S P Setia’s global push

/ The Edge Property |

November 4, 2015 10:00 AM SGT

Having launched two projects in Singapore, the landmark Battersea Power Station in London and a luxury condominium in Melbourne, what does Malaysia’s giant property developer want to do next?

Malaysia-listed property giant S P Setia was not going to let a PSI reading of above 200 threaten the topping-out ceremony of its Eco Sanctuary project on the afternoon of Sept 28. It was held at the rooftop of one of the three 24-storey condominium blocks at its “nature-inspired” Eco Sanctuary on Chestnut Avenue. The panoramic views of the surrounding greenery and city skyline were shrouded by a thick haze. “On a clear day, you can see Setia Sky 88 in Johor Baru on one side, and Marina Bay Sands on the other,” says an S P Setia staff performing the role of emcee.

That afternoon, S P Setia’s acting president and CEO Khor Chap Jen, acting deputy president and COO Wong Tuck Wai, S P Setia Inter national’s general manager Neo Keng Hoe and Derick Pay, director of Tiong Seng Contractors, as well as more than 50 staff from S P Setia’s office in Malaysia were in Singapore for the event.

It was a significant milestone, as the 483- unit Eco Sanctuary is the developer’s second project in Singapore. The first, the 101-unit 18 Woodsville located off Upper Serangoon Road, was completed in July.

View of grenery and all the way across to Johor from the 14th floor of one of the

three towers at Eco Sanctuary

‘Sales still plodding along’ Eco Sanctuary is scheduled for completion in 3Q2016. “There is still quite a lot to be done,” says Wong, 60, who has been with the company for 39 years and whose staff card number is said to be “0001”.

Located near Bukit Timah Nature Reserve, Eco Sanctuary is close to 90% sold and has a gross development value of $465 million. “Sales have been plodding along despite the headwinds over the past year,” Wong says. “We have about $40 million worth of sales left to do. We can take our time to sell. But market sentiment is not that great.”

There are no plans to relaunch Eco Sanctuary, since the project is already substantially sold, said Neo. About 90% of the buyers are Singaporean owner-occupiers. Units range from one-bedroom apartments of 506 sq ft priced from $586,860 to four-bedroom penthouses of 1,991 sq ft sold for $1.99 million. The average price achieved is $1,100 psf, he adds. Developed on a 201,287 sq ft, 99-year leasehold site purchased in a government land tender in November 2011 for $180 million ($426 psf per plot ratio), Eco Sanctuary was launched in December 2012.

S P Setia’s maiden project in Singapore, 18 Woodsville at Woodsville Close, is a redevelopment of the former Leong Bee Court, which S P Setia purchased en bloc in April 2011 for $65 million ($824 psf ppr) from the 27 unit owners in a private treaty deal. The project was launched in April 2012, and completed in July this year.

Sitting on a 29,440 sq ft freehold site located close to Potong Pasir MRT station, 18 Woodsville is also near prestigious schools such as St Andrew’s Village, Cedar Girls’ School and Stamford American School. Only four units at 18 Woodsville were unsold as at end-August. The average transacted price achieved for the project is $1,740 psf. About 60% of the buyers were owner-occupiers, and the rest, investors.

Singapore market ‘very soft, very challenging’ Although the Singapore property market is “very soft” and “very challenging”, Wong says S P Setia will continue to look for “opportunistic deals”. The company has had a presence in Singapore for more than six years, having opened an office and sales gallery at Harbourfront Tower One in April 2009.

Wong’s prognosis of the Malaysian property market is equally grim. “There’s a lot of apprehension and many people are sitting on the sidelines,” he says. In October 2013, the Malaysian government introduced a slew of property-cooling measures, including higher floor prices of RM1 million for foreign buyers, a capital gains tax of 30% for foreigners who sell their property within the first five years of purchase and the scrapping of developers’ interest bearing schemes. Banks have also tightened regulations on mortgage lending.

Some pundits say it is time to relax the housing loan limits in Malaysia, as there are cases in which genuine aspirations to own a home are quashed because of the difficulty in securing a loan, particularly in the affordable and medium-cost housing segment. “It’s very difficult even for first-time buyers to get a mortgage,” Wong says. “The property-cooling measures by both governments in Malaysia and Singapore really did bite.” Wong subscribes to the view that the tweaking of the total debt servicing ratio (TDSR) and additional buyer’s stamp duty (ABSD) will go some way towards reviving flagging home sales in Singapore. “If not, people won’t buy,” he says.

