Cover Story : Resilient in tough times

TheEdge Mon, Aug 08, 2022 04:00pm - 1 year View Original


Things are finally looking up after two difficult years, owing to the Covid-19 pandemic that led to a slowdown in the economy. The real estate market is expected to gradually recover now that the country’s borders are open and people are travelling again.

UEM Sunrise Bhd has embarked on a triage strategy to stabilise the company, restore investor confidence and return to the black after losses in the past eight quarters. CEO Sufian Abdullah believes the time is ripe to take corrective measures to reduce potential losses, improve its cost structure and activate capital expenditure. He says the group has had to make some hard decisions on its balance sheet and current commercial assets (projects) to sustain its business.

“This relates to a number of infrastructure projects that have been put in place to expedite real estate developments. All of these projects are in Iskandar Puteri and Gerbang Nusajaya, where UEM Sunrise is the master developer and we envision that we will be the largest fully integrated urban developer in Southeast Asia,” says Sufian.

“We will also be prioritising several projects that relate directly to our primary revenue stream, which is property development. In the past, UEM Sunrise had core competencies in project and construction services, as well as property management. We have since divested those businesses to renew our focus on property development.

“If we were to do a commercial real estate project, we would not take on one that would put a heavy burden on our balance sheet. We are looking at a quick monetisation strategy for most of our commercial real estate, in addition to our bread-and-butter real estate projects.”

The developer is looking to improve its pipeline by ensuring that the products are ready to be launched when needed, even if they are not planned for the current financial year. “The dynamics of the market change almost every quarter nowadays, and we have to be nimble to respond to them. We believe these pipeline projects can be absorbed by the market as the country’s economy is recovering,” he says.

“This will potentially increase our unbilled sales for the next five years, providing us with a stream of revenue to manage debts. We also intend to clean up our balance sheet, so that will give us a better ability to manage our cash flow.”

UEM Sunrise will focus more on attainable products, given the market conditions. This means fine-tuning the pricing to fit into the affordable range for those who are earning between 80% and 120% of the average median income, says Sufian.

“This will increase buyers’ chances of getting their financing approved and be more palatable for those buying for their own use. We know that there is still a huge market for this group of buyers, especially in the southern region and in some of the land banks that we have been activating in the central region.

“There is quite a substantial amount of legacy assets in our portfolio that have been idle for several years. We will be targeting assets that could not be activated fairly soon and assets that are no longer relevant to our strategy. For instance, there is about RM30 million worth of assets in Mont’Kiara that we are looking to divest this year and to date, about RM80 million is already under offer.”

UEM Sunrise also has development land, valued at more than RM350 million, and splinter land, which is divided by highways, that have been put up for sale. So far, about 45% of the land is in the recognition process and has seen a cost improvement of 3% to 3.5%, says Sufian. The developer is aiming for a higher cost savings of 8%.

“Streamlining and improving the group’s retail operations is also important. The tenancy at Publika has been configured to be more thematic; shops are divided according to the type of business and are more organised,” he adds.

In addition, UEM Sunrise signed a memorandum of understanding (MoU) with nine local companies to strengthen, promote and develop a mutually beneficial relationship and cooperation under its Vendors Partnership Programme on June 7. The nine companies were Guocera Sdn Bhd, Bofi (Malaysia) Sdn Bhd, Innocera Marketing Sdn Bhd, Electrolux Malaysia Sdn Bhd, Cement Industries of Malaysia Bhd, Panasonic Malaysia Sdn Bhd, Signature Cabinet Sdn Bhd, Aurum Precast Sdn Bhd and Gamuda IBS Sdn Bhd.

“These include basic material suppliers and intangible assets like cement, tangible products like tiles and floor timber panels, as well as kitchen cabinets and furniture that offer a value-added proposition. We aim to create a long-term strategic arrangement with these vendors, which will give us better/improved cost efficiency,” says Sufian.

“The partnership programme will explore long-term synergies and promote cooperation between UEM Sunrise and the participating companies in the areas of marketing and branding, where the parties will leverage their respective marketing platforms to cross-market and increase brand awareness.”

From top: An artist’s impression of Phase 1A of Senadi Hills in Iskandar Puteri; Verna Park Terrace, which is part of the Verna Residence Series in Serene Heights; The Beat, an interim retail hub in Kiara Bay, which opened its doors last month (Photo by UEM Sunrise)

Creating the right product

According to Sufian, getting the pricing right is a key strategy to meet the sales target. He believes the right pricing and product features driven by innovation will work in the market. For example, the response to its KAIA Heights in Equine Park, Seri Kembangan, was overwhelming as it is a family-oriented development built with an abundance of green spaces, blended recreational facilities and avenues for an active lifestyle while offering easy access to healthcare facilities, educational institutions and retail hubs, he says.

