Reinventing MK Land and unlocking opportunities

By IZZAT RATNA

MK Land Holdings Bhd shot to stardom with its flagship Damansara Perdana development. Helmed by Tan Sri Mustapha Kamal Abu Bakar, who co-founded the company more than two decades ago with Datuk P Kasi.

Mustapha and MK Land shot to fame after the successful development of Damansara Perdana, once an Orang Asli reserve land on the outskirts of Kuala Lumpur and bordering the prestigious Taman Tun Dr Ismail.

That development has been the crown jewel for the mid-sized devloper. But over the last few years, the listed MK Land has not been able to replicate similar fortune.

Speculations of management challenges surfaced and investors were asking how the company will move forward. The sombre property market in the last few years has weighed further on the firm that was listed in 1999.

The Malaysian Reserve (TMR) recently sat down with K Mohanachandran, who was appointed as MK Land group CEO early this year. The 56-year-old Mohanachandran, who took over the helm from Lau Shu Chuan, has been in the property development industry since 1986.

He started his career in a soil investigation company before joining MK Land in 1996. He held several major management positions, before forming his own project management company in 2005. He was then approached by the board of directors of the group to take on a new leadership role leading the firm.

In an hour-long interview with TMR, Mohanachandran shared the group’s prospects moving forward as well as an overall industry outlook of the Malaysian property market. The following are the extracts from the interview:

TMR: What are MK Land’s expansion plans in 2017?

Mohanachandran: We are planning to launch the Rafflesia, phase two of semi-detached homes by the end of this year. The property, estimated to be worth RM100 million, sits on a 2.02ha site and each unit would be sold between RM3.5 million and RM4 million. The group will also launch a serviced apartment on a 1.69ha piece of land with a gross development value (GDV) of between RM400 million and RM500 million. Both projects are within the Damansara Perdana enclave. However, in the next five years; we are only looking to strengthen our position in Malaysia. But, there is no immediate plan to venture overseas as we are a bit cautious in climbing our way back to the top.

We may consider overseas expansion should there be good offers, which we could not resist, but for the time being, all energy and resources are focused on the domestic scene.

TMR: Is MK Land considering moving towards Transit Oriented Developments (TOD)?

Mohanachandran: There are a lot of talks now on TOD, which is based on our transportation hubs. It is happening in Malaysia, which is the right way to go.

This move is something that we should obviously have done 20, 30 years ago, but it is never too late.

One of the things that we are looking at is land outside the Klang Valley, which should be closely located to TOD. This is the only way to grow. If not, you would have land that would take a long time to realise the potential.

You might have 40.46ha to 80.94ha that might take 30 to 40 years to actually develop.

Outside the Klang Valley, we are looking at large parcels of land. It could be agriculture and other things, because we have the necessary strength to try to get the land converted through the required processes.

If we were to buy the land that is ready for development, the cost of building it from the ground up is higher. This would make it difficult for us to launch affordable homes in that area.

TMR: Do you think MK Land is able to record better earnings for its financial year 2017?

Mohanachandran: Well, I think we will be maintaining the same levels of profitability as far as the group is
concerned and moving up slowly in the next five years.

We are not doing anything that is very different since the financial year started. It is just that we are quickly trying to sell stocks and by doing so, we will be able to reduce some of our holding costs. As far as profitability is concerned, it is going to be almost the same.

TMR: Has the rising cost in building materials impacted MK Land?

Mohanachandran: When we sell a product, although it would only be constructed over the next three to four years, we are stuck as we have already committed. There is no avenue for us to increase our selling prices.

Therefore, we have to manage within the bracket. This is where partnering or working with your regular team of contractors helps as we share any increase in costs.

This is how we have always conducted our business by working with good contractors who can possibly share the increase in cost with us.

TMR: Is MK Land affected by the soft property market?

Mohanachandran: I believe the challenging sentiment that the group is facing has got a little bit to do with the market. But it is more on awareness.

