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Saturday, May 8, 2010

Mah Sing’s foray overseas

KNOWN for its shrewd land acquisition and fast project turnaround strategies, Mah Sing Group Bhd wants to leverage on its local success by venturing into new markets overseas.

The group aims to launch its maiden project in China by the first half of 2011. 

Tan Sri Leong Hoy Kum ... Supply and demand in China has still not yet reached an equilibrium, with demand for properties still far outstripping supply.

Group managing director cum chief executive Tan Sri Leong Hoy Kum says going offshore is one of the steps needed to realise the group’s aim to be a regional property player.

“Venturing overseas has always been our medium to long-term strategy. Our objective is to create an international brand by having offshore projects. At the same time, we will be able to improve our skills from these new markets,” he adds.

Within the next five years, Mah Sing is targeting sales from overseas to contribute 30% of its sales.

“The market is more global now and we feel there are opportunities to be tapped in other countries. Although our focus now is China, we have set up an office in Vietnam to evaluate opportunities there. We believe both China and Vietnam are population driven economies which will have a strong appetite for property,” Leong tells StarBizWeek.

It may also consider other countries like Singapore, Indonesia and Australia if there are opportunities.

Leong says Mah Sing will enter the foreign markets via joint ventures with suitable local partners.

“We will start with the right size so as not to stretch our balance sheet. When the returns are good and consistent, we will consider expanding our overseas presence.”

On the choice of China for its maiden offshore foray, Leong says property demand in China is population led and there are still plenty of opportunities there.

“Supply and demand in China has still not yet reached an equilibrium, with demand for properties still far outstripping supply,” he says.

China’s urban population is rising at 15 million per year, and assuming 15 sq m per capita living space and 40 sq m per unit, the potential demand requires 225 million sq m or 5 million units of smaller size housing units a year.

More than 70% of the land supply in 2010 has been allocated for urban renewal and for smaller to medium-sized apartments as they are in short supply. Developers focusing on smaller sized apartments from 45 sq m to 100 sq m will have a ready market.

He says landed properties should also do well due to the short supply.

“China has the world’s largest foreign exchange reserves, and it also has one of the most number of millionaires and billionaires in the world. The International Monetary Fund has forecast that China’s gross domestic product will grow by 10% these two years,” Leong says.

On the risk of a potential property bubble in China, he says the Chinese government has implemented swift and decisive steps including raising the downpayment for first time homebuyers to 30% from 20%, while those buying their second home have to make a 50% downpayment.

To curb speculative activities, the government has also reimposed the 5.5% transaction tax on properties held for less than five years. Credit lending has also been tightened and interest rates raised.

Last December, Mah Sing signed a letter of intent with its Chinese joint venture partner, Danlong Realty (Beijing) Co Ltd to undertake an integrated development in Wujin, Jiangsu.

Mah Sing has a 51% stake while the Chinese partner owns 49%.

It plans to develop a prime property project comprising medium to high-end residential and commercial properties.

The project on 87 acres along Wuyi Road, a major thoroughfare in the central of Wujin, has an estimated gross development cost of US$620mil.

“Since it is our first offshore project, we are careful in ensuring that our concepts, products and designs will fit in well with the local market. We certainly want to introduce some of our award-winning concepts and designs to China,” Leong says.

Residential products will include condominiums of around 1,000 sq ft while commercial projects will comprise retail outlets and offices.

Leong says Mah Sing is keen to explore other opportunities in China’s second and third-tier cities that are experiencing rapid residential, commercial and industrial developments.

“These are the cities that will be China’s engine of growth. Prominent international and Chinese developers are already entering these markets.

“There are so many cities that offer opportunities like Chengdu, Guangzhou, Dalian and Suzhou. The important thing is to find a good local partner, and also have the ability to work well with the local authorities,” he adds.

By The Star

Coping with the big tickets

Although there are buyers who have no qualms paying the prevailing high price for their dream house in a well sought after location, many Malaysians are really worried about the rising house prices and wonder how they are going to manage.

There is certainly cause for concern as a property is a big ticket item and paying for it takes up a big chunk of a person’s income. Depending on how much downpayment has been paid for a property, mortgage loan repayment can easily takes up to 40% of a borrower’s monthly paycheck.

National Housebuyers Association (HBA) honorary secretary-general Chang Kim Loong laments that even new graduates are finding it increasingly difficult to make ends meet these days.

He says a new law graduate who earns RM2,200 a month is also not in a position to sign up for a new house on their own (unless they have rich parents to chip in).

A decent terrace house in a relatively good location cost nothing less than RM400,000.

Owning a car is also another must-have item at least until the public transport system gets a total overhaul. Add them up with the other daily ancillary expenses including food, toll rates and petrol, among other things, we see why many people must be struggling to make ends meet.

There are some industry players who have the habit of comparing property prices in Malaysia with those in other countries like Singapore, China, Hong Kong and Bangkok, and comment that local property prices are still much cheaper.

It is not healthy to make such conclusions based on the property price alone. Other factors also should be factored in and it is important to see how much disposal income they have left after paying for all their expenses.

One of the most important considerations is the people’s income level. Malaysia is not yet a high income economy and most Malaysians are still stuck in the middle income trap. Although there is the aspiration to move the country up the income ladder, it will take a few years at least before that can be realised.

The whole economic structure needs to be revamped. Even at the service industry sector such as restaurants, employers have to be prepared to employ only Malaysians and pay them higher salaries.

Instead of relying on the cheap foreign labour, it is about time to revert back to our local staff. This is one of the necessary early changes that need to be implemented for the realisation of the Prime Minister’s New Economic Model.

As we know, things are getting more unpredictable these days and we are witnessing first hand that the only certainty is uncertainty.

The contagion effect of the global financial crisis is still raging in some parts of Europe and may spill over to other parts of the world.

Like pendulums, economies and industries are being subjected to the vagaries of the ever changing external environment. The most susceptible will be industries that depend on external demand, including commodities and manufacturers of products for export.

While the landed property market is still quite well cushioned from the external factors, there is still some degree of influence as far as foreign demand is concerned.

Being quite a “domesticated” market has its advantages as developers can depend on local buyers to drive demand.

The country’s relatively young population provides a ready catchment market and consistent demand for houses, especially mass housing products.

But the high-rise condominium market, especially in the KLCC area, is still languishing.

It will take a while for the new supply of condominiums to be absorbed and for prices to get back to their previous high.

For landed housing, demand has been kept robust by the prevailing low interest rates and easy availability of bank financing.

Given the intense competition among banks and ample liquidity in the system, mortgage rates will likely remain accommodative.

Nevertheless, it is important for all stakeholders to keep a close watch on the market and make the necessary changes whenever necessary to ensure the market remains stable.

Deputy news editor Angie Ng hopes buyers and industry players will exercise prudence for a sustainable and healthy property market.

By The Star (by Angie Ng)