Home builders had to confront a decade-high glut and less enthusiastic consumers challenging nancing factor
by FARA AISYAH / pic by MUHD AMIN NAHARUL
IT WAS all but a bumpy journey for local property developers last year. Still reeling from a soft market sentiments, home builders had to confront a decade-high glut and less enthusiastic consumers challenging financing factor.
High unsold residential units and unaffordability issues had forced many developers to rethink their plans, abandoning luxury developments and enticing “affordable” buyers.
Immediate results are not forthcoming in the near term. Many of these developers prefer to forget 2017.
The top five developers based on market capitalisation — SP Setia Bhd, IOI Properties Group Bhd, Sime Darby Property Bhd, Sunway Bhd and UEM Sunrise Bhd — had posted lower earnings for the quarter ended Dec 31, 2017.
The bearish sentiment is expected to trickle into 2018. Overbuilding and mismatch of property-types and buyers expectation have thrown the industry into a near wilderness.
To compensate on their muted property performance, listed developers will resort to land disposals to boost revenue and seek to create a new ecosystem that fits the time. Developers are also expected to chase the unbilled properties and clear the “old stocks”.
Here are the performances of the biggest property developers for 2017.
SP Setia posted a 40% decline in net profit for 4Q17 to RM279.58 million from RM466.08 million achieved a year ago. Revenues also dropped 27% to RM1.45 billion in the quarter, against RM1.99 billion recorded in 4Q16 due to lower revenue from the property development segment.
The group’s revenue from property development for the year-to-date was transitionally lower as a result of many projects completed and handover in earlier period, including Parque Melbourne in Australia, many phases in KL Eco City at Jalan Bangsar and Eco Sanctuary in Singapore.
Many substantially sold developments were still at early stage of construction in the current year.
“This transitional effect is a result of the strategic move taken by the group in repositioning many launches in the last financial year to address changes in market demand,” SP Setia told Bursa Malaysia.
The developer also acknowledges the current general market conditions, and said it will be limiting the launches of high-rise properties.
SP Setia’s future launches will be concentrated in the central region with planned launches of approximately RM3.14 billion, predominantly from Setia Alam, Salak Tinggi, Alam Impian, Temasya Glenmarie, Alam Sari, Setia Eco Glades, Setia Eco Park, Temasya Putra, Setia EcoHill and Kota Bayuemas.
IOI Properties’ net profit in second financial quarter ended Dec 31, 2017 (2QFY18) plummeted 60% to RM109.14 million from RM273.53 million posted a year ago, due to lower contribution from the overseas projects in the property development segment and share of RM79.7 million impairment loss in joint venture (JV).
The developer’s revenue for the quarter also tumbled 40% from RM1.19 billion recorded in 2QFY17 to RM707.44 million for the same reasons.
The property development segment recorded lower revenue and operating profit of RM569.4 million and RM184 million respectively for the current year quarter against the same quarter last year, mainly due to lower profit contribution from development projects in Malaysia and fewer units remaining for sale in Trilinq, Singapore.
“Notwithstanding the challenging market conditions, the group remains optimistic that properties in strategic locations across Malaysia and overseas will continue to drive prospective buyers,” IOI Properties noted in an exchange filing to Bursa Malaysia.
With unbilled sales of RM1.2 billion on hand, the group is expected to perform satisfactorily in the property development segment this year.
Sime Darby Property
Sime Darby Property’s net profit in the second quarter ended Dec 31, 2017 (2Q18) saw a 5% decrease to RM138.08 million from RM145.44 million in 2Q17 due to higher taxes and lower results of JVs.
However, the developer’s revenue for the period under review surged 65% to RM677 million compared to RM409.35 million in the same period a year ago, mainly attributable to the strong performance of property development segment and gains from land disposal, and the 40% equity stake in Seriemas Development Sdn Bhd.
Sime Darby Property is expected to embark on several asset monetisation initiatives (AMIs) to boost earnings visibility and maximise returns for its financial year ending June 30, 2018 (FY18).
The AMI encompasses land monetisation efforts through JV partners, direct sale, or co-development with suitable stakeholders that can further add value to the development.
Sime Darby Property plans to dispose of 768.9ha of land in Kedah and Sabah as the property developer sets sights on maximising the utilisation of its key locations and developments in the central region.
Sunway recorded a slight drop in earnings for 4Q17 to RM183.8 million from RM185.82 million achieved in the previous year, mainly due to the trading and manufacturing and quarry segments which registered lower profits.
It is the rare few that continue to achieve higher revenues for the property division.
Sunway said the property development segment reported incomes of RM413 million and pretax profit of RM105.4 million in the current quarter compared to RM406.3 million and RM136.2 million respectively a year ago.
“Although revenue was marginally higher in the current quarter, profit before tax (PBT) was lower mainly due to lower profit recognition from local projects.
“In addition, PBT in the corresponding quarter of the previous financial year was boosted by the sale of land in Penang to Sunway REIT (Real Estate Investment Trust),” Sunway noted.
The developer added that although the property sector is still consolidating, demand is expected to improve on the back of sustained economic growth and improving sentiment as the local currency recovers and starts to stabilise.
In addition, Sunway’s revenue for the quarter rose 33% to RM1.72 billion from RM1.29 billion posted in 4Q16.
UEM Sunrise saw its net profit dipping 29% year-on-year (YoY) to RM37.66 million for the fourth quarter ended Dec 31 last year (4Q17), as liquidated ascertained damages, lower profit from associates and higher expenses weighed down on group earnings.
The property developer said revenue brought in was higher at RM748.12 million, up by 20% YoY despite the decline in profit, due to higher property development revenue from its Melbourne-based projects Aurora Melbourne Central and Conservatory.
Revenue was also boosted by the sale of completed units from the group’s inventory monetisation campaign. UEM Sunrise also plans to dispose of pockets of land in Johor to consolidate its land in the central region.
The developer has 4,046.86ha of land in Johor but less in the central region. The master developer of Kuala Lumpur prestigious address, Mont Kiara is also looking to replicate the “Mont Kiara story” in another similar development.
Land disposals in Richmond, Canada, along with several pockets of land in Iskandar Puteri, have contributed about 19% of UEM Sunrise’s total revenue of RM2.9 billion for the financial year ended Dec 31, 2017 (FY17), against RM1.84 billion in FY16.
The developer in executing its strategy has also acquired 7.77ha of Equine Park land in Seri Kembangan, Selangor, last year.