Developers seek more support from banks


The improving picture in the property sector has given industry players as well as buyers reason to cheer. In the second and final part of our roundtable discussion, developers are asking for more support from financial institutions to ensure smooth implementation of the build then sell system.

StarBiz: What are your views on the Government’s incentives to promote the build then sell (BTS) system?

Tengku Abdul Aziz Tengku Mahmud: Under the BTS scheme, the Government has set the approval at four months. For the developers, there are incentives, for example, the waiver of RM200,000 deposit and also low-cost housing. When we want to implement it for big development, I think there have to be guidelines. How do you waive a low-cost, for example? If you are talking of 500 units and above, normally the ratio is you put a certain percentage for low-cost. For developers to go all the way for BTS, it is going to be a huge financial undertaking. Perhaps we can in the interim allow developers to go for both systems, where we can take up a certain portion for BTS. For certain phases, we will do conventional and for certain phases, BTS. It is up to the developers.

Under such a situation, how do we take advantage of all incentives offered? We have to find a way to mitigate our potential cost when we go into such schemes because it is a one-off thing. No one will want to implement BTS as it will be too costly. Last year, we did such a scheme with 150 units; we did quite well and managed to sell 70% to date. It is encouraging to say it works and let’s move forward to identify other phases selectively and do it on that basis.

We want to see more developers come in so that it will elevate the industry to a level where the quality issue will be addressed and timeliness as well. Once we have that, then we are literally reaching the industry benchmark.

The panellists at The Star Property Roundtable on the new public delivery system are (from left): Real Estate and Housing Developers Association president Ng Seing Liong, Guthrie Property Development Holding Bhd chief executive officer Tengku Abdul Aziz Tengku Mahmud, Sunway City Bhd senior managing director Datuk C.K. Wong, SP Setia Bhd group managing director and chief executive officer Tan Sri Liew Kee Sin, Bandar Utama Group director Datuk Teo Chiang Kok and Fiabci Malaysia president Datuk Richard Fong

Ng Seing Liong: I want to propose to the Government, even in the same scheme, we are given a choice of sell then build (STB). If we opt for the 10:90, there will be a category for a higher price. Those who want to wait until it is fully completed based on the 0:100 model would have to buy at the highest price.

Datuk Richard Fong: The bumiputra quota and low-cost ratio is all under state jurisdiction. I think the PM is committed to the BTS approach. I think we need to have more dialogue with financial centres, in terms of how they can come in to support us. We cannot do the BTS without the support of the banks.

Datuk Teo Chiang Kok: The financial institutions should think out of the box. If you want to finance a project through BTS, banks should base it on the completed product and from there they finance you backwards. That is the only way to finance you.

StarBiz: What would be the best financial system for the BTS to work?

Teo: The banking system must be ready to finance the BTS scheme. Instead of financing 150 buyers, it is financing one developer and that is the only difference. No developer can work without financing. If the banks are reluctant to lend to the developers, the BTS will not go through. At the moment, the banks seem to be very comfortable to finance 100 house buyers. At the end of the day, the developers will deliver, so it is the same for them.

If we do sell then build (STB), the house purchaser pays the first 20% and the 80% is through bank loan. If you do BTS, the first 20% must be self-financed by the developers, the rest from a bridging loan.

Ng: Recently, the Housing and Local Government Ministry organised a meeting with all these financial institutions. Besides a bank which was represented by an executive director, the rest sent their marketing, consumer banking and retail banking personnel. They cannot make decisions.

StarBiz: Do you think Bank Negara should come out with a policy statement to drive this initiative?

Teo: However, Bank Negara said they could not compel banks to lend because the banks have to make their own risk analyses.

Datuk C.K. Wong: We must push this through.

Fong: If sales are slow, perhaps the bank may want to pull the plug on the loan.

StarBiz: Do you think at the end of the two years, BTS will be the way forward?

Ng: If the commitment comes from the banks and financial institutions, then it may work.

StarBiz: What would be the comfortable ratio now, without the banks coming in?

Liew: Very, very small proportion for BTS, even less than 1%.

Wong: It will continue to be small, unless the banks come and support you in a big way and unless the developers are willing to shift.

Tan Sri Liew Kee Sin: More importantly is the buying power of the general public. Whether it is BTS or STB, if the buying power is not there among Malaysians, then it is difficult for us to bring up to the next level.

Ng: At the new entry level, we have a lot of graduates now but they do not have the financial means to buy houses. We are trying to tell the Government to either give them a grant or an easier entry level.

StarBiz: Is that workable? What is the feedback from the Government?

Fong: At the end of the day, it is the country’s economy. We have to grow and increase our salaries, our employees’ salaries. Even government servants’ salaries have been increased. Actually, our pay is so low in Malaysia compared with the West, Hong Kong and Singapore. That is why our affordability of homes is so low.

Wong: In Singapore, it is controlled supply. We need to increase the pool of buyers for the houses we build. One of our wishes is we want the Employees Provident Fund (EPF) to consider and allow members to buy their second or third homes using the EPF money. EPF has so much money that they do not know what and where to invest.

Fong: That is why we have to increase the salary for users.

Liew: Why not allow the deductions to be used as instalments? Whether the BTS concept takes off or not depends on how much money developers make. If a developer makes more money from BTS, of course we will do BTS. If the developer makes more money, then there is a way to finance, build and sell. It is all due to supply and demand.

Wong: The only problem is we cannot build in such a large quantity under BTS.

StarBiz: How will the BTS change the landscape of the property market? How do you think it will change?

Ng: Most countries do not adopt BTS. It is the participation of the financial institutions that will see the success of BTS, not only the developers.

Liew: While all the initiatives are to make the industry more competitive, at the end of the day, it is still your strategy, philosophy, concept, and pricing that matter. Whether one makes it big or not depends on demand and supply. As the field is more level now, the entry level is easier with the barriers reduced. So this will make us more competitive.

Wong: Under the previous system, the good and efficient developers did well because they were very good in getting approvals; they knew how to circumvent. Now, with the opening up of a level playing field, you get more players with the so-called good developers, so there is more competition.

StarBiz: How will a more competitive environment benefit property buyers?

Fong: They will have better designs, cheaper products, better quality and more choices.

StarBiz: As holding cost will be lowered, can we expect property prices to come down?

Fong: Theoretically, it will be cheaper but I think prices will depend on supply and demand.

Teo: If it is more efficient to get off the ground, there will be more supply. When there is more supply, the market will adjust itself. When it is competitive, the market price will go level, so that is a possibility. Let the market decide.

Fong: There is a possibility it will be cheaper but that depends on other factors such as prices of cement, steel bars, which might make prices more expensive.

StarBiz: Are there further measures that need to be implemented for the property sector?

Ng: They are looking at us to go outside and reach out to the international buyers.

Liew: We all agree that the Government should market Malaysia globally.

Teo: In houses, we must get our act in order, both the Government and private sector.

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