Domestic and global challenges are forcing developers to rethink their plans, as well as shifting their focus from luxurious to affordable homes
By FARA AISYAH / Pic By HUSSEIN SHAHARUDDIN
The Malaysian property market remained subdued in the third quarter of 2018 (3Q18), as a result of the high number of unsold units and slower sales growth amid economic uncertainties and tight lending conditions.
These challenges have forced developers to rethink their plans, as well as shifting focus from providing luxurious to affordable homes.
In fact, some choose to, dispose of their landbank in locations with less demand, among others.
With such a situation looming over the industry, four out of the top five developers based on market capitalisation — namely IOI Properties Group Bhd, SP Setia Bhd, Sime Darby Property Bhd and UOA Development Bhd — have posted lower earnings in the quarter.
On the other hand, Sunway Bhd is the only company which recorded an increase in profit for its property development segment.
The Malaysian Reserve takes a look at the performance of these players and their plans to boost sales.
The company posted a 54.3% year-onyear (YoY) decline in its net profit to RM111.96 million in the quarter, mainly due to lower contribution from the property development segment.
The segment recorded a revenue and operating profit of RM422.8 million and RM163.2 million respectively in the current quarter, which is 44% and 33% respectively lower than last year.
Performance of the group in the three months was lower, largely due to lower sales from Singapore at The Trilinq as there are some units left unsold.
The decrease was also due to lower contribution from development projects in Malaysia, which had lesser progress works from ongoing development projects as the sales are mainly from completed projects.
Going forward, IOI Properties said it remains optimistic that demand for properties in strategic locations integrated with good transportation infrastructure and close proximity to amenities will continue to draw prospective buyers.
In addition, the company will adapt its marketing strategies in tandem with domestic developments to address the prevalent affordability gap and to unlock development value in the long run.
The group’s earnings for the quarter plunged 81.32% YoY to RM65.19 million due to the lack of contributions from the Battersea Power Station project in the UK.
The developer achieved a significant profit contribution from the completion of Phase 1 of the Battersea project in the same quarter last year.
SP Setia said although the expected pick-up in sales has not been evident during October 2018, and with the economic conditions remains challenging, the company is still committed to meeting its sales target for the year.
In addition, the sale of commercial assets of the Battersea Power Station Phase 2 to Permodalan Nasional Bhd and the Employees Provident Fund Board is expected to be finalised imminently.
The company said the local property market will continue to be subdued as many potential buyers are finding difficulty to obtain their desired loan financing margin due to the stringent lending guidelines, or are adopting a “wait-and-see” approach as the current economic uncertainties persist.
However, the group’s prospects remain positive with the total unbilled sales of RM7.92 billion, anchored by 46 ongoing projects and an effective remaining landbank of 9,548 acres (3,863.94ha) with a gross development value of RM155.26 billion as at Sept 30, 2018.
Sime Darby Property
Sime Darby Property’s profit for the immediate three months was also affected by the lower share of results from the Battersea project, as it plummeted by 93.17% YoY to RM28.8 million.
Its property development performance dropped by 67.8% compared to the previous year due to the share of loss of the Battersea project of RM5.7 million against a profit of RM86.8 million in the same quarter last year.
During the quarter, the Battersea recognised the sale of two units compared to 431 units in the corresponding period of the previous year.
Excluding the share of results of joint ventures and associates, the property development performance registered a marked increase of 69.6%, mainly contributed by higher sales and development activities at the Serenia City and Denai Alam townships; Cantara Residences; and Melawati Corporate Centre in spite of the lower contribution from the Bukit Jelutong, Bandar Bukit Raja, Elmina and Bandar Universiti Pagoh townships.
Sime Darby Property said it is currently undertaking a tactical price review of all unsold inventories, particularly the completed development units.
The company’s net profit for the quarter decreased marginally to RM92.16 million from RM93.21 million a year ago as the costs of sales was higher than revenue.
Its cost of sales in the quarter was 71.16% YoY higher at RM190.48 million, while revenue only increased by 14.97% YoY to RM300.38 million.
Revenue and profit for the quarter were mainly derived from the progressive recognition of ongoing development projects — namely United Point Residence, Sentul Point Suite Apartments and South Link Lifestyle Apartments — and the sale of stocks.
UOA Development’s total new property sales for the period ended Sept 30, 2018, were RM1.14 billion, while total unbilled sales amounted to RM1.67 billion.
The group noted it will continue its focus on development at targeted geographical locations and continue to assess opportunities for land acquisitions.
Sunway continued to perform well in the quarter as the revenue and pretax profit of its property development segment increased by 55.1% and 30.5% respectively to RM194.8 million and RM40.9 million.
The higher performance in the quarter was mainly due to higher sales and progress billings from local development projects, further boosted by the completion and handover of local development projects during the quarter.
However, the pretax profit could have been higher by RM57.1 million if not for the adoption of the Malaysian Financial Reporting Standards 15 on one of the group’s Singapore and China property development projects, for which the group can only recognise the development profits upon completion.
Sunway said while the short-term outlook is still clouded by the trade war between the US and China, the domestic economy is expected to remain resilient, underpinned by recovering consumer and business confidence.
Barring any unforeseen circumstances, the group will continue to deliver a satisfactory performance for 4Q18.