IJM Corp Bhd CEO Datuk Soam Heng Choon overcomes challenging times by focusing on growth.

While there are challenging times in the property market, they aren’t as severe compared to previous market downturns. Driving growth in IJM Corp Bhd will become a priority.

IJM Corp Bhd CEO Datuk Soam Heng Choon said the group has five core businesses, which are construction, industry, infrastructure, plantations and property. His focus will be on growing the company in the next few years.

Every division has been set a target, a key performance index (KPI) to deliver. There is a strategic roadmap for the group to grow for the next five years.

Among the priorities include looking at new areas of growth, areas of improvement, and shareholders and staff goals expectations of the company.

When taking up the position last year, he was told by a lot of people that he comes on at a time when the economy doesn’t look that rosy and 2016 is expected to be tougher, where gross domestic product (GDP) growth is expected to be 4% to 4.5%.

However, he is confident that some of the businesses in the group will still be performing well.

He said that there is a very big order book of over RM8.5bil in construction. Plantations is growing in terms of acreage, doubling from 25,000 acres in Malaysia historically to 60,000 acres.

“The acreage in Indonesia is now bearing fruit. The majority of the crops are coming in. Current average age is about four years old. In another two to three years, we will be reaching the peak crop production for Indonesia,” Soam added.

The infrastructure division has tolled highways in Malaysia and India, as well as one port in Kuantan.
“Our focus is to grow the infrastructure business and look for new opportunities to build new highways,” Soam said, adding that the West Coast Expressway is under construction.

In addition, the Kuantan Port is being expanded to handle more than 52 million metric tonnes of cargo.

The depth of the new port will be about 18 metres. Previously, it handled about 25 million metric tonnes of cargo every year, with a depth of about 11 metres.

With the first phase of the expansion to be completed in two and a half years’ time, ships of up to 150,000 deadweight tonnes can enter the port, compared to 50,000 deadweight tonnes currently. The second phase is expected to be completed in 2019 or 2020.

With the robust construction industry, the industry division is expected to do well because it produces spun piles, quarry products and ready-mix concrete.

The industry division has nine factories and six quarries in Malaysia.

Prior to delisting last year, the market capitalisation of the property division was over RM5bil. Its current land bank is more than 4,600 acres with a gross development value (GDV) of over RM30bil.

Its land bank is spread throughout Peninsular Malaysia, Sabah and Sarawak. The company has a few projects located overseas in China, Vietnam, India and London in the United Kingdom.

“We always think of giving returns to shareholders in terms of dividends and also growth. Over the years, we try not to go back to the shareholders for additional capital while we expand,” he said.

“We consciously monetise some of our assets that have matured, as well as some of the non-yielding assets,” he added.

Comparing property market downturns
Looking back into the 1990s, Soam cited that interest rates for mortgages and inflation rates were at double digits.

A lot of people were unemployed. There were also problems with the banks, which didn’t have money to lend. Property prices went down 20% to 30% because there was no demand.

Soam added that in 2008, the market had slowed down. This was due to costs problems, where crude oil rose to US$140 per barrel, and also because of the subprime housing crisis.

There were fewer players in the market and developers had slowed down their launches.

However, over an eight year period from 2008, there have been more developers in the market.

“We have seen a lot of non-core developers coming into this market. We were a bit worried,” Soam said.

“It is not so easy being a developer. You need a lot of perseverance and patience. We believe you need long gestation period and high capital investment, compared to doing other businesses.”

Compliance to statutory requirements are becoming more stringent and there are a lot more compliance costs that have to be paid.

Current housing mortgages rates are still very reasonable at about 4.5%, compared to 14.0% during the Asian financial crisis. However, current day property prices have reached a level where it is more than four to five times the yearly income of the people.

In early days, people just need a roof over their heads. Today, people want to look for all sorts of features, including green buildings, high ceilings and various types of finishes.

“Some people say there is a property bubble. It is going to burst. I don’t think so. The day you see people throwing properties below market rates by 20% to 30%, that is the day you think the property bubble will be there,” Soam commented.

A pleasant evening ambience at Bandar Rimbayu.

Overcoming challenging times
The property market environment for buyers and developers alike is challenging.

Affordability, consumer confidence and the inability of the buyer to get their desired margin of financing are among the challenges that buyers face.

Among the challenges for developers include the rise in compliance and construction costs. Steel bar prices have recently spiked.

Land prices have also remained high, and in some areas, they are still going up. Owners still demand a high premium for land in strategic locations.

Therefore, there are many reasons why property prices have gone up and making them beyond the reach of the general public.

IJM Land is involved in the property market across the board, including social and affordable housing, mid- and high-range homes.

“With the challenging market, we will probably scale down the high-end houses, and focus on the medium and affordable range. I think that is the strategy of most developers,” Soam commented.

“For the high-end (properties), we ask what buyers want. Buyers may want yield or guaranteed returns. We try to structure something that suits them. For the affordable housing segment, we look at what is their problem. If they can’t get the margin that they want, the differential sum, we can allow them to pay over a longer period,” Soam said.

At the end of the day, buyers are more discerning from whom they buy their homes. “Is it value for money? When I talk about value for money, it is the whole package. I believe that over time, people realise that they must buy from reliable developers, more so during this challenging time.”

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