Singapore’s eight rounds of property-cooling measures from Sept 2009 to June 2013 also resulted in the halving of transaction volume from 2013 to 2014 as well as eight consecutive quarters of price declines. The lacklustre property market has taken a toll on all stakeholders in the industry, Neo says. “Most would now agree that housing needs have generally been met in recent years,” he says. “Developers as well as existing property owners are looking forward to the gradual lifting of these cooling measures to restore confidence and stability to the current property market.”

The latest URA flash estimate for 3Q2015 released on Oct 1 pointed to a 1.3% q-o-q decline, and overall fall in private residential prices for the year projected to be in the range of 3.8% and 4.5% y-o-y. From the peak in 2Q2013, private-home prices have corrected about 8%. “If the government were to leave the current cooling measures unchanged, price falls could accelerate in 2016, as market demand will be adversely affected by rising interest rates and slower economic growth, which would translate into slower wage appreciation and a weaker job market,” Nicholas Mak, executive director of research and consultancy at SLP International, said on Oct 1.

Diversification strategy S P Setia reported a record 2QFY2015 ended April 30, with revenue of RM2.6 billion and profit of RM499 million. Having achieved RM2 billion ($653 million) in sales for the first seven months of FY2015 as at end-May, the developer has revised its forecast for full-year sales to RM4 billion, from RM4.6 billion before. The downward revision was due to slower sales from its international projects and weaker buyer sentiment in Malaysia.

Of the RM147 million in international sales S P Setia achieved in 2QFY2015, RM103 million came from its 40% stake in Battersea Power Station in London. Sales were affected by the uncertainty of the outcome of the UK general election in May. The £8 billion ($17.3 billion) Battersea Power Station is one of the biggest regeneration schemes in London, and S P Setia is part of a consortium — along with Sime Darby and the Malaysian Employees Provident Fund — developing the project.

The most recent launch at Battersea Power Station was the third phase, which comprises about 1,300 apartments and townhouses, with shops, hotels, restaurants and leisure facilities. It boasts apartments designed by two luminary architects: Frank Gehry of Gehry Partners, and Norman Foster of Foster + Partners. A global launch of 539 units was held across 13 cities last November. Priced at an average of £1,600 to £1,700 psf, about half the units have been sold. “We are still selling, but not at the feverish pace of Phases One and Two,” Wong says. “Headwinds are everywhere. It’s a very challenging market.”

This is unlike the first phase of Battersea Power Station, which saw more than 800 units sold in just a few short months in early 2013, with many of the units being purchased by Malaysians, Hong Kongers and Singaporeans. Prices of the first phase averaged £1,100 psf then. The second phase featured luxury apartments perched on top of the historic Power Station, which will be conserved. It was launched only in the UK, and 90% of the units were sold at an average price of £2,500 psf.

Competition in the Nine Elms neighbourhood has also intensified, with recent launches including One Nine Elms by Dalian Wanda and Damac International’s Versace-themed Aykon Nine Elms. These projects were launched at prices of around £1,800 psf.

Weakening ringgit — boon or bane? In Australia, the group has already handed over its first residential tower in its twin tower project at Fulton Lane in Melbourne. S P Setia plans to hand over the second residential tower there by 2H2016. The A$470 million ($476.8 million) twin tower development with 804 luxury apartments was fully sold two months ahead of schedule, according to the developer.

S P Setia’s second project in Melbourne is Parque Melbourne on St Kilda Road, where construction is set to begin in January. The project will feature a sculptural apartment block with 322 units on a 97,000 sq ft located in a heritage setting.

With the Malaysian ringgit at a historic low of RM3 versus the Singapore dollar, some developers and property agents have tried to entice Singapore buyers to take advantage of the exchange rate to purchase projects in Malaysia. S P Setia has likewise tried to capitalise on that opportunity. “The weak ringgit aside, property has always been a safe haven,” says Wong. “But I suppose that, while Singaporeans may think it’s cheap, they are also worried about whether there’s a vibrant secondary market, as most of them are investors.”

At the height of the property boom in Iskandar Malaysia in 2012, S P Setia launched Setia Sky 88, its twin-tower luxury condo project located just a two-minute drive from the Causeway checkpoint. The Iskandar Malaysia market started to show signs of weakening residential sales in 2013, owing to fears of oversupply unleashed by the mega launches of projects by mainland Chinese developers that year, particularly Country Garden Danga Bay with more than 9,000 units and R&F Development’s Princess Cove. That was when S P Setia decided to launch its business park development called Setia Business Park II. “We’re very innovative in that regard,” says Wong.

