15 December 2014

Property development as a hedge against construction earnings

  15 December 2014

CONSTRUCTION profits are great when you have them. But what if times are lean?

For Datuk Lin Yung Ling, it’s been the stability of the water concession plus property development that smoothens out any earnings volatility.

The sale of the water concession is being negotiated with the Selangor state government and he is tight-lipped on discussions except to say it will be on a willing buyer, willing seller basis.

As for property, he is more open to speak about the developments within Gamuda, and there is quite a bit of acvitity happening behind the scenes.

The group has spent RM2.2bil out of RM3bil earmarked to buy more land.

Earlier this month, Gamuda Bhd announced it was buying 104.1ha of leasehold land in Kuala Langat, Selangor, for RM392.17mil. In early-August, the company acquired 619ha of land next to the Elite Highway.

Gamuda is expecting property sales of RM.8bil for the financial year ending July 30, 2015.

“When there are longer-term growth strategies, you have to ensure that your business mix is balanced. That’s why we are putting a lot of emphasis on housing and affordable housing, looking at the delivery systems there on how to transform it,” he says.

“There are many of these things that will be hurt or slowed if we are dependent on government spending.”

Gamuda has 3,900-acre landbank which it calculates translates into a gross development value of RM40bil.

“That’s a good 20 years of activity. Investing in these kinds of assets makes sense to us,” he says.

“We bought 1,500 arces at Kota Kemuning in the mid-1990s and until today, we are still developing it. Property gives the longer-term balance.”

Gamuda has a team in Germany now looking at a business that builds a fully-automated housing system where there will be hardly work that needs done at the site. All of it will be done at the factory.

The housing industry too is in a down cycle as demand cools because the prices of homes have surged. Affordability is a concern for many and Lin acknowledges that the housing industry has benefited over the past few years from cheap funding and low interest rates.

“As that tightens, you find construction is rolling in because of the huge Government focus on the rail industry.

“My guess that in the coming years, the Government will be forced to let the private sector to do the bulk of the infra investments because they will be quite constrained.

“If that is the case, you will find the growth of your concessions and infra investments will also be quite strong. Each will have its day,” he says.



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