Property sector far from its peak

Chief executive officers of the CEO Property Outlook, CEOs of property development companies share their thoughts on the market outlook with StarBiz assistant news editor Angie Ng. 


Group Managing Director and  

Chief Executive Officer  

SP Setia Bhd 


WHAT is your outlook for the residential property market this year? 

Datuk Seri Liew: We expect industry growth to remain stable, supported by healthy core demand, manageable mortgage rates and respectable economic growth. For well-managed developers with good land bank, they have greater chances of outperforming the general market. 

Consumer sentiments have taken a beating recently due to dearer fuel prices and the recent interest hike. However, we believe this to be a temporary setback, as economic fundamentals of the country are still positive and consumers will just need time to adjust to the higher prices. 

The cautious stance will see consumers being more selective when shopping for choice properties. Thus, only prime projects undertaken by reputable developers will be in demand.  


What is your view on the property cycle now and what are the steps to take to ride out this cycle? 

Liew: It is interesting to note that in the medium-price segment, the over-supply seems to be confined to properties priced below RM150,000. 

We have also observed that demand at the upper-end of the medium-priced segment, especially those priced from RM300,000, has remained strong. This price segment is driven by a growing demand for larger units such as bigger-sized terrace house and semi-Ds.  

The good economic growth in recent years and the rising income level have sparked a preference for bigger homes with unique themes. We foresee well conceptualised mid to high-end properties gaining increasing popularity.  

Given that we are developing Setia Eco Park, the country’s largest sanctuary of semi-Ds and bungalows, we are well placed to benefit from this market trend.  

As for the industry cycle, we are still at mid-cycle and far from peaking. Appreciation in the general level of prices for properties has been moderate and has yet to reach the pre-crisis level. There are also no signs of overheating or a property bubble in the offing.  


What are among the most popular types of houses and development concepts for both buyers and developers today and going forward?  

Liew: For 2006, buying interest will continue to be concentrated on landed terraced houses, semi-Ds and bungalows. This segment has always shown resilience with consistently good take-up rates. 

Buyers are likely to opt for total lifestyle concepts with good infrastructure, innovative architecture, lush greenery and security features, as they offer the best potential for capital appreciation. Homes with a modern, minimalist twist are also popular, especially with the younger buyers.  

Our Setia Tropika project has introduced a novel concept into the Johor Baru market with its chic and contemporary designs.  

In the niche upmarket segment, developers would have to pull out all the stops to create masterpieces with the requisite “wow” factor to capture the interest of a more select group of buyers. For example, our Setia Eco Park project has redefined the concept of eco lifestyle with a landscape teeming with life.  


What are some of the challenges and prevailing issues faced by the industry and what is the possible impact on your company? 

Liew: The main challenge is the intense competition among developers that might lead to price undercutting and discount wars that can squeeze margins. The rising inflationary pressure, further deterioration in consumer sentiments and continued rise in interest rate also pose risks to the industry’s growth.  

In a bid to win customers and outpace competitors, SP Setia constantly strives to push the standards of excellence further by giving our customers top-notch product and service quality. We are confident our wide range of products at every RM100,000 price bracket will be able to meet the needs of every segment of the market.  


What are your expectations on project take-up rate, sales and earnings for SP Setia this year?  

Liew: We target to record total group sales of RM1bil and continue to improve our earnings for the current financial year. Based on the Napic (National Property Information Centre) report, total property transactions in the residential segment were worth RM30bil in 2004. 

Our group sales of RM1.2bil in the last financial year was just a fraction of this total figure. Thus there is ample room for us to increase market share by expanding product range and broadening geographical reach. 


What are the projects lined up for launch this year and what are their main features and selling points? 

Liew: In the Klang Valley, we will launch Setiahills Ampang, an exclusive project that seeks to recreate the nostalgia of traditional homes with thoughtful architecture features.  

With only 45 premium bungalows built on a hilltop adjacent to the Ampang Forest Reserve, Setiahills appeals to those in search of luxury living amid the embrace of nature.  

The residents will enjoy a stunning panoramic view of the Kuala Lumpur skyline and a four-acre green lung.  

In Penang, we plan to launch Setia Pearl Island, signalling our first foray into the state, by end of 2006. Setia Pearl Island is 20km south of Georgetown and 9km from the Penang Bridge.  


Managing Director  

Sunrise Bhd 


OUTLOOK for the residential property market this year. 

Datuk Michael Yam: It is anticipated that with the recent relatively substantial hike in petrol and diesel prices, speculation of an upward adjustment in the utility tariffs by the Government and rising interest rates, the immediate overall market sentiment will be poor. 

