ST : survives highs and lows of property cycle by being flexible

Feb 20, 2010

THE BIG-NAME VETERAN

ST Saturday Special Report :Kwek Leng Beng, executive chairman of Hong Leong Group Singapore, survives highs and lows of property cycle by being flexible

By Joyce Teo, Property Correspondent



Mr Kwek (above) believes the Hong Leong Group's strength lies in its substantial land bank which gives it flexibility in timing its launches and when it comes to replenishing its stock of sites. Being financially strong, the company is also able to ride out a downturn. Last year, for instance, it cut prices slightly as the downturn rolled in. -- PHOTOS: ST FILE, CDL

PROPERTY booms, crashes, fads... you name it, real estate tycoon Kwek Leng Beng has seen them all in his 68 years.

Yet even one as experienced and savvy as he could not have predicted the way the market has roared back to life after being knocked flat on its back by the financial crisis.

'The recovery was expected but not its intensity and swiftness. I was quite surprised at how strong it was,' said the executive chairman of Hong Leong Group Singapore.

'The world took swift action and came up with stimulus packages which we have never heard of in our lifetime.'

Yet, 'no one can time to sell at the highest price, so like many developers, Hong Leong Group decided to sell on the way up', he said.

That was how Hong Leong ignited the property market in late 2004: Its launch of the huge The Sail @ Marina Bay galvanised buyers and developers across the island.

'We knew the market would turn around soon but we didn't know when... So we knew we would have a hard task selling 1,111 units but we bought the land cheap. So we priced to sell,' Mr Kwek told The Straits Times.

'We could try to hold on until we thought the price and time was right, but we didn't because there was no way to get the exact time.'

Its motivation was to lock in profits for its listed development arm City Developments (CDL) as soon as possible but the firm also wanted its buyers to make some money, said Mr Kwek. At The Sail @ Marina Bay, the initial launch price of $900 per sq ft on average rose to about $950 psf on strong demand back in late 2004.

The second tower was launched a year later in a slightly improved market at an average of $1,080 psf.

The Sail strategy hints at the firm's overarching gameplan - remain flexible in all things.

'When the market is really bad, you have to accept it. You sort of improve, think of new designs, think of what you can do, further revise your old plans so that when the market turns, you are most up to date,' said Mr Kwek.

Last year, the Hong Leong Group showed its flexibility by cutting prices, albeit slightly, as the downturn rolled in.

The market had tanked by the time it launched the later phases of the 724-unit Livia in Pasir Ris. Earlier units went for $650 psf, later for $620 psf.

But while some developers took deep cuts, it reduced prices by only 5 per cent. 'We do not undercut or slash our prices to the bone,' said Mr Kwek.

'If you cut as much as other developers do, they will cut again, and you cut again. To some extent, we are financially strong so we can hold.

'The other reason is if this project is 50 per cent sold, so what? I still have 50 per cent. I can take another piece out of my land bank that is cheap and launch it.

'But people without a land bank do not have such flexibility.'

Hong Leong's substantial land bank has given it a lot more flexibility - that word again - in timing its launches and when it comes to replenishing its stock of sites. 'Otherwise, you have got nothing to do, all your people sit down, fold their arms and wait for the market to go up,' said Mr Kwek.

But those developers with little or no land left will have to replenish their land banks urgently but the equation has became harder.

Mr Kwek pointed out that in bad times, land prices do not fall as much as condo prices.

In late 2008, he shelved the $2.5 billion high-profile South Beach project in Beach Road until building costs fall to 'reasonable levels'.

Last year, when construction prices were slipping, it re-negotiated contracts with its contractors. It also went ahead to build developments like The Arte in Jalan Datoh before the launch as it could.

The Arte was then released in April. More projects followed. Optima@Tanah Merah hit the market in July and sold out within three days at $810 psf. Hundred Trees in West Coast Drive also sold well, achieving $910 psf on average last September. Hong Leong said it was the top seller last year with more than 2,100 units shifted.

But like other developers, the Hong Leong Group had to face a potentially big problem last year - defaults arising from property bought on the deferred payment scheme (DPS).

But that turned out to be a 'non-event', said Mr Kwek.

'That was a genuine concern... But you cannot assume that everybody who buys on DPS is going to default,' he said. 'In practice, you can sue them.

'Developers also understand hard times. So why do you go after them? Let them slowly pay. As long as they can pay, allow them the chance.'

The Hong Leong group had 'a few cases' where the buyers could not pay but there were only two defaults last year. They took back the units.

'Theoretically, there should be more, but there weren't as we were sympathetic,' Mr Kwek said.

Apart from being flexible on the payment deadline, what they did was to alert the buyers on getting a loan early.

Early last year, consumers found it tough to get sufficient loans as the banks turned very cautious and valuations fell.

Said CDL group general manager Chia Ngiang Hong: 'Two months before our projects obtained TOP (temporary occupation permit), we wrote to the buyers to say: 'Hey, your payment is coming up soon', and we told them we have spoken to some banks willing to arrange their applications, and they dealt with the banks themselves.'

'Bankers are bankers. They have to be cautious,' said Mr Kwek.

Still, Mr Kwek added: 'The banks shouldn't be looking at the loan quantum alone. They should look at how many years you have been working, etc, and then restructure the loan.'

'Property moves in cycles... The majority do not understand what investing in property is about. They buy property one day and hope to sell it the next so as to make a quick and big profit,' said Mr Kwek.

'The key problem is that many of us lack confidence, we rush when prices are rising and then stay away frightened when prices are at rock bottom.'

joyceteo@sph.com.sg


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ON WHEN TO SELL

'No one can time to sell at the highest price, so like many developers, Hong Leong Group decided to sell on the way up.'

ON BEING ADAPTABLE

'When the market is really bad, you have to accept it. You sort of improve, think of new designs, think of what you can do, further revise your old plans so that when the market turns, you are most up to date.'

ON SLASHING PRICES

'We do not undercut or slash our prices to the bone. If you cut as much as other developers do, they will cut again, and you cut again. To some extent, we are financially strong so we can hold.'