Developers retreat closer to home

Non-core assets are up for sale to improve bottom lines

by IZZAT RATNA / pic by HUSSEIN SHAHARUDDIN

PROPERTY developers are putting up for sale landbank that are located outside prime locations as they consolidate to weather the current slump in demand.

In the last few months, developers have announced they are disposing of pockets of land outside the prime central regions, exiting some markets altogether in some cases, to achieve good earnings numbers for their current financial years.

For many established developers, the focus is to strengthen operations in the Klang Valley amid challenging economic environment and uncertainties pending the general election, which is due to be held this year, experts said.

Nawawi Tie Leung Property Consultants Sdn Bhd ED Brian Koh said developers are streamlining overheads by disposing of assets that do not contribute to the bottom lines, and pockets of land in far-flung locations are usually the first candidates.

“(These properties) affect their financials, and it would make sense for them to streamline some of the cost,” he told The Malaysian Reserve recently.

He said the majority of established developers that started in the central region had acquired land in other parts of the country for future diversification when business was good, he said.

“But now, when the sector is not as vibrant, they need to consolidate on a strategic level and reaffirm their respective positions in the main market,” he said.

Sime Darby Property Bhd, one of the country’s biggest property players, recently announced plans to dispose of 768.9ha of land in Kedah and Sabah, and to concentrate on maximising projects in the central region.

Another major developer, UEM Sunrise Bhd, has also announced to dispose of pockets of land in Johor, which stands at about 4,046.86ha.

UEM Sunrise’s previous disposal of several pieces of land in Iskandar Puteri, Johor and Canada has contributed about 19% to its total revenue of RM2.9 billion in its financial year 2017 (FY17), against RM1.84 billion in FY16.

Even with their planned disposals of non-strategic land, focusing their energy on the central region has its own challenges, including the spectre of oversupply and the uncertain ability of the region’s property appetite to absorb unsold property.

Valuation and property consultancy firm MacReal International Sdn Bhd principal partner Michael Kong said the prevalent strategy among the players is to spend resources at their most sellable locations, at the expense of locations that are not in demand.

“Developers are getting hints from the media and statistics announced by Bank Negara Malaysia and the National Property Information Centre on the present glut, of which now they are trying to minimise their losses,” he said.

Kong said the consolidation exercise by developers is intended to bring positive effects to the overall economy at large.

He said developers are finally being more prudent in their launches and more efficient in managing their resources for distribution.

“I believe developers have to be more discerning because buyers are difficult to come by at the moment — hence, they need to do something different to attract prospective buyers.

“With more market studies, they are trying to understand the supply, demand and dynamics of a location for new launches, rather than continue developing townships outside Kuala Lumpur where demand is less,” Kong said.

He said the property sector is still hung over from the same sentiments that plagued the property market in 2017, and prospects remain soft for 2018.

“I don’t think we will see any quick recovery in 2018. I believe that there would not be any sharp changes in property prices — particularly in the primary market.

“Perhaps, only some discounts for unsold stocks in the secondary market, where the units are located in high traffic areas,” he added.

Kong said the first half of 2018 (1H18) is not expected to see any upward momentum as the general sentiment on the ground remains cautious pending the 14th General Election.

“Things would most probably clear up for either a positive or negative movement by the 2H18,” he said.