Property Talk: A weekly column by S.C. Cheah
Why leave your land idle when you can make more money through joint ventures with reputable developers?
There are many landowners who may wish to develop their land themselves but could not do so due to limitations in expertise and financial resources.
However, there is a growing trend by developers to enter into joint venture agreements with landowners. Instead of buying large tracts of land, the strategy is to spread the risk by developing smaller pieces of land.
This win-win arrangement minimises the developer's holding cost and reduces its capital investment, thus allowing it to diversify and use its resources for more projects.
One developer that has vast experience and an excellent track record in joint venture property development is Chan & Lo Corp Sdn Bhd. Founded by Hong Kong entrepreneurs Chan Kwong Chee and Lo Kin Shing who came to Malaysia in 1991, they brought their 25 years of experience and expertise in the property sector to create a new standard in the local property industry.
It is offering 6 joint-venture arrangements. They are:
(1) Sharing of sales proceeds by cash payment to landowners.
(2) Sharing of completed units with landowners.
(3) Combination of completed units and sales proceeds.
(4) Progressive payment to landowners up to double the present land value in around five years.
(5) Purchase by instalment within 2 years.
(6) Incorporation of a joint-venture property development company with the landowner.
“Land alone may be worth a lot of money but land with properties may be worth a fortune! Although the value of land will appreciate over time, but once developed, the value will enhance ten folds,” said Chan & Lo managing director Eric Chan.
Benefits to the landowners include higher profit than outright sale of land and the chance to own units from the development.
They could also gain capital appreciation on their land after land conversion or layout plan approvals and there is no property gains tax if they retain their properties.
“If you leave your land idle, squatters may build their homes on your land and it would be very difficult to evict them. Even if you can evict them you may have to pay compensation,” he said.
“A lot of landowners are afraid of going into joint ventures with developers as they have had bad experience. When the landowner enters into a joint venture with us they are constantly kept informed of the progress of the development,” he said.
Chan & Lo's current joint venture projects are in Selangor and Negeri Sembilan but there are plans to extend this concept to other states. It has done projects in more than 10 locations involving about 1,200 units of affordable housing as well as bungalows and semi-detached houses over 150 acres. They include Mantin, Seremban, Batang Kali. Bahau, Segambut and Hulu Klang.
Its first foray into the world of joint ventures was in 1996 when it developed the 13-acre Taman Satellite 2 in Bahau. It consists of single and double-storey semi-detached houses.
Another joint-venture project with the landowners is Kemensah Villa in Hulu Kelang. Launched in April 2002, the project consists of upper medium cost condominiums. Chan said the company was proud of its ability to complete most of its projects ahead of schedule, with some surpassing the expected date of completion. For example, its landed properties in Taman Sri Damar (Phase 2) in Mantin that were launched in August 1999 were completed and handed over 9 months ahead of schedule in November 2000. This was in the midst of the Asian financial crisis.
He said because of the company's solid reputation, it was invited by the Seremban Town Council to jointly develop a piece of prime land in Seremban Town. “This project represents a first for the company in terms of collaboration with a government agency,” he said.
Another successful joint-venture project is an 18.5-acre freehold land in Lukut, Negeri Sembilan that had been converted from agriculture to residential development.
“We changed the layout plan slightly to maximise the number of properties and also changed all the building plans to tailor it for the market demand. We offered the landowner 20% share from the sales proceeds and the project took 3 years from 1999 to 2002 to complete,” he said.
Had the landowner found an immediate buyer in 1999, he could only have gotten RM2.77 mil from the sale of the land. Had he put the money as fixed deposit for 3 years at 4% interest rate per annum, he could get only RM3.12 mil (RM350,000 interest) including the principal.
“However, the landowner received much more profits by investing in a joint venture with us. In the 3 years, the landowner got RM4.36 mil that is 20% of the sales proceeds of RM21.8 mil. The landowner received an extra RM1.23 mil in 3 years which is 3 times more profit than placing the money as fixed deposit in the bank,” he added.
The company plans to build an intelligent luxury condominium slated to be the most expensive, prestigious and exclusive in Negeri Sembilan and would be priced around RM500 psf.
Its success is due to the company's sound investment strategy of developing primarily residential projects of small to medium size in various locations with growth potential rather than investing heavily in a single massive project.
“This approach has enabled us to weather the storm of the economic crisis in 1997. As a result, we were not badly affected compared to others, and even managed to double the number of projects from six to 12 presently. Business turnover is now RM91.6 mil compared to RM23.5 mil in 1997,” Chan added.