Leaderboard2

METHOD – A Mad Chase?

0

You have probably heard of the expression, “there is a method in his madness”.  This phrase is actually an adaptation of Shakespeare’s, “though this be madness yet there is a method in it”, which clearly underlines the importance of having a ‘method’, even in the act of being mad! In other words, having a system or a sense of orderliness in whatever we do is of the utmost importance, especially for the developer who is just dipping his toes into the business.

After 33 years in the industry, I sometimes wonder if one has to be infected with some virulent form of madness before one jumps into the complicated business of property development.

It was highlighted in the last issue how, after spending all that money to acquire a piece of raw land, a developer still has to tip-toe through a huge minefield of bureaucratic approvals before he can  even think of securing a bridging loan from his friendly banker. Then, he has to time his sales launch to catch an uptrend, and if his sales fail to breach a certain level (say, 40% to 65% of the units), the banker will not release even a single ringgit for the developer to use, never mind that he has signed the loan documents and given his personal guarantee.
 
To compound the problem, there might, in the meanwhile, be factors that could cause an upsurge in the developer’s costs, such as new and unexpected regulations, a sudden shortage or spike in prices of building materials, and so on.

As if that is not bad enough, there are still more serious issues to be faced. These include building low-cost and medium-cost units with stipulated ceiling prices, meeting the bumiputra sales quota, ascertaining the sources of, and bringing in, the entire infrastructure (water, electricity, telecommunications and sewerage). Furthermore, the developer has to set aside more than 50% of his land for roads, bridges, reservoirs, sewage treatment plants, substations, schools, playgrounds, hill slopes and so on, and pay a host of ever-increasing statutory and capital contributions to the utility companies and the relevant State government. 

There are, therefore, a lot of uncertainties that will skew or upset the developer’s fragile bottom line; plus, if there is any late completion of the houses or apartments, he has to pay damages to each and every buyer for every single day of delay. 

In fact, any delay can be costly, and time-sensitive parts of a project like the tedious approval process could sometimes even make or break a project. A new developer who wants to speedily secure the whole range of authorities’ approvals might only have his consultants to depend on. But being busy people, the consultants would have very little time to hold the new developer’s hand. In that event, some developers will have to hire what I would facetiously call a ‘file chaser’. 

As there will be a great deal of running around from department to department and also long periods of waiting in the various offices, a good file chaser has to have a strong bladder, a good pair of shoes and the patience of a saint. He would also typically be someone who has pounded the corridors of the local authorities for many years and knows the routine like the back of his hand. The file chaser will also have to get all the necessary plans drawn up in accordance with the by-laws and authorities’ comments, and ensure that all the technical conditions are complied with for every one of the 15 or more different departments. This person needs to put his nose to the ground like a trained hound and closely follow the trail of the file, know exactly what remains to be done to meet the requirements, and see to it that the file gets tabled for consideration at the relevant meetings. If not methodically handled, this entire process could take years, which is why it could be truly maddening and daunting for the uninitiated.

To be fair, the government has taken many positive strides forward and streamlined the entire process. While in certain jurisdictions the situation has only seen marginal improvements, much progress has been made in other locations, such as in Dewan Bandaraya Kuala Lumpur.

Notwithstanding this, the fact remains that every developer worth his salt must put in place various strategies and methods to overcome so many of the unexpected exigencies that are peculiar to property
development.

I will talk about more issues and examples when I cover the other 2Ms in the next 2 issues. 

NEXT ISSUE:   THE THIRD M — $$$MONEY$$$!

From 1992 to 2007, PK Poh helmed and built up Dijaya Corporation Bhd and Tropicana Golf and Country Resort Bhd into a much-respected and multi-award-winning property group by pioneering the art of high-end gated and guarded lifestyle residential projects. In 2007, Poh retired from the group as its Group Managing Director. He is currently an advisor and director of another public-listed group, and he also has a high-end residential boutique project in KL’s Embassy Row that he and his partner will be launching this June.