New approach in facing a challenging market

The past week, two of Malaysia’s largest property developers made a significant call. Mah Sing Group Bhd and S P Setia Bhd will focus on building more “affordable housing” this year.

Although the term “affordable housing” is open to interpretation in terms of its price point - reports have pegged affordable housing at RM1mil - their call is an indication that they have taken note of the slow and challenging market.

However, the RM1mil price tag may continue to be elusive.

S P Setia Bhd says its mid-priced range are priced between RM500,000 and RM1mil while Mah Sing will go no more than RM1mil.

Why are these developers re-looking at their prices?

The nature of property development is such that a property developer has to sell in order to bring in evenue. If there are no sales, there is no revenue and no profits, which explains why marketing and branding is so important today.

The last several years before 2014, easy credit had enabled developers to get on the “luxury housing” or “lifestyle housing market.”

As more developers jumped on this bandwagon, in order to differentiate themselves from the rest, a couple of them have broken away from the “lux” market and moved on the “aspirational market.”

As the name implies, the “aspirational” trail involves selling housing which creates desire. The onus falls on the developer to create a community that is so desirable that you are willing to fork out that loads for that environment.

Unless one is prolific in terms of ideas, branding and marketing strategies and moving into the a new “aspirational” market, going down a few notches may be the more prudent thing to do.

S P Setia Bhd has also taken the step to cut the group’s sales target for the current financial year from RM4.6bil to RM4bil early this week when it announced its second quarter results. This represents a drop of 13%.

Mah Sing, on the other hand, earlier this week said “it is still premature to revise or adjust” their sales target at its AGM towards the later part of the week.

New strategy

Stripping out S P Setia overseas projects, its domestic sales continue to be driven by locations like Setia Alam in Shah Alam, Setia EcoHill in Semenyih and Setia Eco Glades in Cyberjaya.

S P Setia Bhd acting president and CEO Datuk Khor Chap Jen says the company has adapted its strategy to include mid-priced housing of about RM700,000 to RM1mil in the Klang Valley.

This has proven to be “fruitful” with launches in Setia Alam in Shah Alam, Setia EcoHill in Semenyih and Setia Eco Glades, Cyberjaya continuing to be major contributor to sales, he says, when announcing his second quarter results.

Khor says as long as they have the “right products” in strategic locations, they will continue to have strong demand for the current financial year. Its mid-priced housing range from RM500,000 to RM1mil.

The company will also be launching other types of affordable housing under the Rumah Selangorku brand. This was supposed to be unveiled this week but was subsequently postponed.

Rumah Selangorku will be launched in Setia Alam in Shah Alam and will be priced at RM170,000 a unit with a built-up area of about 800sq ft, and RM200,000 for a unit with a built-up area of about 900 sq ft, says S P Setia’s corporate communications executive Celina Ong.

Also in Setia Alam, the company launced Seri Pinang apartments in February, priced from RM247,000 with a built-up area of about 850 sq ft.

The company also launched three-storey housing priced from RM783,000 and RM795,000 in Setia Alam. Both were fully taken up in February and April respectively.

It will launch super-link homes in a gated and guarded development in Setia EcoHill in Semenyih in the middle of this year, priced from RM773,000 onward.

Better second half?

At its AGM on Thursday, Mah Sing hoped the property sales momentum to improve in the second half of this year.

Says executive director Datuk Steven Ng Poh Seng after the company’s AGM: “At this juncture, it is still premature to revise or adjust our sales target.”

As of April 22, its sales hit RM761mil, 22.2% of this year’s sales target of RM3.43bil.

Says Ng: “In the first quarter, our sales of RM560mil was short of our RM800mil target. The feedback from buyers (is that) it is not like before. Loan processing is taking longer, and it is harder to get financing.”

Consumer sentiment has been affected by factors such as the implementation of the goods and services tax (GST), the weaker ringgit and lower commodity prices, he says.

“We think that consumers are in a temporary adjustment period of six to nine months, post-GST implementation,” Ng says.

Managing director and group chief executive Tan Sri Leong Hoy Kum says the company has taken this new strategy of houses below RM1mil because the company has “to sell what people want to buy”.

“Our strategy of reaching out to the mid-range mass market is in line with current market needs amid the challenging property market,” says Leong.

Its 2015 pricing strategy is 84% of planned residential launches will be being priced below RM1mil, 71% priced below RM700,000 and 44% priced below RM500,000. In Greater KL, units that are below RM500,000 include Savanna Executive Suites in Bangi. In Iskandar Malaysia, Johor, these are Sierra Perdana Meridin Bayvue serviced apartments and Bandar Meridin East link homes.

Leong says the fundamentals driving demand remains intact but the overall market is affected by caution.

He says the two factors - a young population below 40 years old and urban migration - will be two key drivers of the housing market.

Leong says more than 200,000 marriages are registered annually. Marriages (as with high divorces) create demand in housing, but only 70,000 and 90,000 new homes, on average, are completed every year. - By The Star

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