Why affordable housing? Why now?

By KINIBIZ

Aspen trees are often indication of aged forests, but Penang developer Aspen Group is a mere sapling at two years old, building affordable housing in the current market in what seems like harakiri. Now 29 years old, founder and CEO Murly Manokharan tells KINIBIZ why he left a cushy directorship with established Ivory Properties to go solo, and why his affordable housing model is all the rage.

______________________________________________________________________

Murly Manokharan’s meteoric rise through Ivory Properties began a decade ago when he joined Ivory at 19 years old as a technical assistant.

In 2008, he graduated with an Executive Diploma in Business Project Management from Universiti Teknologi Malaysia whilst working for Ivory. In the ensuing years, Murly quickly rose through the company’s ranks to become chief operating officer and second-in-command at Ivory.

His appointment as executive director in February 2012 at 26 years old made him one of the youngest directors of a public-listed company who isn’t related to another board member or a major stakeholder. A year later, he left Ivory.

Affordable housing a blue ocean

“It was a natural progression in my career – I’d reached the pinnacle of a career with a company that I didn’t have any equity or stake in. I wanted to do something on my own,” Murly told KINIBIZ.

Thus began his road to building Penang’s first privately funded affordable housing initiative – TriPinnacle.

The three-block apartment project of 1,249 units low-to-medium cost and affordable housing (at a maximum of RM300,000 for unfurnished units) is located in the prime Penang Island area of Tanjung Tokong.

Construction commenced the fourth quarter of last year and it is slated for completion in 2018. Thus far, all units have been sold out, accounting for RM400 million in unbilled sales for Aspen Group.

Aspen Vision Ventures Sdn Bhd is the registered developer of TriPinnacle, and a wholly-owned subsidiary of Aspen Vision Development (AVD), which Murly registered on Jan 15, 2013.

As of October 2013, Murly and former Ivory deputy chairman Nazir Ariff each have 40% or 1.2 million shares of the total three million share capital in AVD, with the remainder held by Lee Peng Cheong.

Besides Murly as the chief executive officer and Nazir as chairman, the company also lists Lim Su Kiat as an executive director. However, Murly maintained he holds the largest equity stake throughout Aspen Group and that he kickstarted the affordable housing initiative before leaving Ivory.

“The property sector was heading to an extent that there is not much upside for big players anymore, because everybody is playing to a very small luxury segment, with an equally small pool of investors and buyers. Supply was overtaking demand.

“So I thought, why not come out and serve those currently underserved? When you build luxury properties, you are supposed to comply with low-cost housing requirements too. But nobody is interested in taking care of middle-income buyers, so it was getting increasingly difficult for 60% of the population to own properties.

“Developers were skewing their target markets really low or really high. We had to strike a balance and with the middle-income category of buyers continually growing, the demand there is practically a blue ocean for us,” Murly enthused.

Diving into the deep end

Recounting how he left Ivory, Murly said: “We (Aspen) wanted to do affordable housing and so did Ivory. Conflict of interest was the key reason I had to leave quite quickly. Aspen began with just me, and then Nazir joined me as both shareholder and director.”

“In end-2012, I tendered my resignation and called for a board meeting in January 2013, and left Ivory on Feb 8, 2013. I was very transparent about leaving to do affordable housing, and I informed the board.

“The board asked me to stay, they said we could work together, and I told them ‘No no, eventually there is going to be a conflict of interest’. I didn’t want to be on the board; I had to leave. So I took that leap, and formed my first company on Jan 15, 2013,” he recalled.

An accountant by profession, Aspen’s chairman Nazir has 40 years of experience in the industry and is well known in Penang’s corporate circles.

As the chairman of the Malaysian International Chamber of Commerce and Industry and director of the Penang Institute, he is also a member of the Invest Penang Advisory Services Panel and the Penang Economic Action Council.

Murly described the partnership as a cohesive one: “At 68 years old, Nazir is the chairman and I am a young CEO, combining experience and drive. I seek his advice on certain things, especially in terms of corporate maneuvers. But I run the day-to-day operations and strategies.”

Murly is the majority shareholder, with Nazir and UEM Sunrise director Oh Kim Sun, as well as another high-net worth individual holding minority stakes in Aspen.

Aspen and Ivory formed a joint-venture company Aspen Vision Land (AVL), the concession holder of the Batu Kawan land, on which Murly’s mixed development project Aspen Vision City sits.

Spanning 245 acres, the RM8 billion Aspen Vision City will feature Northern Malaysia’s first Ikano shopping mall and Ikea outlet, as well as a four-star hotel and Columbia Asia-branded hospital.

Murly’s previous employer only came in as an investing partner, with Ivory buying up the 49% stake in AVL in 2013 and 2014 for RM19.7 million, and selling it back to Aspen in January for RM55 million.

In its filing to Bursa, Ivory said it divested its stake to unlock value and concentrate on projects on Penang Island instead.

Murly believes announcement of tie-ups with names like Ikea was what drew high-net worth private individuals like Oh Kim Sun to invest in Aspen.

The success of TriPinnacle also shored up confidence in Aspen. Not only does TriPinnacle face two of Ivory’s luxury apartment projects, the 9.97-acre plot, which three 30-odd storey blocks stand on, was acquired from Ivory in 2013 for RM35 million.

