Soilbuild focuses on Myanmar

On July 8, Singapore-based privately held property developer Soilbuild Group Holdings (Soilbuild) and its Myanmar partners will be holding a gala dinner for 400 invited guests at the four-star Yangon Novotel Max. Entertainment that evening will include performances by Myanmar and Asian pop singers, but the main attraction will be a sneak preview of the upscale condominium development, Rosehill Residences, in Yangon by the joint-venture partners.

A gala dinner of such a scale for a VIP preview of a property launch is unusual in Singapore, but quite common in Myanmar. For Soilbuild and its listed construction arm, Soilbuild Construction Group, the launch marks the culmination of three years of hard work laying the ground in a new market.

The site is the first international joint venture between two private corporate entities in real estate development to receive Myanmar Investment Commission (MIC) approval. Rosehill Residences is also a coup for Soilbuild Construction, as it is the company’s maiden construction project, which was awarded by the joint-venture partners on June 8 and is worth US$50.4 million ($67 million).

Soilbuild, led by executive chairman Lim Chap Huat, has taken a 60% stake in the joint-venture company that is developing the project. It will also undertake the development cost of the project, which is estimated to range from US$60 to US$150 psf, excluding land costs. Meanwhile, its Myanmar partner, Rose Hill Co, comprising seven leading local businessmen, will contribute the 0.8 acre land parcel for the development. The site is located on Kabar Aye Pagoda Road and is a private grant land that has been given a perpetual renewable lease of 50+10+10 years.

The 176-unit Rosehill Residences will be 24 storeys high and, when completed in 3½ years’ time, it is likely to be one of the tallest condo towers in Yangon. It is positioned as a high-end condo, and typical sizes range from 1,800 to 2,200 sq ft, with units being exclusively three- to five-bedroom. There are also sky villas and penthouses. A club floor on the 13th level will offer residents-only facilities. Prices are expected to range from US$300 to US$400 psf, which translates into absolute prices of US$540,000 to US$880,000.

Apartments will feature spacious balconies in the living and dining area, a wet and dry kitchen, maid’s accommodation, storage area and en suite bedrooms. They will be fitted with kitchen cabinetry, German brand kitchen appliances, bedroom wardrobes as well as German brand bathroom accessories and sanitaryware, which will be on a par with the specifications of high-end condos in Singapore.

Soilbuild Construction did not just plunge into the construction business in Myanmar. It spent the last three years in the trenches building up a network of contractors, subcontractors and suppliers, understanding how people work in Myanmar, deciphering the regulatory framework, and working out the government approval process and the construction methodology. It therefore undertook consultancy and project management contracts initially to learn the business. Over the last two years, it has undertaken the project management of nine developments, mainly residential ones and a few commercial showrooms.

“That’s part of our strategy,” says Ho Toon Bah, executive director of Soilbuild Construction. “Construction is not as easy as everyone thinks. Just because we know the construction business in Singapore, it doesn’t mean we can just go to Myanmar and replicate it.” For instance, the construction of Rosehill Residences is estimated to take 40 months to complete. A project of similar size in Singapore takes only 30 months to construct.

When Soilbuild Construction considered a regional expansion two years ago, it had explored opportunities in Medini in Iskandar Malaysia. “It was a bit too close for comfort,” says Ho. “Sometimes it’s not easy to overcome historical baggage.”

Soilbuild Construction had also looked at China, but felt that the Chinese construction groups were many times bigger and could undertake much larger scale developments in which the company could not possibly compete. “In fact, they are coming to Singapore to compete with us,” says Ho. “We decided that, rather than spend so much time in markets where we will make little headway, we might as well just focus on Myanmar.”

First-mover advantage Soilbuild Construction believes it has a head start in Myanmar, as it has been there since 2012. It has built a team of 16 Myanmar staff — “I’m a believer in localisation”, says Ho, who plans to start a training school in the country for its construction workers.

Besides construction, Ho sees opportunities in infrastructural works in Myanmar, specifically in civil engineering projects such as building and repairing roads and bridges. He has even set up a team to focus on civil works. “We want to get ourselves ready for when Myanmar opens up,” he says.

By focusing on Myanmar, Ho reckons that winning “a few hundred million dollars’” worth of construction projects a year is “not impossible”. Construction projects in Myanmar could therefore contribute up to 30% to 50% of Soilbuild Construction’s top line within the next three to five years, he says.

Meanwhile, its parent company Soilbuild has ambitious plans to actively seek potential sites for integrated developments. Soilbuild Construction will thus benefit from taking on the construction of these projects.

Foreigners and condo laws Foreign direct investments may have soared to US$8.1 billion this year, but foreigners still cannot buy condos in Myanmar. Property consultants in Myanmar reckon that new condo laws could be passed that will allow foreigners to buy up to 40% of units in a condo project.

Steps are also being taken to open up the banking sector, with four foreign banks — Oversea-Chinese Banking Corp, United Overseas Bank, Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corp — given licences to open branches there over the last three months.

“Structural changes are afoot, with the real estate market moving from being a largely unleveraged market to one in which developers and investors might begin to secure a loan for real estate investments,” Tan Kok Keong, CEO of REMS Advisors, a real estate consultancy and co-founder of Fundplaces, says in a column in The Edge Property on June 1.

For now, the mortgage market in Myanmar is still non-existent, with most homebuyers paying in cash. In 2013 and 2014, most developers were able to pre-sell 40% to 50% of the units in their projects even before construction started, says Richard Emerson, country manager for Savills Myanmar.

