By Khairie Hisyam
In the second piece of this two-part series, KiniBiz focuses on the interview with Vincent Tiew, managing director of Andaman Property Management. Among others, the Malaysian “GRR King” shares insight on how Andaman has excelled in the guaranteed rentals niche, why some developers who tried the guaranteed rentals route fail and touches on certain unethical approaches in the market.
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After speaking to Vincent Tiew of Andaman Property Management Sdn Bhd, we gained insight into the developer’s business model and how they approach the development business differently.
Very much catering to the investors market, Andaman Property is known to be the leading developer in the guaranteed rental returns (GRR) niche — earning Tiew the moniker of GRR King of Malaysia.
In this second part of the interview, we mine the Malaysian GRR King’s wealth of experience on the dos and don’ts of GRR in Malaysia, why some developers have failed to make this concept work and what investors should look out for.
Additionally, we ask Tiew how the company is able to richly reward its staff with up to five years’ worth of pay in a year, on top of multiple holiday trips annually.
Here are excerpts of the interview.
What led to Andaman adopting its interesting business model?
Andaman’s shareholders always had this vision that of making the company a boutique developer undertaking affordable projects with high capital appreciation returns for the buyer. That was how Andaman started.
We say affordable in the sense that our projects are not in places like Kuala Pilah, Kuala Kubu or Banting. Our projects are still in locations like Klang Valley and Selangor but our selling prices need not be expensive.
The very first project (Casa Subang) was started off with very little capital — less than RM3 million. From that small project, today Andaman has undertaken more than 20 projects in the last eight years, both completed and in progress.
Is there any other developer that you can think of employing a similar landbank-less strategy to yours?
I don’t think so. There are three types of developers in town.
One type is they have very limited resources, so they slowly grow with maybe one or two projects per year. There are developers that could be private limited companies that inherited lots of land — former estates and whatnot — so that is totally different from us, being a boutique developer.
There is a second group that is actually very aggressive in that they go around buying lots of land. I would say in certain extent, the similarity in aggressiveness will be for example equivalent to Mah Sing Group, because Mah Sing also does not do landbanking.
I guess for most of the other developers in town (the third group) there are many who buy land and wait for the right time to launch. Nothing wrong with the wait-and-see strategy, but that’s not our strategy.
By maintaining liquidity via money not stuck in landbanks, you mentioned adding value to your projects. How does that work?
We can do value-adding for better returns. For example, if we have some cash in hand then we can add on to the fourth phase of a project, such as better facades, better materials, etc, enhancing as we go along in addition to saving construction costs.
We increase the value of the property for better sales. Say if we can plough in RM1 million back to enhance the product, we may be able to gain an additional RM4 million back in sales.
Apart from risk-diversification that helps you financing-wise, how does spreading out fit into your overall strategy?
We spread out our reach and our network. For example we have nine sales offices throughout Malaysia. This means we have nine locations where we do projects.
When I’m in those locations, very often landowners, agents etc will keep proposing lands in those places to us, because when we’re there, we create our mark and presence quite heavily.
So in these locations we are able to continuously generate and do follow-up phases. For example, for the upcoming Bangi Evo Soho Suites project that we will launch in November this year, basically we have created our mark and a lot of institutions and land owners have started offering lands to us.
How has Andaman done so far?
To-date, we have accumulated in total more than RM3 billion in sales GDV.
Vincent Tiew
Andaman’s target for next year is another RM1 billion but more importantly Andaman’s focus of 2014 remains Johor Bahru, Klang Valley–Selangor as well as Perak, which are the three states with the most important fundamental factor in property development: population.
Andaman is known for its guaranteed rental returns (GRR) for its properties, and some even call you the GRR king of Malaysia. How did Andaman and GRR come together?
Student accommodation has a long history in Australia and the United Kingdom. The only thing is we try to perfect and improvise this on in Malaysia.
Our first project, Casa Subang, is a GRR project and we have kept on improvising in our past GRR projects so far — the mechanism, the contents, the know-how, the management, technicalities etc.
We could do GRR comfortably because our selling prices psf of all these fully furnished props are quite low. We have not sold any property on GRR at above RM600 psf. So when your selling price psf is fair, it’s easy to achieve 8% returns.
How does Andaman differentiate itself in this niche?
We have the track record. So far we have done seven GRR projects.
In the past five years, we have done approximately 2,500 GRR units, all with gross returns of 8%, including some to-be-completed units. These are a mixture of residential units and some commercial units.
And we have three GRR schemes: guaranteed returns up to six years, up to 10 years and up to 25 years (The Arc, Cyberjaya).
We have done it for so long, we have done so many units with variety and we have done it at a high return of 8% with three options (in GRR length).
In comparison, most developers in the market who do GRR would probably do one or two projects only. Or maybe one project of 600 units, or even 200 units and some may even only do 80 units.
How does Andaman’s brand of GRR work?
Our GRR means that Andaman becomes a tenant to the buyer. We have a legal relationship and we become legally responsible to pay the rental regardless of whether there is a tenant.
That’s the biggest difference because the buyer is secured. On the very same day that the buyer sign the sale and purchase agreement (SPA), the buyer will also execute an option/tenancy agreement that clearly states three points:
1. How much is the rental per month;
2. When the tenancy starts; and
3. How long the tenancy duration is.
So you know on the very same day you buy the property how much the rental you’ll receive, say, three years down the road.
Some developers have tried the GRR angle but it did not work out for them.
Because they are selling at prices that practically may not be able to yield 8% in returns to the buyers. So if they wanted to do GRR, the actual rental returns that can be achieved are probably at 4%–5%.
How about other GRRs that didn’t work in the market?
Some of the GRRs I have observed in the market that didn’t quite work is due to perhaps a few scenarios.
