Build-then-sell works for Bandar Utama
19/11/2001 www. theedge.daily By Audra Jeyaraj

Build then sell or sell then build? This is a question property developers have asked themselves for decades now.

For Bandar Utama Development Sdn Bhd, the developer of Bandar Utama, the build-then-sell concept has worked out well. However, director Datuk Teo Chiang Kok (above) acknowledges that every concept has its advantages and disadvantages.

In April, the developer sold 100 units of 2-storey link homes (ready with certificates of fitness) priced from RM550,000 to RM780,000 in just four hours (story in The Edge, Issue 339). And that was the first time the homes were unveiled. No wonder Teo is a firm advocate of the build-then-sell formula!

This is unlike some cases where the projects launched could not be sold, so the developer went ahead to build the homes first before putting them back on the market again.

Teo calls the company’s shift from sell-and-build to build-and-sell a natural progression. He was sharing Bandar Utama’s experience in building then selling with undergraduates at a recent Brown Bag seminar on “Build and Sell — From Rhetoric to Reality” organised by Fiabci (International Real Estate Federation) Malaysian Chapter, the Construction Industry Development Board and Universiti Malaya. The monthly seminar (to be held until the end of the year) discusses built-environment issues of interest to students and practitioners.

Demand for housing has sustained both concepts in the market but the two can be a boon or a bane, depending on which camp you are in.

Teo will be the first to admit that selling homes before they are built augurs well for the developer but not the buyer.

For a developer, the sell-then-build concept ensures a steady stream of cash flow. By the time the houses are completed, at least 90 per cent of the money is in, allowing the developer to draw down to finance the cost of construction.

Such luxury is absent for developers who choose to build before selling the homes. Thus, this method requires the developer to be financially sound.

Using the Bandar Utama build-then-sell homes as an example, Teo says it took the developer close to five months to receive full payment from the buyers.

“The risk factor [for the developer] is certainly greater. Until the buyer delivers the cheque, you don’t know if the sale has really been closed,” says Teo.

Which is why he reckons that if the build-and-sell method is enacted as law, 65 per cent of developers will have to quit the industry!

An advantage of the sell-then-build concept would be the developer’s ability to accommodate specific needs of buyers. A buyer may want a certain finish for the floors or specific kitchen cabinet design. This can only be possible if the homes have not been built yet.

On the other hand, sell-then-build projects could be abandoned or offer inferior quality homes that buyers have no choice but to accept.

In contrast, what you see is what you get in a build-then-sell project. “People get to see the final product before buying. And during uncertain times, when people tighten purse strings, they’ll certainly want to wait and see,” says Teo.

For obvious reasons, build-then-sell developers cannot afford large-scale developments. Putting fewer units on the market each time minimises the risk of poor sales.

Teo says the winning formula in the build-then-sell concept is to offer the right product, at the right price, in the right location at the right point of the economic cycle. Having a good track record as a developer is also important.

In Bandar Utama’s case, the developer has been mindful not to tag new products at below market prices. “There’s a need to protect and increase the value of properties sold so it builds confidence in purchasers — that their investment will consistently appreciate,” adds Teo.