Chew: 'Real estate is still a good industry but don't expect super profits'

KUALA LUMPUR: The inflationary environment and rising borrowing rates have tempered buyer enthusiasm, and demand has fallen rapidly in the overall real estate market since the pandemic. 

  According to Jeffrey Chew Sun Teong, group chief executive officer and director of Paramount Corporation Bhd, until Malaysian income levels and the economy expand much further, it will take time for demand to reach a high level. 

  He said there will be demand unless the government adjusts its policies to allow the inflow (money or capital) through tourism or if regions like Kuala Lumpur and Penang become regional economic hubs to attract investors. 

  Chew said that there is currently a mismatch between supply and demand. 

  "I believe there is a temporary supply shortage due to slower launches and deliveries caused by the Movement Control Order, which also slowed down construction. When we look at the upcoming projects in the Klang Valley, the number has dropped. The delivery of products is also slowing down.

  "If the economic recovery is strong, there is better hope. We do not think there will be an aggressive recovery. We are cautious," Chew said yesterday at a briefing on the group's first half financial year results ending December 31, 2023 (1HFY2023).

Chew said there was a shortage of residential property in 2011, but that balanced out by 2016.

"Demand will be there, but I don't think demand will catch up. But we think within a year or two, supply will come back. People will have more options as supply increases, and property sales will slow down, which will chip away at developers' profit margins," he said.

Chew said that if all developers consider return on equity, return on assets, or internal rate of return, they will not build until they can make a reasonable profit. 

 "And if you are a buyer, you want more supply so that you can get lower pricing, but for an investor with 10 properties, you want the values to rise. We feel the real estate industry is still a good industry, but don't expect super profits," he said.

According to the National Property Information Centre, the number of overhang and unsold underconstruction units in key places such as Kuala Lumpur, Selangor, Pulau Pinang, Johor, and Kedah has improved.

  Chew said these markets continue to need reasonably priced products, but developers' property launches have not met purchasers' expectations for affordable housing items.

  "When comparing the overhang in 2019 and now, you can see a huge drop in overhang and unsold underconstruction units, but is this due to demand exuberance or a lack of supply?" 

Better performance for Paramount

  Paramount's unsold inventory level, a bulk of which is stratified commercial lots and commercial units, was low in 1HFY2023, at RM56 million, a three per cent decrease from the previous quarter. 

  It sold RM617 million in property in 1HFY2023, and it aims to launch projects worth RM700 million in 2HFY2023. 

  The group intends to launch projects valued at up to RM1.5 billion in fiscal year 2024. 

  Chew said that it was important for the group to launch projects valued between RM1 billion and RM1.5 billion each year in order to meet its yearly revenue target of RM1 billion.

  "We need a turnover of at least RM1 billion. Although we have been aggressive in growing to where we are, from RM200 million in 2014 to RM1 billion now, we are careful about how quickly we want to grow our turnover. Can we or will we want to grow our turnover to RM2 billion in the next seven years?"

  The group's new launches and continued efforts to increase efficiency for a better return on assets and capital are expected to drive higher earnings for 2HFY2023.

  Chew said the new record of unbilled sales of RM1.5 billion as of June 30, 2023, will provide some visibility into the group's cash flow in the near term. 

  However, the pace at which this can be converted into billings would depend largely on the construction progress of projects, he said.

  The Klang Valley accounts for 76 per cent of unbilled sales, with the remaining 24 per cent coming from Kedah and Penang. 

  The Ashwood, a high-rise residential property located in the prestigious U-Thant area of Kuala Lumpur with 312 condominium units  and duplexes and 12 low-rise villas, is among the new projects. 

  Greenwoods Amaria and Salak Perdana are two further developments in the central region. Bukit Banyan residential and affordable landed residences will be launched in the northern region of Sungai Petani.

  The group's undeveloped land stood at 486.6 acres as of June 30, 2023, with a remaining gross development value of RM7.64 billion.

Most Popular
Related Article
Says Stories