More and More Developers
Everybody wants to be a property developer these days. It’s common for contractors like IJM and Gamuda to branch out into the sector as a form of diversification, and to protect their income during lean years. Now even small contractors are trying to get in the game, usually with a heavy obligation to the bank.
It has also become common to see corporations who are in businesses not related to real estate to start dabbling in it, just like Mah Sing and Acmar. Last year we came across this clothes manufacturer launching a housing project.
Then there are also small timers who are mainly deal in trading and investments trying to score on a piece of land to enter the all-lucrative property game. Almost every month I come across some of the companies like these. Some are serious and have done their homework, some have literally no idea when it comes to development. But ambition and a vision is a good thing, having financial backing is even better.
Money is perhaps the most important resource to have. Without it, you will be paying your head off to the bank, affecting your selling price and image as a developer. And development is far too many hidden costs that most newcomers don’t realize – holding costs, authority contributions, etc.
Perhaps it’s a sign of the maturing market, or it be a warning of a overheating economy, I don’t know. But as most industry insiders will tell, property development is a long term commitment. To succeed, you need to look at the bigger picture of good performance over 10 years or more. That’s what all the big players today have done to come this far.
Under the STB System, property development is a self-financing biz, and any Ahmad, Ah Chong or Arumugam can be a property developer. Just sign a JV with the landowner and apply for the relevant approvals and then start selling. Collect enough money from the 10% downpayment and then start building and issue progress billings to finance the construction. Save for the initial application fees, the Developer hardly used any of his own money. If project hits a snag, just abandon it.
This is expected to change as the Govt. has approved-in-principle the 10:90 System whereby the first 10% down payment will be kept in trust in an interest bearing account. The balance 90% will only be paid upon the house being completed to the satisfaction of the house buyer.
Under this scenario, Developer will need “bridging financing” and only Developers with the necessary financial strength and track record, will be able to survive. Of course, prices are expected to rise marginally due to additional interest cost.
However, the 10:90 System will run for a trial period of 2 years together with the current STB and will be reviewed at the end of the 2 year trial period.
What do you guys think, as the property experts. Do you think that the 10:90 System will work and one-day. replace the STB System?
Comment by preacher — June 27, 2006 @ 4:14 pm
haha, we definitely aren’t experts, but we’ve been looking at this 10:90 vs. STB thing for a long, long time. both definitely have their good and bad points…
we are thinking of writing something on it soon. but if anyone has any thots to contribute, please join in.
Comment by Administrator — June 28, 2006 @ 11:45 am