In April 2007, amendments were made to the Housing Development (Control and Licensing) Act 1966 to cater to the BTS system resulting in the Housing Development (Control and Licensing)(Amendment) Regulation 2007 being enforced on December 1, 2007.
The usual progressive release of payment under Schedule G of the STB system has been replaced by Schedule I that stipulates that upon the payment of an initial downpayment of 10% to book a particular property, the balance 90% will only be payable upon the delivery of vacant possession to the buyer.
Meanwhile high-rise projects that are sold based on the BTS method will follow Schedule J that has replaced Schedule H.
PROPERTY developers have many opportunities to showcase their good sides and fulfil their corporate responsibilities through their projects. Early project delivery, practical and comfortable designs and layout, secure environment, quality workmanship and reasonable pricing are some of the hallmarks of a good developer.
However, there are very few that are willing to go beyond the call of duty and go the extra mile for their buyers, such as building up their projects to an advance stage before offering them for sale to allow buyers a first-hand look and feel of what they are buying into, before they commit on a particular unit and sign on the dotted lines. This is based on the build-then-sell (BTS) system of project selling and delivery.
Most of the developers still sell their projects based on miniature model displays, advertisements, banners and brochures, or known as the sell-then-build (STB) system.
SHL Consolidated Bhd is one of a handful of developers that has adopted the BTS project delivery system in its Bandar Sungai Long township since the project was launched about 20 years ago. On top of that it is also contributing to the supply of affordable housing in the Klang Valley under the Rumah Selangorku schemes.
SHL is currently building 536 units of 850 sq ft walk-up apartment at Alam Budiman in U10, Shah Alam. The nicely designed 4- to 5-storey housing blocks with the signature SHL red facing brick wall facades are priced affordably at RM170,000 each unit.
The Kuala Lumpur-based developer has plans to build more such units in other parts of the Klang Valley, including in SHL’s latest project, Goodview Heights in Sungai Long South in Kajang.
SHL executive director Datuk Yap Chong Lee sees the BTS system as an ingenious way to uphold its responsibilities as a responsible developer that delivers projects on time, yet ensures the timely realisation of revenue and earnings in its financial books.
While the majority of the developers are up in arms against the implementation of the BTS and came out with many reasons why it should not be implemented, SHL has been using the BTS system to sell, build and deliver its landed property projects for many years already.
“We have always adopted the model of selling our projects only after construction works have reached near completion stage. This method of selling allows us to have a better understanding of the buyers’ preferences,” he tells StarBizWeek.
In 1999, SHL launched the “Siap & Sedia” or “Completed & Ready” schemes in Bandar Sungai Long, which was based on the BTS system.
According to Yap, the company has opted for the BTS as it is a more predictable and transparent system for all the relevant parties involved in a project, including the architects, lawyers and bankers.
“The benefit of the BTS is definitely in the competitiveness; especially, if expectation on margin is reasonable. Less administrative work is involved and it is highly efficient in determining the realistic demand for projects, and results in better financial planning, and to manage cost inflation.
“The BTS allows SHL to manage projects in a more systematic way. It has resulted in higher efficiency in our work processes, less speculative gross development value of projects, and a more accurate plot ratio planning. Allocation of financial resources can be more accurately defined resulting in more efficient cost management.”
Bottom-up pricing
Yap says it allows the project team to do bottom-up pricing to keep tab of all the material needs and cost structure.
“Managing our resources efficiently and optimising our procurement needs will minimise or eradicate wastage. After all, land and infrastructure cost already constitutes about 40% to 50% of the total cost, while the actual building only makes up 30% to 35%,” Yap explains.
The BTS system helps the team to focus on completion of a specific phase of a project. If demand is at a less than acceptable level, products will have to be quickly modified. The selling price may have been wrongly predicted and may need to be adjusted accordingly.
Yap says financially it also works well for SHL as the company can make sure the realised revenue falls within a targeted financial year.
“We try to maintain a turnover that can meet a reasonable return based on our capital structure. Our target is to achieve revenue of around RM240mil to RM250mil a year in line with our paid-up shareholding of RM242mil,” he says.
And instead of being aggressive on project launches and “chasing after” high GDV, Yap says SHL, which has surplus cash of some RM270mil, adopts a dividend payout policy that distributes some 70% to 80% of its earnings, which works out to about 20 sen a share to reward its shareholders.
Yap says response from property buyers to the company’s projects has been overwhelming as they get to see the actual property with all the infrastructure already in place. This eradicates the risk of non-completion or non-delivery of the property.
Property buyers also benefit financially as they can plan ahead for the payment of the differential sum, which becomes due only upon vacant possession with certificate of fitness.
He says the shortcoming of the sell-then-build (STB) system is the tendency of developers to over-invest in an attempt to realize cash flow from sales of products.
Affordable housing
“It becomes more difficult to manage cost over-run and more administrative work is involved. On top of that, completion period can still be at risk as it is determined by the availability of realized revenue from sales and the ability of contractors to continue work in the event of delay in payment.”
Yap says SHL is also considering adopting the BTS for affordable housing projects if the project cycle is short and the assignment of contract under Schedule J can be contained from speculative play.
The BTS system has been a hotly debated topic between the proponents of the system who comprise mainly house buyers, and the opposers that are made up of mostly property developers.
Even though the BTS was first mooted in 2002 to protect house buyers and to arrest the many problems caused by abandoned and late delivery of projects, its implementation has been postponed many times after developers voiced out against it.
In April 2007, amendments were made to the Housing Development (Control and Licensing) Act 1966 to cater to the BTS system resulting in the Housing Development (Control and Licensing)(Amendment) Regulation 2007 being enforced on December 1, 2007.
The usual progressive release of payment under Schedule G of the STB system has been replaced by Schedule I that stipulates that upon the payment of an initial downpayment of 10% to book a particular property, the balance 90% will only be payable upon the delivery of vacant possession to the buyer.
Meanwhile high-rise projects that are sold based on the BTS method will follow Schedule J that has replaced Schedule H.
Yap says although SHL’s forte is in property development, it believes in building its projects at a decent pace to ensure quality workmanship. It delivers about 500 housing units a year but will have in hand 2000 units under construction at any given time.
”SHL is fundamentally a domestic home builder. We have ventured into downstream activities such as construction management, brick manufacturing and quarrying, as these are essential building materials, and we need to have stable pricing and uninterrupted supply to be efficient. This also ensures efficient employment of labour as it reduces waiting time for materials,” Yap discloses.
Sin Heap Lee Development Sdn Bhd marketing director Lau Peng Kai says the company has projects in three locations. Goodview Heights is a 200 acre project in Sungai Long South, Kajang that will feature 2,400 housing units worth a GDV of RM1.4bil to RM1.5bil, to be developed over the next five to six years.
Since its launch on September 5, all the 157 units under phase one have been sold. Phase two is in the process of being launched.
Under planning in Bandar Sungai Long will be another 500 housing units, comprising high-end landed properties and affordable apartments to meet demand of another 5,000 students who will be studying in the area.
Another project is an industrial project in Rasa, Selangor that will feature 108 semi-detached factories to cater to the small and medium industries in the area.
Yap says SHL will be looking into buying new land if the land cost is realistic against the affordability of the property products, location, and demand pattern.
“Landed housing is always a valued product and a storage of wealth. Consumers will always view them in terms of affordability and the cost of maintenance and upkeep. In the case of condominiums where delivery takes between three to four years, there is a high exposure to cost over-run and over-supply that is expected to happen in 2017,” he cautions.
