Rising to the challenge
Joseph Wong 

Many property developers are already feeling the pinch from the slower sales last year and have adopted a more cautious stance this year.

However, property developer SP Setia Bhd is not stepping on its brakes. It has ambitious plans for 2019 and has raised its sale targets despite a challenging period.

Undaunted by the slowing property market and the huge overhang plaguing Malaysia, the developer will be focusing on the local market with 98% of its property launches, worth RM6.66 bil, slated for this year.

In total, SP Setia plans to launch RM6.8 bil worth of properties with the international launches comprising new phases in Eco Lakes and Eco Xuanin Vietnam amounting to RM139 mil.

The developer’s sales target for 2019 is RM5.65 bil, a 10% increase from the achieved sales of RM5.12 bil last year, which exceeded its sales target of RM5 bil in 2018.

“We believe we can achieve this sales target as there is still a demand for affordable homes. Not those that the government is focusing on but the affordable mid-range and affordable high-end landed property,” Datuk Khor Chap Jen tells FocusM.

“We feel that the property market has already bottomed out but it depends on how fast the market will recover. There are still challenges faced by the buyers.

“The DIBS (developers interest bearing scheme) projects have already been delivered so weak buyers and speculators have been flushed out,” he says, linkening 2019 to a clean slate for the property market.

According to Khor, the records show that young couples, who make up the bulk of buyers for their Starter Homes Collection are no longer deferring their weddings, hence no longer deferring on their home purchases either.

“The wait-and-see scenario is petering out,” he notes.

Khor says this year the company’s home ownership and affordable home campaigns will concentrate on the central region with planned launches of RM4.98 bil.

These include new projects from I&P Group Sdn Bhd’s land banks such as Setia Alaman (as an extension of Setia Alam), Setia Mayur in Semenyih, Setia Tropicale in Salak Tinggi and newly-acquired land banks in Cyberjaya known as Setia Safiro.

Setia Alaman, sited on a 162 ha site adjacent to Setia Alam is expected to be the first to be launched.

Like Setia Alaman, the other three - Setia Mayuri, Setia Tropicale and Setia Safiro - are all mixed development townships comprising landed property, condominiums as well as commercial and retail components.

“We cannot reveal the details as yet as we are waiting for the approvals,” Khor says.

“Apart from the four new townships, SP Setia will continue to launch new phases in the group’s established developments such as Setia Alam, Bandar Kinrara, KL Eco City and Setia Ecohill 2 as well as the rebranded projects of Setia Alamsari, Alam Sutera and Kota Bayuemas in the central region.”

Launches in the southern region, worth RM1.17 bil, will largely be Setia Tropika, Bukit Indah, Setia Indah, Setia Eco Gardens and Taman Industri Jaya.

In the northern region, the planned launches are worth some RM349.3 mil while the planned launches from Aeropod in the eastern region will be worth RM163.5 mil.

There will not be any new launches on Penang island but on the mainland Setia Fontaines will see the launch of its maiden residential properties priced from RM330,000 following the well-received launch of the shop offices in FY2018.

Local projects contributed RM4.12 bil, or about 80%, of sales, while the international projects raked in the remaining RM1 bil mainly from Melbourne, Australia, says Khor.

In Malaysia, the sales secured were largely in the central region with RM3.11 bil whereas the southern region contributed RM805.1 mil while the northern and eastern regions combined, contributed RM206.6 mil of sales.

As for the international projects,UNO Melbourne continued to outperform with sales of RM653.6 mil while Sapphire by the Gardens added another RM65.5 mil to sales.

“We are pleased with this sales achievement as it demonstrates the resilience and versatility of Team Setia in navigating the various headwinds in a subdued property market,” he remarks with pride.


Combination of factors

SP Setia chief operating officer Datuk Wong Tuck Wai says it is for a combination of reasons that SP Setia managed to exceed its 2018 sales target.

Last year, the buyers were drawn to the affordable starter homes that were introduced by the developer, he says.

These houses were smaller units designed with couples and young families in mind.

These smaller link homes were more affordable but at the same time offered buyers to be in a growing location that has established facilities, Wong says.

“Going forward, we will see how to match what buyers can afford,” he adds.

In addition, the developer’s deferred payment scheme - the SEAL incentive - is still available for buyers who are unable to get a 90% loan approval from a bank.

“There is an allotted sum that has been approved and put aside for this purpose. There is no fixed date on the expiry of the incentive, only that once the sum is used up, the offer ends,” says a company source.

The SEAL incentive has allowed many buyers who would otherwise have been unable to afford a property, to finally own a home, she says.

The scheme essentially grants up to 30% of the property price and a deferred payment over five years.

What this means is that even if the bank approves only 60% of the purchase price for the housing loan, SP Setia will “lend” the remaining 30% in order for the buyer to secure the property with no interest charges.

In addition, with the deferred payment option, the buyer can choose to either pay back the loan in instalments within the five-year period or a lump sum upon the expiry of the five years, she says.

Khor also comments that Malaysia’s Budget 2019 focuses on promoting home ownership with many initiatives in place to help home buyers.

“SP Setia hopes that these initiatives will be a strong catalyst to revive the property market,” he says, adding that the incentives offered by the company only goes so far.


Bullish outlook

However, the property developer saw a lower net profit of RM670.96 mil in the financial year ended Dec 31, 2018 versus RM993.7 mil in the previous year while revenue dipped to RM3.59 bil from RM4.29 bil.

Despite the weaker performance, analysts are bullish on SP Setia’s 2019 performance.

Its lower revenue and earnings in FY18 were mainly due to the early stage of construction of ongoing developments, points out AmInvestment Bank Bhd analyst Thong Pak Leng.

Thong expects SP Setia’s performance to improve in 2019driven by the stamp duty waiver, inventory clearing efforts and lower interest expenses as a result of repayment of borrowings from the sale of Battersea Phase 2 commercial assets.

Similarly, Public Investment Bank Bhd analyst Tan Siang Hing also expects the developer to outperform itself in 2019.

However, not everyone is positive on SP Setia. MIDF Research analyst Jessica Low is more cautious.

“SP Setia’s FY18 core net income of RM242.5 mil came in below expectations, meeting only 80% and 56% of our and consensus full year estimates.

“The negative deviation could be attributed to the slower than expected progress billing in 4QFY18,” she says.

Nevertheless, Khor remains upbeat on the company’s performance.

He points out that SP Setia still has an unbilled sales pipeline of RM12.32 bil, 45 ongoing projects and effective remaining land banks of 3,851 ha with a gross development value of RM149.7 bil.

“The group is pleased to declare a final dividend of 4.55 sen per share. This would bring the total dividend payout to 8.55 sen, representing a payout ratio of 70.1% for FY2018.

“In respect to the Islamic Redeemable Convertible Preference Shares A and Islamic Redeemable Convertible Preference Shares B, the group also declared a preferential dividend of 6.49% per annum and 5.93% per annum respectively for the financial period from July 1, 2018 till Dec 31, 2018,” he says.

The strong dividend payout shows that the company will continue to be a healthy one, he adds. FocusM

This article first appeared in Focus Malaysia Issue 324.