If you notice, we do not, or have not launched any form of commercial developments for quite some time. We realise that there is an overhang in the commercial and office spaces. That is why we rather concentrate on housing and residential units to try to keep our products below the RM1 million mark. We believe in the next couple of years we will see an uptrend in our sales.

TMR: Are we heading towards a property bubble?

Mohanachandran: It is a bit scary on the numbers that many other developers are actually looking at and generally we have a lot of new players coming into the property development industry, especially for listed companies. Doing a RM1 billion sales 20 years ago was one of the biggest things, but now, you have developers talking about RM4 billion to RM5 billion in terms of sales. This further dampens the already saturated market.

That is where the issue is. We need to be very careful about the volume that we put out into the market and that is why we want to remain cautious.

TMR: Are there not enough affordable housing developments?

Mohanachandran: Definitely. To do affordable housing, land cost becomes a major issue. I think the government is right in the planning and implementation, presently with the mass rapid transit  and other infrastructure developments.

It is a known fact that we cannot get cheap landbank in the Klang Valley, therefore we have to move out into the outskirts and you see many developers are going south with the connectivity between Kuala Lumpur and Seremban already filled up.

It is like now; you do not see the separation because there are so much developments around the highway corridors. With the railway infrastructure boom, we believe that it is a right way to go and land will only be available outside the Klang Valley.

We have land in Bukit Beruntung, Rawang, that we feel has the potential. That is why we are having more affordable housing in the years to come. Therefore, yes, we need to have cheaper land to be able to provide affordable housing. But at the same time, we also need to have the infrastructure to support this which needs to grow in tandem.

TMR: What are your views on various financing schemes in the market today?

Mohanachandran: We have looked at the schemes that are being done by others. As far as we are concerned, we are looking at maintaining what we do in the way that we have been doing things.

This is because our prices are already very low. In terms of price per sq m, if you were to look into a property anywhere around Damansara Perdana, it is very difficult to get an asset less than RM600 per sq m and we are talking about RM400 plus per sq m.

Therefore, we do not really see that is going to really help us, as we believe it is better for us to concentrate on quality buyers.

We believe that there should be very clear separations of the business. If you ask me, I would rather say that the banks should create innovative financing mechanisms rather than developers getting into this business. As far as I am concerned, I think leave the financing to the banks and other financial institutions and we concentrate on property development. I think this is very true, and let the banks create those innovative financing schemes.

TMR: What is your outlook for the property sector?

Mohanachandran: What we feel is that the market is expected to remain flat for this year and possibly move up from next year onwards. Unfortunately, in terms of house prices and incomes, there is a disparity. For example, 30 years ago somebody coming out from the university would earn between RM1,200 and RM1,300, and a fresh graduate now would be earning from RM2,500. But a house that cost RM30,000 three decades ago, would cost a buyer a minimum of RM300,000 now. Prices of property have moved up 10 times or more, but incomes have just doubled.

So, there is a disparity and that is what needs to be addressed in our country more than anything else in order to increase affordable housing because cost seems to be increasing.

The cost of doing business as a property developer has also increased rapidly. It is not just pure construction costs, but the costs that come from land, financing and etc. It is not easy being a property developer in Malaysia nowadays.

TMR: What are the key management styles and leadership structure to instil for the group?

Mohanachandran: At the moment I got in, I basically did change the organisation structure of the group, whereby I created four separate divisions — which are property, leisure and education, shared services and group finance.

So, I have a very clear and quite a flat organisation structure and clear lines of reporting, as well as accountability.

I decentralised our operations as in the past a lot of the operations were centralised. As a result decision
making had to come out from the top. So, I changed the organisation structure to ensure that the GMs have accoun- tability as well as authority, which I think was a really important thing that needs to be done.

I am also working on five key areas, which are — building the brand, human capital and team, stabilising our finances, potential joint ventures, as well as launching of new products.

We have a huge landbank so we need to capitalise on it. Therefore, we are trying to change the way that we move and it is a very open management structure and system, whereby regular discussions between the management team are conducted as a move to focus on marketing and sales.

We believe that in this way, we will be able to fast-track and move things in the future.