Taking on the Klang Valley and Bursa

By KINIBIZ

Aspen Group CEO Murly Manokharan speaks to KINIBIZ on his ambitious plans to replicate Aspen’s affordable housing model in Subang and list the two-year-old company on Bursa Malaysia by early 2016.

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Besides TriPinnacle and Aspen Vision City, Aspen Group has two other more high-end projects in Penang, playing to the management’s strengths on the island. While the RM142 million Beacon Executive Suites focuses on residences, the RM788 million HH Galleria leans towards commercial, retail, and hospitality services.

Both projects will commence construction later this year, with estimated completion dates in 2018. Despite having several ongoing projects in Penang, Aspen acquired 4.92 acres of freehold land in Subang from Hong Leong Asia for RM60 million on March 31, with a view to replicate the TriPinnacle affordable housing model in the Klang Valley.

Expansion to Subang

The Subang land, next to the newly developed luxury Tropicana Metropark by Tropicana Corp, follows TriPinnacle’s location in prime area surrounded by established names.

Aspen Group chief executive officer (CEO) Murly Manokharan believes this is what sets Aspen apart from other affordable housing players.

“Whether it is Penang builders, Rumah Selangorku developers, or even PR1MA, they all tell buyers that they have to travel 10km to 20km away from cities in order to purchase affordable housing. Not me.

“By year-end, we will announce the development of Subang land, which cost us RM280 per square foot (psf). I think most of my partners who helped furnish and develop TriPinnacle will be chipping in for the Subang project as well. I have the volume game, so it will be another 1,200 plus units with some commercial components to serve residents’ daily needs.

“We find ways to subsidise the cost, such as the top-up option. This again will not exceed the RM100,00 extra for a fully furnished unit. As prices will start at RM400,000 in Subang, this means the maximum buyers could pay for a 650 to 800-square-foot apartment unit would be RM500,000.

“But again with Subang, the government will have to come in as regulator and ensure people don’t speculate. Regulators and investors are both assured when they see our proven track record in Penang – both speaking to the state government and selling the units,” Murly noted.

Regulators’ positive response

Aspen has already hit the ground running in Selangor, and talks with the state government have been very encouraging.

Unlike Penang, which modelled its affordable housing tiers upon Aspen’s proposal, Selangor already has the Rumah Selangorku initiative where houses are priced up to RM250,000 per unit.

“Mine (Aspen’s unit) priced at RM400,000 will cater to a different category of homebuyers. We are not interested in participating in the Rumah Selangorku programme, we are working on a different model. It (Rumah Selangorku) doesn’t have any tiering for affordable housing priced above RM250,000 and thus here we are taking the lead,” Murly said.

The 29-year-old CEO is also selling it as a democratic tool, telling state governments to fill real demand.

“These are from young professionals and newlyweds – where the voices are. Every year we have new couples getting married and finding it difficult to buy decent homes.

“Over a period of time, I realised that these are the people who have leverage in terms of power of voice. And we want to serve this people, as eventually they will be growing together with us. If you want your brand to grow, you want it to grow with the younger group of people. We are setting up a customer base to ride through the next decade with us,” Murly noted.

He said the goods and services tax impact on Aspen’s development will squeeze its already-thin margins, albeit minimally by 3% to 4%. The group is still gunning for 20% margins in Subang, if most buyers avail themselves to the full RM100,000 top-up options.

Murly said this is due to Aspen’s relative higher efficiencies: “Other developers have 60% to 70% efficiency because they price their units on speculative yields, etc. My building efficiency is above 80% and we tender contracts on a competitive basis.”

“But we spend on consultants. Even though we build affordable houses, I hired first-class consultants like Arup, which is the most expensive in town. They together with top civil contractor Geotech came in to design and build TriPinnacle. Though their fees are high, their years of experience means we get really efficient designs out of them,” he said.

He said Subang was the closest he could get to Kuala Lumpur city centre, but Aspen will look for better locations once it is more established – which is why he is still focusing on Penang.

“What we have on our plate is going to keep us busy for the next 10 years. I’ve hired most of Penang’s talents – young people from Sunway, Mah Sing (such as executive director Woo Kok Weng), and Eco World, as well as Ivory people who have worked with me for the last decade,” he said.

Role of government

Aspen’s affordable housing model means that every new state it breaks ground in will require it to hold fresh talks with regulators to work together. Thus the focus on Penang is also driven by the state government’s sole role as regulator in the business field.

Murly’s opinion on the role of state governments is clear: they should act as regulators and stay out of business.

“But when they do give contracts or land to the private companies, they should ensure deals are done in a transparent manner. That is why we got the Penang state exco involved to set regulations, so everybody could play to the affordable housing bracket.

“Once the tiering was passed by the state exco early this year, the other developers started registering projects, and now there are 20,000 units coming on stream in Penang in this level playing field,” he noted.

With its presence made in Penang and soon in Selangor, it is only natural that Aspen casts its eyes to the third property hub Johor, right? No, apparently.

“Johor is not on the horizon. Johor used to have that kind of infrastructure and development potential Batu Kawan has. But they have overdone it. Johor is a very unique market; the government is involved in business there,” Murly opined.

“They have Iskandar, which has been given all kinds of perks, so locations outside Iskandar are non-viable options. It’s like having a handicap if you play outside Iskandar – Iskandar has everything, the others have nothing. How do you compete? When the government starts doing that, it’s not healthy.

“The Penang government is a bit more business friendly, and understands how the commercial world works and wants to be transparent. We see the federal government moving towards this direction. I’d like to see how the federal government works in tandem with the Penang state government,” he said.

Listing aspirations on track

Speaking to Murly, one gets the sense that he isn’t out there to pitch his projects to buyers – Aspen’s competitive pricing and prime locations do that for him. He is out to impress investors with both the affordable housing model and the Batu Kawan story.

“I want to show a commitment that we are not just a property developer who makes money from projects and then leaves after the handover. We also look at recurring income, which will form the basis to pay out dividends. Instead of looking as our buyers as the only source of profit pool, there are other options such as rentals and tie-ups with big brands,” he said.

He said most developers trading on Bursa Malaysia are doing so at a huge discount to revalued net asset value, because “they build, hand over keys, take their profit, dump it into another project, and the process repeats itself. There is no recurring income”.

Murly, meanwhile, called himself “a service provider who uses real estate as a platform”.

“When I hand over the keys for TriPinnacle’s 1,200 units, so many different industries are going to come in and at least halve the construction costs. And I’ll have recurring income via rentals from the commercial aspect.

“For all Aspen’s developments, we retain some commercial content that will serve the development and surrounding area. The key contrast is people actually live in my developments, and thus there will be a need for commercial spaces, from which we will eventually derive recurring income,” he explained.

The group plans to list by end-2015 or the first quarter of 2016, and has been in constant engagement with domestic players like the Employees Provident Fund and Permodalan Nasional Bhd to come in as investors when it makes its Bursa Malaysia debut.

“But even post-listing, I will continue to be the majority shareholder of Aspen. I only want investors who understand us. People are starting to agree now when I explain the business model and the viability of Batu Kawan,” Murly noted.

“If we want to be a developed country, we can’t be only building real estate for the top 20% of the population. We have to start catering for the majority of the people – this middle-income group or 60% of Malaysians.

“My business model is very powerful and so are the people I am serving. We are using the power of the mass market to bring in value to this group of underserved people. This is exactly what Ikea is doing.

“With my business model, I can build much more and far better than any other developer. Because what I build, is what people need. If you focus on the needs of the people, everybody can do well,” Murly enthused.

Yesterday: Selling the Batu Kawan story