One is when the developer wants to do student accommodation but they do not have a contract with the particular university or college. But they launch it in hope that they are able to secure a long-term contract with the university or college, but then fail to do so.
Two is probably the product type. There are many product types, for example resort homes on GRR. A lot of these type of resort homes are dependent on the commitment of the developer and the resort management to make the project successful. So a lot of these resort homes may not at times be able to give reasonable yield returns, because after deducting advertising costs, management fees and all that, the returns percentage is very low.
In comparison, our 8% is gross. There are no management fees. Though bear in mind that means we do not charge you to manage the property, but we have become your tenant.
Third, a lot of developers actually cost in the future rental of the property into the selling price.
Is that ethical?
I’m telling it how it is. For example, sometimes there is no way for a certain property type at a certain location to command prices as high as RM800 or RM900 psf.
The probable market value is perhaps 20%–30% lower than that, but because they wanted to attract buyers, they offer GRR. For example let’s say three years’ worth of rental costs probably RM150,000. So instead of selling at the property value of RM500,000, such developers sell at RM800,000.
Then buyers happily buy in because of the GRR, but realistically the property is not worth RM800,000 in the first place. When the GRR expires, the bucket will be passed back to the buyers.
This is a bit more serious especially when it comes to resort-based or tourism-based products like resort homes or chalets, because when we look at fundamentals of valuation, how can a chalet or resort home be selling at RM1,000 psf for example? What is the fundamental there?
Fourth, sometimes the product type is just not suitable for GRR. For example, some GRR projects are sold room-by-room. Each property unit is say 200 sq ft, sold to you for RM220,000 with a few years of GRR. Affordable, right? You can get loan easily.
But after that, assuming six years or 10 years down the road the university or college no longer rents from you, what are you going to do with 200 sq ft? It’s a dormitory-like design.
So the product type must be chosen carefully. Everything comes back to fundamentals.
The Andaman concept is that years down the road, if the property is no longer rented for student accommodations, it’s okay because families can move in into the three-, four-bedroom condo unit just like a normal property unit. And of course all Andaman properties are in matured locations (with good fundamentals), meaning they’re not somewhere far like Kuala Pilah.
Is fundamentals why you’re going into Bangi?
Yes. Bangi is a superb location, the next hotspot in our point of view.
This is a location that will grow because of the relatively cheap land price yet lots of strengths as a knowledge city — within a 10km driving distance, there are more than five to six institutions as well as universities and colleges, not to mention training centres.
For example, you don’t find empty, vacant shop units in Bandar Baru Bangi. All shops are tenanted, the occupancy is more than 90%. When we launched our 86 five-storey shop units valued at over RM2 million in Bangi, they were snapped up in three days. And 70% of these Bangi buyers, taking up shop units worth over RM2 million each, are Bumiputera.
The people who stay in Bangi work in Kuala Lumpur, Putrajaya, Cyberjaya. At the moment Bangi still has many affordable value-for-money houses, semidees and even double-storey.
We probably have about five big developers here at the moment.
What products are you looking at in Bangi?
Bangi hasn’t gotten its big shopping mall, so we are building a very premium luxury shopping mall there to cater to the middle-upper shoppers.
The location has potential because the Selangor State Development Corporation (PKNS) is possibly undertaking DATUM Bangi next to our Bangi Evo Soho. DATUM Bangi itself is a RM1.6 billion project and, if it works out, will comprise a convention centre, hotel, office tower and serviced apartment.
If that goes ahead, then Bangi will emerge even stronger.
Are you in East Malaysia yet?
No, we are not in Sabah and Sarawak and have no plans to go there.
We heard Andaman staff gets three to five years’ worth of salary in bonuses. How does that work?
We are not listed, so we can do quite a number of interesting packages for the staff. By bonuses we mean, for example, commissions, incentives, bonuses, rewards.
On average, it works out to about 36 to 60 months’ pay received by the staff in one year. This is excluding an average of two trips per year, be it local or overseas holiday trips.
A simple example: in the past three years, we have even brought our staff including office boy, tea lady and receptionist to Tokyo, Japan and Europe — Switzerland, France, Belgium, Holland — for holiday. Which other developer does this?
Is it an effective way to reward staff?
The thing is, for developers who sell millions in property value, if you take out just RM1 million to pay for overseas holiday for the staff, that is a very small amount but it brings maximum satisfaction for the staff. What is RM1 million to a top property developer?
But 90% of developers in town won’t do that.
In the last 24 months, my staff has gone to watch Liverpool play Manchester United, to the Gold Coast, London, Europe, etc.
Your turnover must be low.
Our turnover is less than 3% per year, extremely low. I have seen a lot of developers currently who are very established yet constantly looking for new people.
The Andaman group has a man power of approximately 140 people. We are comfortable with this number, this is a good number for us to continue next year with our target of RM1 billion.
What other ways do you reward your staff with?
Well, long-serving staff members enjoy very good property purchase discounts within the group itself from time to time, ranging from 5% to 30%.
For certain projects, say costs are about RM30 million. Then after we have finalised the project, say we are able to bring down the costs to RM27 million, saving RM3 million. So from the saved amount, substantial portions will be shared with the people involved (in saving the costs).
Typically public-listed developers would not be able to do that. And many private developers are not willing to.
Your best accomplishment in your time with Andaman so far?
I must say achieving RM2 billion in sales with the small team that we have.
We only have about 50 people in the team and we managed to record RM2 billion of sales in five years.
Since you joined Andaman, what has been the lowest point in the journey so far?
(After pondering the question) I can’t think of any. The last five years in the property development sector were among the best years of my life. The rewards, both financially and non-financially, have been extremely satisfying.
So no regrets. If you ask me to start the last five years again, I don’t think I would have done it as well as I have.
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