The market will, at least initially, react with a wait-and-see attitude until the pain subsides and reality sets in, before getting on with life. 

Thus, given the strong economic fundamentals and stable growth of the economy, coupled with the country’s young population, there will still be room for growth in the residential sector, particularly selected residential segments in desirable locations. 

With the emphasis in the Klang Valley, project launches in less prime locations may see a greater volatility in price and hence, developers will need to carefully plan their launches and steer their development projects in line with the target market needs. 


View on the property cycle now and steps to take to ride out this cycle. 

Yam: The property market is yet to reach its peak. The oversupply condition may not apply across the board, as take-up rates seem to be strong in prime and established locations. Some developers are still doing well despite the inflationary pressures and rising interest rates. 

Given the rather cautious sentiment, market response to launches is expected to be at a slower rate. While the medium-priced segment appears to be overcrowded, choice location at reasonable prices and good quality will still find buyers whereas margins would need to come down for those in secondary locations to improve sales.  

There may be a need to embark on the design and launch of smaller “starter home” products to attract the large and untapped younger population.  


Popular types of houses and development concepts for buyers and developers. 

Yam: Well-located landed properties, particularly double-storey link and semi-detached houses, are well received in the market, as are gated townhouses.  

Apartments/condominiums will also continue to be a popular choice for the low and middle-end urban folks who wish to be near where the activities are in view of the affordability factor as landed houses in prime areas are relatively much higher in price.  

However, in the high-end segments, Sunrise witnesses a growing trend towards condominium living not just among the younger population but also the senior population as it offers greater security, enhanced value for the benefit of the next generation and enriching lifestyle. There is also a tendency for the parents to move near to where their children are. 


Challenges and issues faced by the industry. 

Yam: The hike in global oil prices and local petrol prices, rising interest rates and inflationary pressures have posed challenges to the local developers, particularly smaller scale developers, to be more cost competitive and resourceful. 

Concerns of escalating costs of building materials and transportation costs, which increase the construction costs, may dilute margins unless property prices are adjusted upward to relieve some of the incremental costs. 

Devising a structured release mechanism for bumiputra quota units will be good. Developers should be allowed to proceed to sell the units to the open market if there is no response, as the holding costs of these unsold properties can be high and detrimental to the company’s cash flow. 

Despite the mushrooming of high-end properties in the Mont'Kiara area, Sunrise is confident and will continue to innovate and offer quality residences to its target market.  

The proposed goods and services tax implementation in January 2007, which has been deferred recently, will also affect all businesses, including property developers. There is likely to be a significant impact on cashflow management. 


Expected project take-up rate, sales and earnings for Sunrise this year. 

Yam: Since 2004, Sunrise has widened its range of products. We have an array of 3-, 4- and 5-star condominium units, landed residentials, office suites and commercial-titled apartments of various sizes to fit different budgets, complemented by the perennially popular traditional shop-offices. 

This diversification strategy has paid dividends as the products appeal to a wider market, allowing Sunrise to tap into new markets and fresh customer base that allows us to cross sell and facilitate the different components to feed on one another. 

Owing to this strategy, we are confident of a very steady take-up rate with increasing sales revenue and earnings in the next two to three financial years. 

As the scale of development and revenue continue to grow, margins too follow suit as economies of scale improves margin and negotiation advantage strengthens when dealing with contractors and suppliers. 

Barring any unforeseen circumstances, we are optimistic about the performance of the Group and are confident that we will continue to improve on the current year’s results moving forward.  


StarBiz: What are projects scheduled for launch this year and their main features? 

Yam: After a series of successful launches both residential and commercial last year, Sunrise is confident of its upcoming launches earmarked for 2006, as they are tailored to meet niche target markets and hence will complement and add value to the existing properties in the vicinity. 

Plans for this year include some residential high-end condominiums with sophisticated and distinctive features in Sunrise Mont’Kiara. More office suites and retail spaces will also be gradually launched in our massive mixed-use commercial development Solaris Dutamas.  


Managing Director  

Sime UEP Properties Bhd  


OUTLOOK for the residential property market this year. 

Jauhari Hamidi: The rise of building material prices and the recent hike in petrol prices may lead to inflationary pressures on the economy in general. This will, to some extent, contribute to a more challenging business environment for the property market.  

Other players will aggressively launch new products and thus offer more choices for homebuyers and investors . The residential sector, although softening slightly with concern over oversupply of unsold stocks especially of strata-titled properties, will continue to be the most favoured sector. 

