In recent years, China’s property developers have ventured abroad, away from the roller-coaster ride that is their property market. Although China’s property market has seen a slight uptick — sales picked up 7% in April, the first time in 15 months, and home prices picked up slightly in June — analysts predict that the road to recovery will be a long one.
Drawn by our geographic and cultural proximity, Agile Property Holdings Ltd is one of the few recent arrivals on our shores. Malaysia, about five hours from China by air, is strategically located at the centre of Southeast Asia. Meanwhile, its population size and gross domestic product (GDP) are similar to that of Tier 2 cities in China, notes Wilson Ren, CEO of Agile Real Estate (M) Sdn Bhd, which is a unit of Agile Property.
Ethnic Chinese account for a third of the population and Mandarin is widely spoken here, he adds.
Ren says that given the soft property prices in China, profit margins are a little fatter in Malaysia. “We are a major developer in China, and we know the market there, and it is slowing down. Because of competition, margins have dropped. Here, I believe margins are higher.”
According to him, developers who bid for and develop properties in Tier 1 and 2 cities have to be contented with margins of about 10%. There is also an oversupply situation in China, he adds.
However, unlike its counterparts such as Guangzhou R & F Property Ltd and Country Garden Holdings Ltd that are launching thousands of homes in Iskandar Malaysia — the economic growth corridor in Johor often touted as “Shenzhen to Singapore’s Hong Kong” — Agile Property is making a relatively conservative move.
“We are conservative. That’s why we came to Kuala Lumpur. There isn’t a concern about no one buying here,” Ren explains.
China’s third-largest developer — it has over 90 projects at various stages of completion in places like Guangzhou, Shanghai, Nanjing and Xi’an — has decided to steer clear of Johor for the time being. “There is an oversupply there. I would rather stay in KL, until the market changes there [down south],” says Ren.
“We are focusing on Greater KL … because of the economy and the income [level],” he says, likening it to Fujian, a Tier 2 city in China.
“In property, the key issue is location, location, location. This is the first time [we are here], so we are starting with KL because it has a stable market. There are ready customers. Penang is another region we can look at,” he adds.
Agile Property is making its debut in Malaysia with two projects in choice parts of Kuala Lumpur worth RM3.5 billion.
In Mont’Kiara, the project will be developed by Agile PJD Development Sdn Bhd, a joint venture between Agile Real Estate and PJ Development Holdings Bhd (PJD). Agile PJD acquired the freehold 10.6-acre tract from PJD for RM186 million.
Meanwhile, the project in Bukit Bintang will be developed by Offshore Triangle Sdn Bhd, a joint venture with Tropicana Corp Bhd. Offshore Triangle acquired the 3.14-acre parcel from Tropicana Corp for RM448.44 million.
Agile Property holds a 70% stake in each joint-venture company.
How did these partnerships come about? “These companies’ bosses are friends of our boss. They have known each other for many years,” explains Ren.
He says the company’s partnership with these developers has furnished it with very useful local context and support in terms of cost control, marketing and operations.
Agile Property picked the two locations as they are fairly cosmopolitan, Ren explains. They are popular among international investors and tenants, including those from China. He adds that the group has a big customer base back home. “Personally, I think the people who want to buy in Malaysia must have some kind of connection to the country. They must have come here before, or have parents or family here. They know the climate and environment, and the education system is similar, where the medium of instruction is either Chinese or English.
“There are lot of Chinese here, so those from China feel that the lifestyle is similar,” he explains.
The projects
The first project, Agile Mont’Kiara, has a gross development value (GDV) of RM1.5 billion. Coming up in Jalan Duta Kiara, the development is behind Hartamas Regency 2 and a stone’s throw from Solaris Mont’Kiara and Publika.
The project comprises 11 high-rise and low-rise blocks offering 813 condos. Built-ups range from 1,200 to 5,000 sq ft. Prices are tentatively pegged at RM950 psf.
The project is being marketed by Knight Frank Malaysia.
According to DTZ Malaysia managing director Eddy Wong, prices of newly completed condos in Dutamas range from RM500 to RM600 psf, while for those that are under construction, it is RM700 to RM1,000 psf.
Zerin Properties head of research and consultancy Roja Applanaidu says average prices for high-end condos in Dutamas, such as Icon Residence, Solaris Dutamas, Verdana and Sutramas, range from RM480 to RM1,000 psf.
She notes that a recent launch in Dutamas is Arte Mont’Kiara, which is located in Persiaran Dutamas and within Naza TTDI Sdn Bhd’s KL Metropolis development. Developed by Nusmetro Group, Arte Mont’Kiara features three towers offering 1,634 condos. Launch prices start at RM850 psf. Roja pegs the average rental rate at RM1.30 to RM4 psf, which translates into yields of 3% to 5%.
Meanwhile, Wong says rental rates in Dutamas range from RM2 to RM3.50 psf. Average occupancy is around 70%, he adds.