UEM Sunrise intends to align its products with the design for manufacturing and assembly (DFMA) methodology, an initiative that the company embarked on recently. “If purchasers buy into a certain category, they know exactly what they will be getting and this is the expectation that we want the market to have from our products,” says Sufian.

“DFMA, however, is not meant to transition us into the Industrialised Building System, but to give us discipline in how we design that will translate into how we measure and quantify material and how we take into account wastage risk. The ability to minimise construction waste will lead to good cost efficiency, which is also in line with our ESG (environmental, social and governance) objectives.”

The developer will use metric measurements for all new designs, enabling it to get a better fit for materials like tiles and panels. “By doing so, we will be able to create a repository of room sizes, which we think will present a comfort level and the right ergonomics for people to use. The repository of configuration data is then stored in a common data environment that can be dispensed to our designers and consultants,” he says.

Upcoming projects

UEM Sunrise’s property sales improved to RM1.5 billion in financial year 2021 (FY2021) from RM1.1 billion in FY2020. About 73% of the property sales was due to the collective performance of the developer’s top five projects, led by Residensi AVA in Kiara Bay, which saw a 347% surge in sales from the previous year. The other four developments are Allevia in Mont’Kiara, Serene Heights in Bangi, KAIA Heights in Equine Park, Seri Kembangan, and Estuari Gardens in Puteri Harbour, Johor.

Earlier this year, UEM Sunrise announced plans to launch projects worth about RM3.3 billion and was aiming for a sales target of RM1.5 billion in 2022. The company is relooking the numbers and will announce the revised figures at a later date.

One of the more highly anticipated projects this year is the developer’s first transit-oriented development (TOD) in Taman Connaught, Cheras. Sitting on a 6.86-acre freehold tract adjacent to the Taman Connaught MRT station, the mixed-use development will comprise 2,413 residential units in four blocks, as well as some shops on the ground floor.

The residential units will be launched in two phases — the first (1,175 units) in 4Q2022 and the second at a later date. The units will have built-ups of 330 to 1,266 sq ft and are indicatively priced from RM200,000, targeting young executives and young families.

“We have always responded to the needs of young buyers living in KL. We know that these buyers do not prioritise private luxury. They prioritise being next to a public transit system, which is only four stops away from Tun Razak Exchange. As such, we are confident that we are able to curate the right product for them,” says Sufian.

“We know there is a gap in providing the right product, the right pricing and the right features to young executives, especially those between the age of 28 and 40, as well as families who want to live near the city centre and enjoy the benefit of public transport.

“We have also amplified that with the curation of very specific product features. Living in the city now carries a different meaning, as there is a flexibility given to working at home. As such, we will provide platforms and opportunities for people to be close to their home, not necessarily to work at home, but rather be in a conducive environment to work away from the office and close enough to meet the needs of families.”

Coming up in 4Q2022 in Mont’Kiara is MK31. Located on Jalan Kiara 7, the freehold residential development has a contemporary Indochinese resort living concept and will consist of 496 units in two blocks. The indicative price starts from RM1.2 million.

“This will be a highly sought-after project because the units will have unobstructed views of KL city centre and is in close proximity to the Bukit Kiara forest reserve. With only 80 units per acre, the units will have built-ups of 1,614 to 3,024 sq ft, and are designed for family living as well as those who work or study from home,” says Sufian.

As for the 73-acre Kiara Bay in Kepong, Phase 2 is expected to be launched in 2023. Sufian says Phase 2 will be a high-rise development that has a concept similar to Residensi AVA (Phase 1). The units will mainly cater to professionals working in KL.

Residensi AVA has achieved a take-up rate of 97% since its launch in 2019. The project is currently 18% completed and is slated for completion in 4Q2024.

The Beat, an interim retail hub in Kiara Bay, opened its doors last month. It will offer a supermarket for the local community to get their daily necessities and a Starbucks outlet for those who want to grab a cup of coffee. “We will lease the shops and manage the temporary area until the time comes for us to activate the land for future developments,” says Sufian.

In March last year, UEM Sunrise acquired a 9.93-acre parcel of leasehold factory land in Petaling Jaya’s Section 13 from Dutch Lady Milk Industries Bhd for RM200 million. The developer plans to build a mixed-use development on it.