Generally, the property market is primarily ruled by domestic forces. Given that the general economic outlook continues to be positive, if financial packages remain attractive and interest rates still competitive, we are optimistic that the industry could still capitalise on demands from homebuyers and investors, especially of competitively-priced products in preferred locations.  

Despite conservative projections for the property market environment in the first quarter of this year, the encouraging response for the double-storey link homes in Taman Perindustrian USJ indicates that demand is still strong for strategically located freehold residential properties offered by developers that customers are familiar with. 


View on the property cycle now and what are the steps to ride out this cycle. 

Jauhari: Although analysts predict a downward trend in the medium-priced segment, there will always be a market for quality projects and developments.  

With an oversupply situation, buyers are spoilt for choice and can afford to be fussy. Thus it is important that we anticipate the needs of the market as well as continue providing homebuyers with quality and innovative choices to suit the individual’s lifestyle. 

Sime UEP is also repositioning itself from being a township developer to a niche product developer. Our future products will be smaller in scale but higher in per unit value.  

We will capitalise on our commercial land bank in the Subang area as part of our growth activity and also move into highly urbanised areas with smaller scale developments. 


Popular types of houses and development concepts. 

Jauhari: We understand that buyers are looking well beyond their backyards. They want to live in a community that is safe, cosy and close to nature.  

Homeowners are looking for security and a well balanced living, hence the popularity of condominiums and gated residential communities, especially among upmarket buyers.  

Sime UEP aims to provide certain safety features for all its projects, in one form or another. We are also looking at how we can continuously help in enhancing safety and security for the projects that have already been completed. 

Innovative design and the overall environment are also key deciding factors for homebuyers.  

Purchasers are also looking for concept such as “Courtyard and Garden Living” or a theme for each precinct developed such as “Tropical”, “Mediterranean”, etc. Developers have responded to this by investing substantially on landscaping and streetscape in their projects. 


Challenges and issues faced by the industry and possible impact on Sime UEP. 

Jauhari: The rising costs of building materials and the recent hike in petrol prices may lead to inflationary pressures on the economy in general. This will, to some extend, contribute to a more challenging business environment for the property market.  

Other players will aggressively launch new products and thus offer more choices for homebuyers and investors alike. 


Expected project take-up rate, sales and earnings for Sime UEP this year. 

Jauhari: We are positive that with our proven record and reputation for quality, innovation and wealth-creation, take-up rate for our products will continue to be good.  

With a more aggressive marketing and promotion efforts, we anticipate stronger sales in the coming financial year. Barring unforeseen circumstances, we expect to register reasonable results for the current financial year.  


New launches this year and their main selling points. 

Jauhari: The launch of Ara Hill condominiums is the most exciting for us at the moment, as this will signify our maiden entry into the high-end condominium market.  

These exclusive low-rise condominiums totalling 400 units are located in the Ara Damansara township. This is a growing niche as Malaysians become more affluent, with the younger generation placing importance on lifestyle as they improve their quality of life.  


Executive Chairman  

Hunza Properties Bhd 


OUTLOOK for the residential property market this year. 

Datuk Khor: On the whole, demand for residential property has been quite consistent. Performance of new project launches for medium- to higher-priced properties, especially in the high-end market, is expected to be very encouraging. Therefore, players can still expect strong earnings from this product segment.  


View on the property cycle. 

Khor: There are fewer new players in this industry now compared with the 1990s. In a survey by Real Estate and Housing Developers Association end of 2005, the majority of respondents felt that the current unsold stock of less than 20%, compared with the number of housing units completed and those still under construction, was manageable at their respective companies' levels. 

Such scenario is considered a manageable oversupply, as it is normal in any industry to have an inventory of opening stock for a given period. 


Popular types of houses and development concepts. 

Khor: We see a growing trend of buyers preferring landed properties featuring new concepts such as gated or guarded community living. This shows the community’s growing concern in safety features. 

Where city centre developments are concerned, there is demand for high-rise living that incorporates interesting facades, concepts and up market facilities. 


Challenges and issues faced by the industry. 

Khor: People today are well educated, well travelled and up to-date with the latest trends in the property market. This is an opportunity for developers to upgrade themselves in terms of design, concept and quality to cater to market needs. 

Players should also work closely with the authorities on the re-regulation of the approval processes involved in this industry.  

This also includes the application process of developer’s licence and advertising permit (this is peculiar only to Penang), which takes a considerably long time, even after the approval of the layout and building plans.  

We believe that once this is worked out, a substantial amount of savings can be derived on costs, time and manpower. 

