saujana Triangle Sdn Bhd, brought with it close to 600 acres of prime land located in Bandar Damansara Perdana, Petaling Jaya. As a result, MK Land has emerged a bigger force to be reckoned with in the local property circle and can now boast of being the developer with the largest land bank in Petaling Jaya.
But an industry observer claims that the group could have bitten off more than it can chew with the second major corporate exercise as its portfolio now consists of affordable housing, commercial development, lifestyle living, resorts and a water theme park. “Managing all these could be a challenge in the short term,” he reckons.
An analyst says that while MK Land's Damansara Damai and Damansara Perdana projects are attractive, other unattractive assets, like the low profit-yielding Bukit Merah Laketown Resort, have also been injected into the group.
“It is left to be seen how much the two projects in Petaling Jaya will contribute to the group's overall earnings, compared with the other less attractive projects,” she says.
Still, in the long run, an observer admits that the group's size will provide economies of scale that not many other developers can compete with.
Fast and furious would aptly describe MK Land's ambitious pursuits over the past three years, driven by Mustapha. He is clearly not one who believes in the old adage that good things come to those who wait. For him, it’s a matter of grabbing the bull by the horns.
His next goal – for MK Land to become one of the top 15 companies in the stock exchange in terms of market capitalisation by 2006.
To achieve this goal, he stresses that it all boils down to two things: quality of execution and perfecting new ways of delivery. This has become a group-wide mantra.
With emphasis on this, the group is playing up the customer service card as a means of differentiating itself from other developers. MK Land is keen to be perceived as a “property supermarket.” In fact, it is already there.
“We offer home buyers an array of products under one roof. If a customer is interested in low-cost units, we have that. If it's a medium-cost unit they are after, we have that as well. And if it's an upmarket unit they want, well, we have that too!” Mustapha says.
“The idea behind the property supermarket is to not just sell homes but also convenience,” he says. Towards this end, the group is looking to tie up with financial institutions, legal firms and contractors offering renovation services.
According to Mustapha, the property supermarket concept became even more viable after the group completed its second major corporate exercise in June last year. MK Land is now in an extremely comfortable position as it has a sizeable land bank of 2,654 ha. This should see it through the next 15 years and generate a gross development value of about RM17 billion.
For the 18 months ended June 30, 2002, the group reported a net profit of RM182.3 million on the back of a turnover of RM1.08 billion. For the eleven months ended Dec 31, 2000, it reported net earnings of RM40.7 million. This was on the back of a turnover of RM419.8 million.
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