This article first appeared in The Edge Financial Daily on October 1, 2018

KUALA LUMPUR: Property developers acknowledge that unbilled sales are on the decline but say the situation is not so bad and they are still able to record decent earnings.

The decline in unbilled sales, they said, is in line with the overall slowdown in the property market over the past few years.

Residential properties, for instance, have seen sales come down by 29% to 194,684 units in 2017, when compared with the five years ago figure of 272,669 units in 2012, based on data from the National Property Information Centre.

Nevertheless, developers contacted by The Edge Financial Daily seem undeterred by the downtrend and are positive about future sales.

Mah Sing Group Bhd, for one, is maintaining its 2018 sales target of RM1.8 billion, according to its chief executive officer Datuk Ho Hon Sang.

“Unbilled sales is a function of sales, so in a challenging market, unbilled sales will naturally reduce and will pick up again when sales volume increases,” said Ho. “However, declining unbilled sales is also a reflection that the developer is probably constructing on time, as they are able to bill the construction progress to their buyers, and this amount will be removed from the unbilled sales.”

“Mah Sing’s unsold and ongoing sales is less than two times our sales target, and less than one time if divided over revenue, which is very healthy compared to our peers,” he added.

Eastern & Oriental Bhd senior general manager for sales and marketing Wayne Wong said the Penang-based developer achieved its historical high unbilled sales of RM1.2 billion in September 2016 on the back of the successful sale of its Tamarind Executive Apartments project.

“With the expected completion of this project at the end of this year, we expect a decline in our unbilled sales figure.

“However, this has not had an adverse impact on our earnings as we focused on our RM800 million inventory. We had, over the last two financial years, achieved new sales of RM387million and RM381million for FY18 [financial year ended March 31, 2018] and FY17 respectively on the back of largely selling inventories in Seri Tanjung Pinang.

“As such, we remain confident that despite lower unbilled sales, we will be able to maintain our revenue growth trajectory,” he said.

Wong added that E&O deliberately slowed down launches over the last two years to concentrate on selling its inventories given the property market conditions over the same period.

“However, we are certainly not resting on our laurels as we are laying the groundwork for the launch of two E&O signature developments, The Conlay in Kuala Lumpur as well as Seri Tanjung Pinang phase 2A’s maiden launch of serviced apartments and neighbourhood retail space with a total gross development value of RM1.5 billion over the next two years,” he said.

Over at Eco World Development Group Bhd, the group managed to maintain its unbilled sales figures for 2018, compared with 2017. Its president and group chief executive officer Datuk Chang Kim Wah said unbilled sales is a very relevant key performance indicator for property developers as it determines future earnings.

“We have worked hard to maintain the numbers, and in this regard, we are pleased to share that our progress billings [unbilled sales] number has increased from RM5.9 billion as at 2Q FY18 (second quarter ended April 30, 2018) to RM6.2 billion as at 3QFY18,” he said.

Axis REIT Managers Bhd head of investments Siva Shanker, who has more than 30 years’ experience in real estate, remarked that the Malaysian property market did see a slight recovery in 2017.

“In 2016, developers launched 52,713 units [in the primary residential market] and achieved 31.4% sales, and in 2017 they launched 77,750 units and achieved 32.6% sales. This clearly shows that 2017 was a slightly better year for developers as they launched more units and achieved a higher percentage of sales compared to 2016,” he said.

Noting that developers are more focused on clearing inventories rather than aggressively launching new projects, Siva said this does not indicate that times are bad for the property sector.

“It is true that most developers are saddled with unsold stock and therefore waiting to clear their stock before launching new developments, but that is not a bad sign. It’s just prudent financial management on the part of the developers and a prudent marketing strategy as they work to clear their unsold inventories first and only launch new offerings once the market improves

“Some of them may be clearing their inventories at a discount, as they are able to get some savings from measures the government has taken to ease house prices, such as the sales tax exemption on some building materials,” he said.

Siva also said that the Malaysian property sector is driven more by sentiment rather than fundamentals.

“There is a feel-good sentiment with the new government and the Malaysia Baru concept, and this hope I feel will drive the market forward a little bit more, and by the time the year is over I believe we will register a small positive growth [in terms of property sales],” he added.