Roja says the outlook for Dutamas is good due to the completion of the Duta-Ulu Klang Expressway and the upcoming mass rapid transit (MRT) Circle Line, which is expected to serve the nearby KL Metropolis. “It is expected to create an impetus for properties, particularly high-rise residential developments in Dutamas.”
Ren says Agile Property hopes to obtain an advertising permit and developer’s licence by the middle of this month. The launch is set for the end of the third quarter.
Ren says the project in Bukit Bintang will comprise serviced apartments but declines to provide further details.
However, a check with Kuala Lumpur City Hall shows that a proposal has been submitted for three 55-storey blocks of serviced apartments atop an 8-storey podium and 4-storey basement parking. There will be 1,204 serviced apartments.
Ren also would not reveal the tentative prices.
However, Wong notes that two nearby projects that are currently under construction — Dorsett Residences and Pavilion Suites — are selling at about RM1,900 psf and RM3,000 psf respectively. He says that occupancy in Bukit Bintang and nearby KLCC averages 65%, whereas rental rates in Bukit Bintang range from RM4.50 to RM6 psf, translating into yields of 3.5% to 4.5%.
According to Roja, the high-rise residential market in Bukit Bintang will continue to perform well, thanks to the upcoming Bukit Bintang Central MRT Station, which will add significant value to nearby properties, especially residential.
“The convenience and vibrant environment afforded by the Changkat Bukit Bintang shopping belt and nearby KLCC will remain the major attractions for potential homebuyers and investors to invest in high-rise condos/serviced residences in the Bukit Bintang area,” she says.
What is the outlook for the property market? In the immediate term, says Wong, it looks challenging due to the property cooling measures, such as stringent loan approval.
“But the outlook for the medium to longer terms is positive as the demand drivers will remain intact. As long as the economy continues to register healthy growth, income levels will continue to rise, fuelling demand for property.
“The demographics of a relatively young population, coupled with urbanisation and the growing acceptance of high-rise living, will result in demand from those buying for their own occupation. Pre-
viously, a substantial proportion of purchasers bought for investment purposes,” he says.
Long-term plans
Is the company merely seeking refuge from China’s vicious property cycle and economic downturn, or does it have grander plans for Malaysia?
Agile Real Estate chief operating officer Eric Yeo says the group has invested a lot of resources and effort in setting up an office in Malaysia.
He also highlights the fact that most of its employees are local, imbuing its operations with a sense of familiarity with the Malaysian market and the way things are done here.
However, the knowledge transfer process goes both ways, says Yeo. The staff is also trained in Chinese construction methods, which he says are more precise, and standards, which are higher than what is required in Malaysia.
For instance, supervisors will undergo training in Chinese construction technology via training videos. They will in turn train those under them and this will continue until all their employees are trained. Yeo says contractors and sub-contractors will be trained to use new tools, such as laser distance measurers, while sales and marketing staff will be trained in after-sales service. In addition, the company will impart more efficient ways to conduct business.
“Over here, people sometimes do not do things in the correct order, and things that take three days to do in China can take a week,” says Ren wryly.
Yeo says the group is aiming to list on Bursa Malaysia in five years, provided that its projects are well received. “Income in the first five years is crucial. We have two projects with a GDV of RM3.5 billion. That means we will have to achieve RM700 million in sales each year. That’s comparable to a mid-tier developer,” he says.
However, Ren points out that Agile Real Estate is also disadvantaged by higher land costs as it is a newcomer to the market, compared with the more established local property developers. “They are old companies with history here. They have the advantage of having big landbank that they had acquired earlier, so it is cheaper for them. They sell at current prices and get a very good profit.
“But we are slowly building our company, so we will see,” he says.
However, Yeo points out that Agile Real Estate’s advantage comes from economies of scale, from the business of its parent company. Due to the sheer volume of its projects, Agile Property is able to purchase materials at lower prices. “We can provide the same quality at a cheaper price,” he says.
Ren says the group does not rule out investing in properties here should the opportunity arise, noting that the group holds several types of assets in China, such as malls, yacht clubs and office buildings.
Agile Property currently holds a portfolio of hotels and commercial properties around China. The hotels include the Shanghai Marriott Hotel City Centre, Raffles Hainan, Sheraton Egret Lake Resort Huizhou and Chengdu Agile Howard Johnson Hotel. Meanwhile, its commercial properties include Xiqiao Metropolis Plaza in Nanhai, Foshan, Milano Leisure Shopping Street in Hainan and Agile Centre Guangzhou in Guangzhou Zhujiang New City.
How does the local market view Agile Property’s foray into Malaysia?
DTZ Malaysia’s Wong says: “We are of the view that the market will get more competitive with the entry of major players such as Agile Property, and it is a positive development as the purchasers will be the ultimate beneficiaries.”
This article first appeared in Property, digitaledge Weekly, on August 3 - 9, 2015.