Big takeoff of build-sell idea may take time
14/04/2007 The Star By Kathy Fong

PETALING JAYA: A large-scale adoption of the build-and-then-sell (BTS) concept is not likely, at least in the near term, because property developers would have to have deep pockets to do implement it, investment analysts say.

“The (Government) incentives are definitely attractive but not all property companies have sufficient capacity or the capability to adopt the BTS concept.

“Only developers that have strong cash flows and good financial position will be able to successfully adopt the method,” OSK Investment Bank research analyst Mervin Chow told StarBiz.

Prime Minister Datuk Seri Abdullah Ahmad Badawi yesterday announced incentives for property developers who adopt the BTS method.

Those that opt for the BTS method would be exempted from paying the RM200,000 deposit for a housing developer's licence as well as being exempted from meeting the low-cost house construction quota as required under current sell-then-build (STB) method.

The Government will also give fast-track approval to applications for, among others, change in land use to BTS developers within four months.

Property developers, however, are free to choose between the BTS and the conventional STB.

”Developers with strong balance sheets and in niche developments could benefit (from the BTS concept),'' said Citigroup Research. “The adoption of BTS will give developers more pricing power because homebuyers may be willing to pay a premium price for completed units in prime locations.”

It also noted that the faster processing would be a boon for property developers. “This will shorten the time taken to launch projects which will, in turn, reduce land holding costs,” it said.

Under BTS, property developers will only start selling after they have completed the properties. Thus, they would have to source for finance from either banks or internal funds.

“Whether banks lend to finance property projects that have not booked in any sales is also a question,” commented a research general manager.

Investment analysts said developers might suffer a cash-flow squeeze because they would not be collecting progress payments from the buyers before a project's completion. And they could be strapped for cash if they happen to be working on a few projects simultneously under the BTS scheme, they added.

SHL Consolidated Bhd and See Hoy Chan Holdings Group are among the few property developers that have successfully used the BTS method. Analysts believe IOI Properties Bhd and SP Setia Bhd have the financial muscle to do that too.

OSK's Chow said the BTS strategy implied a commitment in developing and completing property projects.

It would help reduce project insolvency since funding did not depend on sales, he added.

Chow said since the risk of projects being abandoned was lower under the BTS concept, he concurred with Citigroup that developers would be able to charge premium prices for completed units, thus garnering wider profit margins.

“The BTS concept will enable developers to create wealth for shareholders of property companies in the longer term and unlock the value from their developments,” he said.