Sufian says the land, on which Dutch Lady’s factory and warehouse facilities currently stand, will only be developed and launched after the former owner moves to its new factory in Bandar Enstek, Nilai, in 2023. Meanwhile, the developer will embark on a social exercise to meet and listen to the local community in the area to understand and effectively respond to their needs.

“We feel this is important because the PJ area has changed over the last five decades and the project we are developing is on a former industrial site. So, we will engage the local community and local planning authorities to get our design ideas across and work out the right product before launching and creating a more effective urban design response to the area,” he says.

Ongoing projects

In March, the developer opened for sale Phase 2 of Aspira Gardens in Johor, of which 70% have been taken up so far. It comprises 2-storey cluster homes, measuring 35ft by 70ft and with built-ups of 2,608 to 3,009 sq ft. The units, priced from RM763,300, are expected to be completed in 1Q2025.

Phases 1A and 1B of Senadi Hills in Iskandar Puteri are 97% and 93% sold since their launch in June and December 2020 respectively. Both phases are slated for completion in December this year.

Phase 1A comprises 112 two-storey garden homes, measuring 20ft by 70ft and with built-ups of 2,088 to 2,241 sq ft, and priced from RM623,900. Phase 1B consists of 120 two-storey garden homes, measuring 22ft by 70ft and with built-ups of 2,185 to 2,317 sq ft, with prices starting from RM659,900.

Projects in Serene Heights have also been well received. The Verna Residence Series — Verna Park Terrace, Verna Garden Cluster, Verna Twin Villas, Verna Link Homes and Verna Lake Villas — are more than 80% taken up since their launch in 2021. The homes, which will have built-ups of 1,955 to 2,111 sq ft and priced from RM697,800, are expected to be completed between the first and third quarter of 2023.

Meanwhile, Blocks A and B of KAIA Heights in Equine Park, Seri Kembangan, which were launched in May last year, have seen a take-up rate of 61%. Blocks C and D were unveiled at end-July.

The 19.24-acre KAIA Heights will feature 924 residential units in four towers. Phase 1 units will have built-ups of 972 to 1,437 sq ft and priced from RM567,800. Phase 2 units will have built-ups of 1,098 to 1,569 sq ft and priced from RM649,800.

Staying agile

The main challenge for UEM Sunrise this year is undoubtedly the rising cost of raw materials. It is slowly diminishing contractors’ ability to hold on to their prices.

“To tackle this issue, we have revised our procurement strategy to be more agile, which will give us an optimal risk window for price fluctuations. Most of our project teams were instructed to get our products ready for tender immediately after the schematics are approved,” says Sufian.

“We incorporated this strategy for our contractors and partners to absorb some of the risks, so they will be able to kind of throttle the risks that they want to take, ultimately giving us better clarity on price and costing. We are aware, however, that the threat of increasing material cost is real, which could potentially incapacitate us and the property sector. As such, we have to be smart to navigate around this.

“We will try not to increase prices because transferring the cost to buyers will be counterproductive in terms of the [sales] take-up that we want to achieve. Our main concern is that the investor market is getting challenging, as real estate yields are getting so low that they match one’s risk-free rate. Also, a hike in interest rates will be anticipated this year, which will affect property prices, the availability of capital and the demand for investment.”

That is why the developer’s focus has always been on genuine buyers and people looking to purchase attainable homes. “We think there is still space in this area for us to play effectively this year and we believe that it will last for some time before the property market returns to normal,” says Sufian.

The delays in construction projects last year were primarily due to the various iterations of the Movement Control Order. This not only affected the construction sector, but also developers like UEM Sunrise that have a small pipeline and are trying to get new projects approved.

“Thus, we have been aggressive about getting approvals and the projects should be ready for us to activate or launch when we need to. As of now, the labour supply has posed a threat to us and other developers to get things done on time,” says Sufian.

The DFMA methodology is important as it helps the company to get into an offsite construction system that makes it less dependable on manual labour, which has become a big issue in the construction industry, he notes.

A challenging year ahead

We all know that this year will be challenging, says Sufian. “Following the reopening of borders, the property market is anticipated to recover. However, there are two aspects that we need to be cautious about — affordability and meeting customer needs — as there are very few developers who really understand what customers are looking for in the post-pandemic era.”

Post-pandemic consumer trends have been shaped by the prolonged movement restrictions, the difficulty of juggling work at home with children’s online learning and space constraints, among others. “If we ignore these [trends] in the future, it will place us in peril,” he says.

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