Developers must constantly source for newer and better designs, planning and concepts from local and international consultants to add value to their products. 


Expectations on project take-up rate, sales and earnings this year. 

Khor: We would expect most of our earnings this year to come from our higher-end Alila project in Penang and Mutiara Seputeh in Kuala Lumpur. These two new high-end projects have a gross development value of RM400mil. 

We are confident of good take-up rates based on our past performance, and this has been reflected in a 30% increase in our net profit for the first half of 2006 compared with the same period in 2005.  

Other things being equal, we expect our second half to be much stronger.  


Projects lined up for this year. 

Khor: Our Alila project in Tanjung Bungah, Penang, which was launched in September last year, comprises a mixture of condominiums and landed garden villas. It is inspired by a tropical concept and is nestled on lush verdant hillside, literally cheh sua khuah hai (Hokkien for “sitting on the hill, looking at the sea”). 

Some RM5mil has been dedicated for landscaping to transform it into a tropical paradise. The project continues to be our main source of profit for the first half of this year. 

In Kuala Lumpur, Mutiara Seputeh features guarded and contemporary luxurious living within the city. The launch is targeted for April. Situated on undulating land in the prestigious residential area of Bukit Seputeh, the project offers exclusively designed three-storey semi-detached houses and bungalows for the high-income market.  


Group Managing Director and  

Chief Executive Officer 

Paramount Corp Bhd  


OUTLOOK for the residential property market this year.  

Datuk Teo: 2006 is expected to be a challenging year for developers. The last quarter of 2005 saw the overall market taking a breather. The recent increase in the price of fuel and the absence of positive news in our economy have softened demand.  

Furthermore, consumers' perception that there is an oversupply of houses in all sectors of the property market has not helped. Consumer confidence is further dampened by the recent increase in base lending rates and further hikes are expected. 

I believe most developers will be cautious when launching new projects, especially during the first half of the year. 

Opportunities still abound for reputable developers with well-located projects having the right product mix. Landed residentials in good location will still be in demand. 

View on the property cycle now and steps to ride out this cycle.  

Teo: A check with bankers have confirmed that most bankers are now more cautious and selective in their lending for property purchases, as non-performing loans have been creeping up. The majority of CEOs in property sector are still positive about the markets for their properties.  

An oversupply situation generally occurs to those developments in less prime locations with run-of-the-mill products. For developers with these projects, care should be exercised through limiting the number of units to be launched so as not to exacerbate the oversupply situation.  

They also need to be more prudent, cost conscious and provide products that match buyers’ requirements. 

Popular types of houses and development concepts. 

Teo: Buyers today are more affluent, knowledgeable and more discerning. They appreciate concepts and products that are well thought out and offer unique lifestyle experience. This is especially true for the young executives.  

The trend in landed development is fast moving towards themed concepts with lush landscaped gardens and guard-gated communities.  


Challenges and prevailing issues faced by the industry. 

Teo: The challenges to the property industry are numerous. However, the immediate concern will be the escalating cost of living, which will ultimately affect consumers’ disposable income and their capacity to purchase new homes. 

Potential buyers will probably delay their decisions to buy new homes until they are able to balance their budget. Thus, we are closely monitoring market sentiments before deciding on our launches. 

Most industry players also face the shortage of competent and skilled labour, diminishing supply of suitably located land, and escalating construction and development costs. 


Expected project take-up rate, sales and earnings for Paramount this year. 

Teo: 2004 and 2005 were bumper years for our development in Kemuning Utama. Honestly, it will be difficult to repeat this performance in terms of number of units sold and revenue generated. And we anticipate sales of Kemuning Utama to drop by 15% to 20%. 

However, our project in Sungei Petani - Bandar Laguna Merbok - is expected to maintain its market share, with sales to equal last year. It is the only development outside the Klang Valley to have won the FIABCI Malaysia Chapter Award for Best Residential Development in 2004.  

Overall, we feel that 2006 would still be a good year for us. 


Projects lined up for launch this year and their main features. 

Teo: This year, we will continue with the launch of Kemuning Utama in the western precinct. We will focus on mainly two-storey landed residential houses priced between RM270,000 and RM300,000.  

We aim to launch 700 units from the second quarter this year. We are hoping that demand for Kemuning Utama homes will remain strong. Meanwhile, at Bandar Laguna Merbok, about 400 two-storey homes will be available for RM135,000 to RM370,000. 

Our emphasis, in terms product features, will be similar to our previous launches - gated communities with lush landscaping and spacious homes to give value for money. We will emphasise on our record as an innovative and committed developer of quality homes.  

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