THE Malaysian high-end, high-rise condominium and serviced apartment market may not be as vibrant as it was a few years ago but Singapore-based United Engineers Ltd (UEL) believes it is still attractive and has strong potential for growth. The market is thus a diversification opportunity for the company.
About 95% of UEL's property development business is in Singapore. It is also involved in engineering, construction and integrated property services such as asset, hospitality and project management.
"We are overly concentrated in Singapore and we want some diversification. Malaysia being our neighbour makes it easy for us to participate and manage," UEL group managing director and CEO Jackson Yap tells City & Country. He had flown in from Singapore for the interview.
UEL, which is celebrating its 100th anniversary this year, is no stranger to Malaysia. It was instrumental in the formation of UEM Group Bhd in 1966 and used to own 40% of the company then. In 1987, Renong Group bought over its share and the companies went their separate ways. UEL has done some work in Malaysia since then, but more as a contractor than a developer.
Now, UEL is getting its feet wet with The Manhattan Residen in Jalan Raja Chulan in Kuala Lumpur's central business district.
"This is our first real foray into the Malaysian property market as a developer, so we kept the project small. Malaysian projects have always sold well in Singapore and many Singaporeans see Malaysia as a good destination for real estate investment," says Yap.
The Manhattan is being developed by UEL subsidiary UED Developments (M) Sdn Bhd. The 30-storey tower comprises 129 serviced apartments, including 16 lofts on the top two levels. The project sits on a 20,322 sq ft freehold plot that was previously used as an open-air car park. It has a gross development value of RM180 million.
Yap says the size of the units ranges from 700 to 1,300 sq ft and that the company is targeting Singaporeans and Malaysians.
"I think small units are something of an attraction to Singaporeans. Those who are buying second homes don't want a big unit. For Malaysians, we think it is good city living. If you have a big house further out of Kuala Lumpur, you would buy a smaller unit in the city as a second home," he reasons.
According to Stephanie Chua, deputy vice-president (project marketing), the units come in several configurations — 1-bedroom; 1+study; 2-bedroom; 2+study; and 3-bedroom. Recognising that one of the keys to living in the city is access to a car park, UEL put in 191 parking bays.
The Manhattan is designed as a green building and aims to achieve the Malaysian Green Building Index (GBI) gold rating. UEL is planning to get a Green Mark certification from Singapore's Building and Construction Authority as well. Green Mark and GBI are rating systems for sustainable green structures.
Yap recalls that when UEL first considered buying the land, personnel from UEL came and timed their walk from the site to Pavilion Kuala Lumpur and the Raja Chulan Monorail Station, which is situated in Jalan Sultan Ismail.
"We found that it was very near [Pavilion and the monorail station]. The location is fantastic and the flow of the traffic, which goes both ways, is a big plus because you don't have to make a big round to reach the site," says Yap.
The site was purchased at between RM1,400 and RM1,700 psf two years ago.
K K Lim, director of UED, says because of the excellent location, the developer wants every unit to have a good view. Thus, the lowest unit starts on the 10th floor. The first to seventh floors are for parking while the next two floors house recreational facilities.
"None of the units is blocked by another building. Next door is Wisma MPL's 3-storey podium, the front faces the Petronas Twin Towers while the units at the back have a view of Bukit Bintang. As The Manhattan is a green building, all the windows are double glazed and tinted, thus eliminating noise pollution," says Lim.
Yap, who expects the sixty-three 1-bedroom and 1-bedroom + study units to be the biggest attractions, gives an estimated selling price of RM1,300 to RM1,500 psf. "This is an indicative pricing. We will see how well the project is received, but that's the price we have in mind. If we can't get the price we want, we are quite happy to lease the units until we can. Some of the units will be sold fully furnished, so the price will be higher," says Yap.
He believes fully furnished units will appeal to Singaporean investors because it will allow them to rent out the units immediately without worrying about the furnishing and fittings. Another reason UEL wants to sell some of the units fully furnished is to enable the developer to optimise the space.
"We want to gauge whether a 700 sq ft unit can sell. It may sound small but if you lay it out nicely and use the right furnishing and interior decorating, it can be spacious. Affordability is another reason. At the end of the day, it's a question of how much the people can afford to pay," Yap explains.