Sentiment has become more cautious on the ground. “A key reason for the less buoyant sentiment, especially in the real estate market, was the increasing uncertainty over the political stability of the country heading up to the 2015 elections,” says REMS Advisors’ Tan.

Other Singapore property groups that have also entered the Myanmar market include Keppel Land, which announced last month that it would add a 29-storey, 420-room wing to its Sedona Hotel Yangon. Last December, Keppel Land also announced that it was investing US$47.4 million in a joint venture to develop a 23-storey office tower in Yangon’s CBD. Last October, Oxley Holdings entered into a building construction, management and consultancy services agreement to build a 20-storey, mixed-use development in Yangon called Min Residence. Last August, UOL Group formed a joint venture to develop, construct and manage a hotel property. In March last year, Ascott, the serviced apartment arm of Singapore’s CapitaLand, secured its first serviced residence property, the 153- unit Somerset Kabar Aye Yangon, which will be part of a mixed-use development that comprises a luxury condo. Two years ago, Amara Holdings announced a joint venture to develop and operate a hotel in Yangon, with investments of US$50 million.

“There are a lot of Singapore groups talking to us, and there’s a lot of capital coming from around the world,” says Chris Marriott, CEO of Savills South East Asia. “There’s probably more capital than there are investment opportunities.”

Soilbuild Construction Group, which listed on the Singapore Exchange two years ago, has no intention of going into property development. Its mandate is only for construction work. Any property development projects will be undertaken by its privately held parent company, Soilbuild Group Holdings.

“We will take only a small stake in a property development to secure the construction of the project and to align our interest with the developer’s,” says Ho Toon Bah, Soilbuild Construction’s executive director, adding that property development “has a different set of risks altogether”.

This is unlike listed construction companies such as Chip Eng Seng, Lian Beng Group, Sim Lian Group and KSH Holdings, which have become increasingly active in property development and embarked on overseas projects in recent years, especially in Australia.

Soilbuild Construction intends to stay focused. Ho says the company’s strategy in Singapore is therefore two-pronged: to anchor itself in the HDB market and leverage its capabilities in the industrial sector, its mainstay.

Since it entered the HDB public housing sector four years ago, it has clinched several sizeable HDB built-to-order (BTO) schemes in neighbourhoods such as Ang Mo Kio, Bukit Batok and Tampines. Last year, it won a $168.4 million contract from HDB to build nine residential blocks with a total of 1,294 flats in Yishun. In January this year, it was awarded a $128 million contract to build six 16- to 17-storey residential blocks in Sembawang.

Its order book stood at $769.3 million as at end-1QFY2015, with HDB contracts accounting for about 40%. “HDB is definitely a segment that we will continue to focus on,” says Ho. “While margins may be low, it’s compensated by the fact that risk is low, and HDB is a very good paymaster.”

HDB is a staple in Singapore’s housing market, accounting for 80.4% of all household dwellings in 2014, according to the Department of Statistics. The government has also been ramping up the supply of BTO flats in recent years. In 2011, 25,000 BTO flats were launched, followed by 27,000 in 2012. In 2013, the number of BTO flats was 23,000 and last year saw 24,300 units released. This year, however, only 16,900 BTO flats will be offered for launch.

Another segment that Soilbuild Construction intends to focus on is the construction of industrial buildings and factories. The company started in this sector in the late 1970s, when Soilbuild Group was founded by Lim Chap Huat, executive chairman of the group.

Soilbuild Construction has built factories and business space developments for its parent company Soilbuild Group, including Mandai Connection, a 10-storey ramp-up business space development with 342 factory units that was recently completed. The other recent project is Bukit Batok Connection, a nine-storey light and clean industrial block. In Yishun, its industrial complexes include Northview Bizhub, North Point Bizhub and North Spring Bizhub.

“So, we think we can have a competitive advantage in the industrial sector,” says Ho. “It’s also more straightforward and less troublesome than building condominium units.”

The construction company also undertakes design-and-build projects for MNCs. For instance, last year, it completed Das Spektrum@CBP, Rohde & Schwarz’s first global business hub outside of Germany. Other design-and-build projects include Vector Aerospace’s two-storey factory building and ancillary office for aerospace repair and overhaul in Seletar Aerospace Park as well as the headquarters of Rigel Technology.

Soilbuild Construction’s biggest industrial development is West Park BizCentral in Tanjong Kling and Pioneer Road in Jurong, with about 1.2 million sq ft of ramp-up factory and hi-tech space. The development has since been injected into Soilbuild Business Space REIT, which was also listed in 2013.

Another development constructed by Soilbuild Construction for its parent company was Solaris at one-north, a complex with two towers — one of nine storeys and the other of 15 storeys. The project has since been injected into the REIT as well.

Last August, Ascendas REIT paid $458 million for Aperia, an integrated industrial mixed-use development at the junction of Kallang Avenue and Lavender Street. The development has two business space towers and a three-storey retail podium. The project was completed in June last year by Soilbuild Construction.

While there is an oversupply in the industrial space, Soilbuild Construction’s Ho is not unduly concerned. “We’re not in the development business, and more than half of our industrial projects are for end-users,” he says.

Soilbuild Construction will continue to selectively undertake construction of residential and commercial projects. Last year, it was awarded two construction projects by Tong Eng Brothers, a privately held property developer: one was the construction of its high-end condo project, the 73-unit Goodwood Grand in Balmoral; the other was its strata commercial development, Arc 380, a 16-storey development with 12 floors of office units and four storeys of retail space. Arc 380 is a redevelopment of the former Eminent Plaza and Lavender Food Court on Jalan Besar.

This article appeared in the City & Country of Issue 682 (June 22) of The Edge Singapore.