The Opportunity to Get into Boutique Property Development With Attractive Returns

(Note: This content is an 7-min read)

Investing in the property development industry is a potentially lucrative business if it’s done right. Property represents the world’s largest asset class at USD$ 228 trillion according to research done by HSBC. The effects of the pandemic have not left the property sector unscathed. In Malaysia, there’s evidence of housing prices falling and the rise in demand for more affordable housing (0.66% year on year price fall according to research by JPPH).

According to the legendary investor Warren Buffett, investors should “be fearful when others are greedy, and greedy when others are fearful.” Various industries, especially the property development sector, are now undergoing steep price corrections due to the pandemic. That being said, there’s always opportunities when it’s paired with the right research and due diligence.

When researching further into the property development sector, indicative hints from various findings show a potential emergence of demand for affordable housing. The evidence indicates that there’s an affordable housing gap in the property development sector that should be addressed.

According to the World Bank Group the number of households available for purchase for those earning less than RM5,000 are incredibly limited, with only 55% in Kuala Lumpur region and 63% in the Petaling District within this income bracket having access to affordable homes.

And it also comes at no surprise that the largest number of underserved households in Malaysia are the Malays. Malays make up 63.1% of all households in Malaysia as at the 2010 census, with 88% of them falling within the Bottom 40% (B40) and Middle 40% (M40) groups (source: Msix Marketing Agency Malaysia 2020). 

Globally this narrative continues to ring as the lack of affordable housing is severe among the bottom 40% (B40) and middle 40% (M40%) households (World Bank’s Malaysia Economic Monitor: Making Ends Meet report). 

What are the affordable housing gaps and is there a way to address them? To address the affordability gap first unlock land supply, because it is important for affordable property development projects to be developed at the right location (McKinsey Global Insitute). Land is generally costly and often unavailable. But when made available represents an unfounded property development opportunity that should be fully utilised.

In cities around the world, the solution to unlocking land supply may be in plain sight: land that is at the right location for affordable housing but that remains vacant for a variety of reasons. Not all vacant land can be brought forward for development. Some large parcels are “banked” by cities for future development or to use for infrastructure or public buildings. Corporations also keep reserves for expected expansions. Certain land areas are difficult to develop due to shape or small sizes. In the case of Malaysia, some land areas are gazetted as Malay-reserved.

This is where smaller boutique property developers have an advantage. Being small means the boutique property developer is able to address challenges resulting from fragmented, irregularly shaped, or unregistered parcels of land, while still maintaining adequate profitability margins. Whereas these profit margins may not be ‘worth’ the time investment for a more established property developer due to reasons of economies of scale.

Is there an affordable house problem in Malaysia? There are bleak options presented to solve the housing crisis in the country. Cost of homes are rising: ‘Millennial? Saving for a house? You might need an inheritance’, and it’s no secret the property sector in Malaysia is becoming increasingly unaffordable. 

Markets are starting to respond to the affordable housing problem in Malaysia. TA Investment Management, an Investment service provider in Kuala Lumpur found that affordable units are now seeing “encouraging sales”. 

Unsurprisingly, affordable housing developers such as Hua Yang Bhd and Lagenda Properties Bhd have performed better on the bourse – hitting a 52 week-high of 39 sen for Hua Yang and RM1.75 for Lagenda.

This lack of affordable housing is where our latest upcoming issuer is determined to tackle. With an upcoming Bumiputera development project in Kuang, Selangor, Malaysia priced between RM300,000 and RM400,000 range.

Kejuruteraan Bumi Utama Sdn Bhd (“KBU”) is a Malaysian property development company with the aim of narrowing the affordable housing gap in Greater Klang Valley (GKV). Led by a team of industry experts with 2 decades of experience between them, the company has quickly made it to Malaysia’s upcoming developers list.

KBU’s mission is to provide dignified and affordable housing to the underserved Malay segment  – equipped with the finishings, focus on the environment, and lifestyle tailored for families at all stages of their life.

Their latest project is the focus of their crowdfunding campaign with Ata Plus, where KBU is raising funds for their development in Kuang. Located close to the central activities of Sungai Buloh on Malay Reserve Land, this project seeks to provide modern, dignified homes for young Bumiputera families.

Compared to larger property development projects, Kuang represents an opportunity to deliver a low density yet affordable priced home for future homeowners – a combination that’s difficult to find in the heart of Greater Klang Valley.

With the intense demand for affordable homes in Greater Klang Valley, here are Kuang’s key investment highlights:

• a low entry from RM2,006.40,
• a fixed annual return of up to 10% p.a., and
• a clear redemption exit plan for investors (within 4 years).

KBU’s new development in Kuang is poised for perfection for investors who want to take advantage of the gap in affordable housing with attractive returns.

Interested to learn more about the KBU opportunity? Find out more about KBUs Equity Crowdfunding Campaign coming soon!