Property mart to stay soft until first half 2016

KUALA LUMPUR: The soft market condition that property developers are facing today is likely to continue until the first half of 2016, said Sime Darby Property Bhd deputy managing director and acting managing director Datuk Jauhari Hamidi.
“I suspect it will continue until the first half of next year. Hopefully, by the second half, with the right incentives from the government, it will pick up again. At the end of the day, a house is a necessity. It is not a luxury.
“The government has to play its role in making sure that the incentives given are enough so that at least first-time house buyers have a chance to buy. We will try to assist our buyers in trying to make these houses more affordable for them,” he told SunBiz in an interview.
Jauhari said Sime Darby Property, like other developers, had to review its launches and reduce some of them in response to the market condition and to limit the amount of unsold stock. Following a review of its launches, the group’s sales target has also been reduced.
For the financial year ending June 30, 2016 (FY16), the group planned 70 launches comprising 7,000 to 8,000 units of houses valued at between RM3 billion and RM4 billion. As of the first quarter ended Sept 30, 2015, it has executed 15 launches with take-up rates of 40-50%.
“We are quite hopeful that we can achieve at least 50% of that including the initial take up. That’s already very good. In the past, when the market was good, our standard was 70-80% (last three years). Now, under the bearish and soft market conditions, I think 50% will still be good,” said Jauhari.
He said the 50% target, which translates to 4,000 units, will bring in some RM3.5 billion in sales value for FY16.
“This is going to be your unbilled sales. Your future income for the next two years. The current unbilled sales from property are not at a healthy level. We are talking RM1 billion to RM1.5 billion. Typically, we are always above RM2 billion. This started to show sometime towards the end of FY15 because that was the beginning of soft market conditions,” he added.
Jauhari said the group is working on a scheme to help first-time buyers, which it hopes to launch in the first quarter of 2016. However, he declined to divulge details of the scheme.
“We were very hopeful that there would be a bit more incentives coming out from the recent Budget. To a certain extent we are not overly disappointed but we wish we could have a bit more,” he said.
Jauhari is disappointed that no incentives were announced for the use of the Industrialised Building System (IBS), which could reduce the cost of construction by 5-10% at the initial stage and up to 20% at its full potential.
“That’s why, I won’t say I was totally disappointed (with Budget 2016) but there should be enough incentives given. If you want to introduce something new you have to give incentives because, if not, people will not invest in it. They are not sure because it is not a ruling, not a policy, it is not what is being encouraged but if you give a certain incentive, I think it will help,” he said.
On the group’s part, Jauhari said it has already started using IBS in a minimal way, beginning with the Rumah Selangorku project that was launched in March this year. Parts of the project will be done using IBS and the contract for the project has already been tendered out.
“Those are projects that we can really start off on IBS. To replicate every floor, you have to make sure your floor frame doesn’t have any bulky beams and so forth so that it can be consistently repeated over floors and that it is easier for you to install. That is something which we are now working on and trying to make sure that this is the way for us to move in the future.”
Jauhari acknowledged some of the issues related to IBS but said the group has been working with some suppliers of IBS components, including local suppliers.
“There are some issues with regard to IBS, to making sure the panel is right, the connectivity between floors are okay, the adhesive that is going to be used. But unless you try it out and do a bit more research on this, you will not gain the full potential of IBS,” he said.
Meanwhile, the group aims to increase profit contribution from property investment to 20-30%. Property investment now contributes 10% to overall profit while the remaining 90% comes from property development.
Jauhari said it currently manages assets with a total of 2.5 million sq ft net lettable area and its target is to increase this to 3 million sq ft, which is part of a five-year plan to achieve return on assets above 10%. After growing its asset size, the group will consider two options, namely a real estate investment trust (REIT) or park its assets into a private fund.
“These are strategies but you can only do that if you have the assets. The assets we have now are not sufficient. Even for REITs, we need assets valued at least RM1 billion,” he added.