He recalls that, during the Asian financial crisis, S P Setia launched its maiden township project in Johor —the 1,515-acre Bukit Indah — in 1997. “When the Asian financial crisis hit, the market was in the doldrums,” he says. “So, we changed our houses from double storey to single storey, and sold them at more palatable prices of RM150,000. That helped tide us over until the market recovered. Make no mistake, the property market always comes back.”

Since then S P Setia has become one of the biggest developers in Johor, with at least a handful of township projects. Following Bukit Indah was the 888-acre Setia Indah, with a gross development value of RM1.8 billion in the Tebrau Corridor, which was launched in 2001. The 740-acre Setia Tropika, with a GDV of RM3.2 billion, made its debut in 2005. The 949-acre, RM3.5 billion Setia Eco Gardens in Iskandar Malaysia was unveiled in 2009, and this was swiftly followed by the 259-acre Setia Eco Cascadia in December 2011, which is adjacent to the mature Setia Indah township, launched a decade earlier.

Having what Wong calls “a supermarket of developments” is also what sets S P Setia apart from other developers, he says. This year, the developer launched 2,400 affordable homes, with a rollout of another 2,100 at its Rumah Selangorku development located within its Setia Alam township in Selangor by year-end. In Malaysia, affordable homes are flats priced up to RM200,000.

In Selangor, S P Setia’s ongoing projects include Setia Eco-Park in Shah Alam, Setia EcoHill in Semenyih, Setia Eco Glades in Cyberjaya, Setia Sky Residences on Jalan Tun Razak and KL Eco City on Jalan Bangsar. Elsewhere in Malaysia, S P Setia has Aeropod in Kota Kinabalu in East Malaysia as well as projects in Penang, such as Setia Pearl Island, Setia Vista, Setia Pinnacle, Brook Residences and Setia V Residences.

As at end-April, the company had 30 ongoing projects, with a landbank of close to 4,200 acres and RM71.27 billion in GDV.

Changes at the top The resignation of former president and CEO Liew Kee Sin in April last year caused some uncertainty within the echelons of S P Setia. The 57-year-old started his career in banking and set up his own property company, called Syarikat Kemajuan Jerai, which went on to develop Bukit Indah Ampang. It was only when Syarikat Kemajuan Jerai was bought over by S P Setia (which was founded in 1974) that Liew was appointed group managing director of the merged entity in 1996. S P Setia was listed on Bursa Malaysia in 1993, but Liew was credited for growing the firm’s market capitalisation from RM200 million in 1998 to RM8.5 billion today.

The company has also become an international developer, entering Vietnam in 2007, followed by Singapore in 2009, Australia in 2011 as well as China and the UK in 2012.

Malaysian state-owned investment vehicle Permodalan Nasional Bhd triggered a takeover of S P Setia when it increased its stake from 33% to cross 50% in October 2011. PNB now owns 51.05% of the shares and its wholly-owned subsidiary Skim Amanah Saham Bumiputera holds 14.97%, according to Bloomberg data. Collectively, PNB and its subsidiary own 66% of the shares. Malaysian pension fund groups Kumpulan Wang Persaraan, the Employees Provident Fund and Lembaga Tabung Haji collectively own another 18.2%.

Following Liew’s resignation from S P Setia in April 2014, his replacement, acting president and CEO Voon Tin Yow, did not stay long either, leaving in December. Voon has since become an executive director at Eco World Development, a property firm founded in 2013, whose biggest shareholder is Liew’s 24-year old son, Tian Xiong. Liew is also now with Eco World and was appointed its chairman in March this year.

At S P Setia, the vacancy left by Voon at the top is now occupied by Khor, who was appointed to the position in January this year. Prior to that, Khor was deputy president and COO since May 2014. Khor is also a veteran at S P Setia, having been with the company since 1997. Following Khor’s elevation, Wong who was executive vice-president, was made the new acting deputy president and COO with effect from January.

“Tan Sri Liew has been very successful in building S P Setia to such an extent that it almost runs on remote control,” remarks Wong. “So, even without him, the company can still function. So, we’ve been doing fine. We’re on track to achieve the sales target we’ve set.”

While the Malaysian property market is expected to be “even tougher” next year, S P Setia “will fare better” because of its township developments and affordable homes, he adds. The group will continue to grow its international business in the existing markets where it already has a presence — in Australia, China, Singapore, the UK and Vietnam.

Interested in condos / apartments near Bukit Timah Nature Reserve? Click here to find out!

This article appeared in the City & Country of Issue 698 (Oct 12, 2015) of The Edge Singapore.

Tags: