Text : PK Poh
PK Poh has 33 years of experience in property development, spending 17 years building up Dijaya Corporation Bhd and Tropicana Golf and Country Resort Bhd into a multi-award-winning property group by pioneering the art of high-end gated and guarded lifestyle residential projects. He retired from the Group in 2007. He is currently Advisor and Director of another public-listed group. In his spare time Poh concentrates on his small boutique project he calls his “labor of love”.
This is the fourth and last of his four-series articles on The 4Ms of Property Development. He hopes his occasional tongue-in-cheek remarks and attempts at humor have not detracted from the generally business-like tenor and have benefitted the readers in some ways. – Maestro, Method, Money and Market.
MARKET, the fourth and last ‘M’ in the series, is something that is easily understood. In any business, whether it is the manufacturing of steel nuts and bolts or just the running of a simple restaurant, the customers are often the only source of income. For businesses that depend on high volumes, it is all the more important to know the customers who form your market. Property development is no different. When you first start out, you have to find ways to establish a viable market share; then, you would want to expand your market share; finally, you would be looking to be a market leader in your field, if not the market leader.
When a developer begins life as a new kid on the block, there are many obstacles to overcome, the chief of which is creating credibility. It does not help that, occasionally, there would be an outcry in the media concerning certain developers reneging on their promises to their buyers. Buying a home is not an easy matter for the average wage-earner as it often involves a large chunk of his savings. Therefore, it can become quite an emotional issue for the buyer concerned if he does not get the promised home despite using up his life savings and taking substantial loans from the bank. Viewed from this perspective, it would do well for the developer not to promise anything that he cannot deliver. If anything, one should always under-promise but over-deliver. In other words, a developer should aim to give his buyers a nice surprise when he delivers the keys to them. A happy buyer will be a repeat buyer; there is no better way of expanding your market than having your happy buyers voluntarily doing the selling for you. No advertisement is as powerful as that coming from the mouths of your existing customers.
In addition to the property’s location and the credibility of the developer, nothing affects the buyers more than the price of the unit. While every businessman wants to maximize his profit, for a long-term player, there is a lot of merit in not trying to do that all the time, particularly when you are just starting out. Why? It’s very simple. If a buyer makes money from your project as a result of your judicious pricing, you can be sure that he will be first in line to invest in your next phase or project, with his relatives and friends in tow. This way, your market will slowly expand. Generally speaking, in my experience, a successful developer would have at least 20% to 25% of repeat customers who would ‘follow’ him from project to project. Such a developer has already won the trust of his customers and established a close relationship with them.
After his first project, a developer might have only five percent followers and 95% new buyers, but as he moves to more and more projects, he should ideally cultivate an ever-expanding circle of followers. By continuing with what his buyers perceive to be a fair-pricing policy that allows a meaningful upside margin for them, the developer will ensure that his market share will continue to expand. Of course, it will be too simplistic to say that pricing alone is the ticket to the yellow brick road or that pot of gold. In the final analysis, the most important factor is the overall perceived value that a buyer sees and the upside that he experiences.
Moving along, as a developer’s reputation and market grow, so should his portfolio. With a bigger company to run and many employees to look after, he would need to have a variety of different types of land in different locations to spread his risks. This is necessary in order to create projects that appeal to people from all walks of life, and not just from a narrow segment. By diversifying from, say, housing schemes in the suburbs to a high-rise commercial complex in the KL city centre, a developer is effectively starting to build a property supermarket, where various types of houses, condominiums, office blocks and shop-offices with different price points can be sold at various times to a wider market. While a big piece of land in the outlying areas might be great for a concept play such as a resort and wellness development, a small piece of land in the middle of Kuala Lumpur would need a different approach. By doing this, the developer will be less susceptible to the vagaries of the economy or the property market.
I remember the terrifying 1997 market crash. That was the time when property buying came to a grinding halt – cash flow dried up, most of our bank loans were recalled, bank interest rates on the balance of our loan soared and a pervasive gloom and doom permeated the air. Financial vultures started circling to look for cheap lands and companies to take over. With our bankers pounding on our doors, we were, like many others, desperate to just accept the ridiculous offers that were on the table. However, through some good fortune, we somehow managed to fight that temptation and went back to the drawing board. Through quick thinking born out of necessity, my team and I somehow managed to immediately tweak some of our company’s products, secured the necessary fresh approvals from the authorities and quickly put them on the market. As a result, we were able to ride out those horrible, trying times.
What my team and I did was actually quite obvious – we changed some of our larger homes to single-storey terraced houses. While this might not be rocket science, we knew that, even in good times, nobody was building such houses because they were not very profitable. As a result of this simple act, what happened after that was nothing short of amazing. In the deepest throes of one of the worst recessions that Asia had ever seen, our sales office was inundated with eager buyers who had queued up overnight just to get a chance to own this very rare home. With this initial success, we added more and more similar homes and also slowly raised their respective prices. Gradually, our cash flow improved (never mind the profits) and we were able to weather the debilitating economic storm and emerged a little stronger and probably a lot wiser. I hate to think what would have happened had we not had the gumption or enough land, which gave us the opportunity to switch our game plan.
Lastly, while expanding one’s market and climbing up that long ladder to become one of the industry’s market leaders, a developer also needs to adopt and adapt to new trends and technology. New trends include creating better designs that correlate to your buyers’ changing lifestyles, and building ‘greener’ projects that are certifiable by our local Green Building Index, Singapore’s Green Mark or USA’s LEED. As for technology, we just cannot escape it, and so we might as well embrace it and turn it into a selling feature. While these new trends and technologies do cost money, I can say that it will be money well-spent if they are embedded in proper ‘doses’ into your projects.