Learning about the market
As the development is small, UEL has received offers from several parties to buy the project en bloc.
"Some of them think they can make money but for us, we want to sell unit by unit. We want to experience and learn the market, understand what the customers here want and why they buy. If we sell the entire development en bloc, we will never learn," says Yap.
But with demand for affordable products on the rise, why did UEL choose to enter the market with a high-end product? There are also the lingering concerns of a volatile world economy and the upcoming local general election. "I think it's a good time for us to look at the Klang Valley property market. For buyers, maybe coming in when the market is not as vibrant means you can buy at a better price. If you don't want to buy now, when is a good time?" asks Yap.
However, he is confident that like Singapore, developments in the central business district and the Golden Triangle will always sell. Aside from Singaporeans, he believes The Manhattan's location will appeal to other international buyers.
"Somehow, foreigners feel safer in the city. In Singapore, developments in Orchard Road are always sought by international buyers even though the price is high. We are looking at selling the project internationally," he says.
The Manhattan showroom on the site has been up for more than half a year and the response has been encouraging.
"All the approvals for the development are in place, so we are ready to build. We are looking at a date after the Chinese New Year to officially launch the project," remarks Chua. The project is expected to be completed in December 2015.
A brand name in Singapore
In Singapore, UEL is already a well known name. The group's history goes back to 1865 when British pioneers Richard Riley and William Hargreaves formed Riley Hargreaves & Co to build bridges, steamers and the Fort Canning lighthouse along the Straits of Melaka.
In the same year, Samuel Erskine and J Howarth established Howarth Erskine & Co, an engineering firm specialising in the design and construction of iron and steel structures, and waterworks. In 1912, the two companies came together to form UEL.
Since then, UEL has built a good number of landmarks and important structures in Singapore, such as the previous Singapore Supreme Court, Cavenagh Bridge, British High Commission, OCBC Centre, Shangri-la Hotel and its flagship building, UE Square.
"People know us in Singapore. They trust us and we finish what we started, and on time too," says Yap.
UEL underwent a restructuring after it parted ways with UEM Group. It shifted its attention to mechanical engineering and construction related to property development.
"But we weren't property developers yet at the time. The first project we really did as a developer was rebuilding our head office in River Valley Road, which has been there for decades. The building was turned into our flagship UE Square. It is a mixed-use development, comprising offices, condos, serviced apartments and retail outlets," says Yap.
The Green Mark gold-certified UE Square was marked as a historic site by the National Heritage Board in 2002, recognising UEL's role in the early development of Singapore. It was completed in 1997.
It was not until 2007 that UEL seriously ventured into property development with mixed-use development The Rochester in the gateway of One-North, Singapore's up-and-coming hub for bio-medical, ICT, media and sciences industries. It comprises a 366-unit condominium, a 271-unit business hotel & serviced apartments, a 54-unit serviced office and 115,000 sq ft of retail space. UEL then developed several other projects in Singapore, including UE BizHub East, a mixed-use development in Changi Business Park, and UE BizHub Central, an industrial development in Ang Mo Kio. UEL's latest project is 8 River suites, which will have more than 800 condominium units with a GDV of over S$1 billion. "From 2007 onwards, property prices in Singapore started growing rapidly. We were partly riding the property cycle in Singapore," says Yap.
He admits that being a company that had started in engineering and construction, it has always looked at its projects from a construction point of view.
"We always believe we can add value through our design, construction and asset management upon completion. We are now at a crossroads; we are trying to decide if we should separate the two businesses and let property development stand on its own," he says.
In 2011, the revenue of UEL's property development segment rose 354%. However, the company does not expect its property development revenue to be as significant this year as its projects are still in progress. For now, it is focused on expanding in Malaysia, particularly Kuala Lumpur. "We like Kuala Lumpur; there is potential here. There is a lack of rapid trains right now, but the infrastructure is being built. So, in three to four years' time, when the infrastructure is ready, property values will go up. We may not sell all of The Manhattan, but we will move on to the next project. We're not here for just one project," concludes Yap.
This story first appeared in The Edge weekly edition of Dec 17-23, 2012.