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Klang Valley a haven for UOA Dev


FOR niche developer UOA Group, flexibility is the key.

Unlike most property players, the company, whose local development arm was listed in 2011 as UOA Development Bhd (UOA Dev), does not keep to any rigid sales targets.

Yet it is no less competitive. The group posted record sales of RM1.71bil in 2012 and it is poised to top that with RM2bil this year. In its just-ended March quarter, UOA Dev raked in sales worth RM929mil, with unbilled sales standing at RM1.1bil.

Even more impressive are its margins. UOA Dev enjoys pre-tax margins of between 40% and 50%, double the industry average. At last count, fellow developers such as Mah Sing Group Bhd , SP Setia Bhd and UEM Land Holdings Bhd registered margins of 13%, 14% and 29%, respectively.

But this shouldn’t come as a surprise. Industry observers say UOA Dev has a knack for reading, and being ready for, shifts in the market.

Though it never made a big shout of this, the group was quite prescient in its move to build affordable homes priced below RM500,000, which make up a substantial portion of its projects.

In a rare interview, UOA Dev’s 72-year-old founder and managing director Kong Chong Soon tells StarBizWeek that the firm’s preference is still for the Klang Valley, despite burgeoning interest in Johor’s Iskandar region and Penang’s quickly shrinking development land.

“Manpower can be an issue in Malaysia,” says the low-profile Kong, who declines to be photographed for this story. “When you stretch too far, you can lose focus. We find that the Klang Valley gives the best returns.”

UOA Dev resisted the urge two years ago to jump onto the Iskandar bandwagon, which has since seen players both local and foreign amass vast quantities of landbank there.

“People love to live in the capital,” Kong quips, though he laments that costs have increased significantly. “The trend now is for smaller units. About 700-800 sq ft is a fair size for a condominium unit and a price point of RM500,000 considered affordable.”

That said, Kong believes house prices in Kuala Lumpur are undervalued relative to the region.

“Malaysia is becoming a darling to our neighbours, especially the Taiwanese, who are coming to buy property here in droves,” he says. “Malaysia is cheaper because of the currency.”

Kong, who is spending more time in the country lately, is fond of travel. “It gives me ideas,” he muses.

“I visited Trump Tower in New York. They were so generous. Most people use the ground floor for commercial space, but Donald Trump built an enclosed garden with birds. It changed our thinking of how a concrete jungle could be.

“So we reduced the number of office towers in Bangsar South to 22 from 39. It was a risk because fewer buildings also meant they had to be bigger and more expensive. Instead of RM30mil they would cost RM100mil to RM200mil each. This is why our customers are mostly large Malaysian corporations and multinationals. We also set aside six acres for a park with a lake.”

UOA Dev’s patriarch co-founded and listed United Overseas Australia Ltd on the Australian Securities Exchange in 1987. The company was later dual-listed in Singapore.

Kong, a civil engineer by trade, oversaw the construction of Hotel Meridien, the Glass Hotel and the Changi Meridien Hotel across the Causeway in the 1970s and 1980s.

He owns 68% of UOA Dev via his holdings in United Overseas Australia.

Take your time

UOA Dev, its proprietor insists, is in no rush to complete its flagship 60 acre, RM10bil gross development value (GDV) Bangsar South on the now gentrified former squatter colony of Kampung Kerinchi on the edge of Kuala Lumpur.

The firm’s phase-by-phase approach is immediately evident. With seven years left to go, Bangsar South is only about 30% finished.

UOA Dev has so far built the first two of its Park Residences and all 22 of its Horizon boutique office towers, which stand out with their decidedly futuristic gunmetal finish on the Federal Highway.

“We could complete Bangsar South in three or four years,” Kong notes. “However, we wanted to make sure those who invested with us benefit. If we build it all at once the market will be flooded. Also, we do not wish to build only saleable buildings without the supporting infrastructure of an integrated development.”

The Klang Valley-based developer is set to complete in September its Nexus “lifestyle centre”, which would cost RM50mil more than the original RM100mil to make room for new amenities, such as a 300-seat auditorium and executive business lounge.

Kong says the company had planned to create a water park there but this was not ideal as Bangsar South does not have a large child population.

The five-storey Nexus’ main selling point will be its 1,200 capacity ballroom on the top floor with direct access for vehicles. The centre also boasts 300,000 sq ft of dining, leisure and wellness space.

Meanwhile, UOA Dev will hold off from building the last of its residences on the four parcels of land behind Nexus until the time is right.

“We try to balance profitability with sales, and don’t sell fast at the expense of profits,” Kong explains. “It is better to wait for all the components to come together. This way we will see capital appreciation and enhance value for investors.”

UOA Dev’s industry-leading margins, Kong points out, is down to its tight in-house execution. Most of the construction, engineering and architecture works are done internally, cutting delivery time.

Two new offerings by the developer this year include offices in Subang and apartments in Bukit Segambut.

It has opened for sale the second and final block of its 30-storey Scenaria condominium sandwiched between Mont Kiara and Desa Park City. The 9.8 acre freehold development comes replete with a two-acre “forest retreat” and treetop bridge. The first block, which featured smaller sizes, was sold out at an average price of RM700 per sq ft.

Scenaria is also slated to have 44 units of three-storey superlink homes, although this is yet to be rolled out.

Another work-in-progress is the office-cum-retail-small office versatile office Kencana Square located just across the Federal Highway from Empire Shopping Gallery. The 10-acre freehold project will be anchored by nine office blocks starting from 110,000 sq ft.

Negotiations with companies and investors are already underway for en bloc sales of the towers, ahead of the actual launch. All but five of the 26 retail lots in Kencana Square have been snapped up.

Other projects filling out its RM3.7bil launch pipeline for 2013 include the Vertical office suites, South View Residence and Desa Green.

Pocket developer

Bucking the trend, however, can come at a cost. Despite being the largest property-based initial public offering on Bursa Malaysia that year, UOA Dev suffered a poor showing at its debut.

Its shares had languished until weeks ago, when a win by the incumbent Barisan Nasional administration sent property stocks soaring. UOA Dev closed last Thursday at RM2.64, four sen higher than its listing price.

Still, Kong is not one to worry. “I don’t pay so much attention to the share price,” he postulates. “My job is to deliver profits. The stock market is not for me to control.”

Given that the firm typically buys no more than five to 10 acres of land at a time, its undeveloped landbank and potential GDV pales in comparison to the larger township developers. In addition, UOA Dev is constrained by its lack of geographical diversity.

On the other hand, the smaller scale of its projects - usually pocket developments in sought-after, mature neighbourhoods - allows for faster turnaround and lower capital cost.

With the overhang of the general election removed, analysts expect UOA Dev to resume hunting for choice landbank, helped by its RM687.8mil cash pile.

As the interview winds down, Kong, who grew up in Malaysia but went to highschool in Singapore, shares his thoughts on succession. “I don’t have a nepotism mindset. If they (my children) can make it in the business, that’s good. If they can’t, I won’t force them,” he quips.

“I came from a poor family. We couldn’t afford a Mercedes. So I told myself I would be rich enough to own one. I want the best people to run the company, and not just because they are my relatives.”

   

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