Checks with the Companies Commision of Malaysia showed that for the financial year ended Dec 31, 2013, TriPinnacle’s developer Aspen Vision Ventures recorded RM654,309 in profit after taxes, RM3.5 million in assets, and RM4.46 million liabilities.

To defray the land price and construction cost for TriPinnacle, Aspen secured RM95.5 million in Islamic financial facilities from Malaysia Building Society Bhd (MBSB) in June 2014 to fund the state’s first privately initiated affordable housing project. MBSB has also extended end-financing packages to TriPinnacle homebuyers.

A hairy eye on gearing

For TriPinnacle, Aspen has to keep quality high (international names like Arup and Ikea were brought in to design and furnish the condominiums) and affordable. Each of its 800-square-foot unit (a total of 859 units) was priced at RM299,000.

“Currently, we have close to RM1 billion of unbilled sales, RM400 million from TriPinnacle on Penang Island, and RM600 million from the first phase of Aspen Vision city in Batu Kawan on the mainland.

“In the business model Aspen operates in, high gearing is not an option. For instance, TriPinnacle has a gross development value of RM400 million and our construction costs totalled around RM300 million.

“Thus, gearing is less than RM100 million, about RM95.5 million. That is less than 35% gearing, and going forward we will keep it at that level, so our margins are not eaten up by interest payments.

“In normal developments, selling or marketing properties carries risks, but in what I do, there is zero risk because I only build what people need, I don’t build what people want,” Murly said.

In terms of marketing, he said Aspen introduced TriPinnacle to the public after securing financing from MBSB in May 2014.

“We’ve promoted this project via social media and have obtained more than 30,000 registrations in early 2015. We also organised on-site registration at our Jalan Birch office in early March, with the objective of getting all interested registrants to submit their applications on the spot.

“Staff from the State Housing Department were also invited to the on-site registration and attended to registrants’ enquiries. The selling price for TriPinnacle is RM299,990 for 800 square feet, as well as the top-up ‘home enhancement package’ also drew buyers to us, as we got better deals from the contractors and suppliers based on economies of scale for 849 units,” he explained.

Conceptualising affordable housing

In Penang, there are three affordable housing tiers as conceptualised by Aspen and adopted by the state government. Aspen proposed it after performing market studies via the Penang Institute, which it then used to back up its recommendation to the state executive council.

With the affordable units at TriPinnacle priced at RM299,000 each, buyers would fall within the middle tier of the affordable housing policy with a monthly household income not more than RM8,000.

“Respondents said RM500,000 was affordable, but TriPinnacle units average at RM300,000 with an additional RM100,000 for add-ons. We don’t even hit their half-a-million limit. If I price units at the maximum, I won’t be able to provide value-added services,” Murly said.

TriPinnacle’s most expensive units still do not exceed RM400,000 for a fully furnished home with two car parking bays, whilst unfurnished units at RM299,000 come with one bay each.

While Aspen develops TriPinnacle, the state housing department will act as regulator, as all 1,249 units will be sold via ballot to buyers who have applied via the state. Homeowners cannot sell low-to-medium cost houses for the first 10 years, and affordable units for first five years, to avoid speculation and abuse of the system.

“Several other developers have followed Aspen’s affordable housing model and there are 20,000 units now coming on stream. There is now a specific guideline in Penang for affordable housing, modelled after our project, so there is a level playing field,” Murly enthused.

Value adding with branded partners

TriPinnacle’s most important factor is its prime location.

“If you build affordable homes 10km to 20km away from workplaces or schools, it is no longer affordable.

“We spent about RM60 per square foot (psf) to acquire TriPinnacle’s land, a total of RM35 million for the 9.97 acres. But it was hill land, so it cost me another RM30 million in terms of conversion, driving land cost up to about RM150psf, excluding infrastructure. This was on super-prime land overlooking E&O Straits Quay, where luxury apartments sell for RM2 million to RM3 million each,” Murly said.

With margins running thin due to land and constructions costs, Aspen’s add-on model helps boost margins. Murly explained: “For a bare standard unit with only one car park, our profit margin would be quite thin, at around 12%. With add-on furnishings ranging from RM50,000 to RM100,000 for a fully furnished unit, then our margin grows to around 20%.”

Thus far, 90% of TriPinnacle buyers have availed themselves to the maximum RM100,000, as they are primary users, first-home buyers with the intention to move in. And they get brands like Ikea, Panasonic, and Samsung.

“That’s close to RM100 million extra revenue while keeping even the frills affordable, unlike normal developers. They too provide furnished packages, but at prices 40% higher than the market rate,” Murly remarked.

With TriPinnacle due for completion 2018, Aspen is pre-ordering some products that do not exist yet.

“The average lifecycle for an electronics product is only one quarter. A new RM20,000 to RM30,000 TV comes out now, six months down the road it could worth less, between RM5,000 and RM6,000.

“We tell retailers, ‘if you tie up with us, we are going to order an inventory three years ahead. You can plan your inventory, because we’ve already paid deposits and locked in prices for 2018′. We get value for future technology,” he said.

For Aspen and Murly, their relative youth and size compared to established players mean that not just TriPinnacle, but more ambitious projects like Aspen Vision City in mainland Batu Kawan will require future tie-ups, which KINIBIZ will look at in the next part of this series.

Tomorrow: Selling the Batu Kawan story