KGV Property Consultants executive director Samuel Tan of Johor believes that smaller developers in boutique developments are more agile during a property market slowdown.
“They are not saddled with high holding costs and the need for urgency of sales,” he says.
He notes that developments within Johor Baru have been dominated by larger firms over the last few years.
“Smaller developers are involved mainly with stand-alone service apartments and shop offices. Even then, these are few and far between. We also note that smaller developers are land-banking for niche developments or for future use.”
In light of the current property market glut, Tan says the impact on their margins can be minimised if the developments are in favourable locations and offer the right pricing and designs.
“Obviously, end-financing should be made available to buyers. Larger developers are most apprehensive in the current environment. To mitigate it, they will launch in smaller batches,” he says.
Should the current property market glut persist, Tan says small developers should try to avoid direct competition with larger developers as much as possible.
“If competition can’t be avoided, then these smaller players should focus on products that are affordable and strategically located. They must be agile enough to respond fast, should the market change.”
Another property consultant Henry Butcher who has dealings with big and small developers say small need not mean inexperience.Its chief operating officer Tang Chee Meng says there are many small boutique developers who are children of established developers who decided to strike out on their own. “Or they could be contractors, unhappy with their margins, they decided to venture out on their own. Or they could even be employees of developers who seize the challenge when that opportunity came. Or it could be land owners themselves. Some of them may have expertise, but not the resources, so they enter into a joint venture,” Tang says.
“So there are various reasons why property development continue to attract people even in a slow market,” he says.
When they are small, they are restricted by the amount of capital available. Property development is very capital intensive and they don’t have the resources of the PLC developers. And when they have to buy land, they opt to do one project or at most two at a time. For example, Benetton Properties.Once they are about to finish, they buy another parcel.
These are the realists who are constrained by capital and they live to fight another battle. But different people make up the property development world and there are also the idealists who are nurturing a dream.
For years, the call is to buy from a reputable developer. Henry Butcher works with both small and large developers.
Check their track record, if they have one. Do they have the experience, the financing capacity. If a company has been building affordable housing and then develops a KLCC project, this calls for caution.
Who are the people who helms the company? These are questions buyers must ask.