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Post date: Oct 11, 2010 11:5:7 PM
REHDA president Datuk Michael Yam has come a long way from his hometown in Kluang, Johor. His stratospheric success comes as no surprise as he proved to excel in every challenge that he has taken on. His career spans 30 years in the construction, real estate and corporate sectors and he has attained a list of outstanding accomplishments which includes the following.• Managing director and CEO of a strategic, technical and project management advisory firm known as Impetus Partnership • A trustee of the Standard Chartered Charity Trust and also UK-based Chartered Institute of Building (one of two Asians elected to sit on the Board)• Developed and managed hotels, resorts, shopping malls, golf estates, international schools and various mixed developments in Malaysia, Australia, UK and South Africa• Member of the Advisory Board of the City of Kuala Lumpur • Awarded the "CEO of the Year 2002" by Business Times and American Express Corporate Services
• Fellow of the Chartered Institute of Building
• Fellow of the Royal Institution of Chartered Surveyors
• Independent non-executive director of Standard Chartered Bank Malaysia, Paramount Corporation Berhad, government statutory body CLAB Berhad and the British Malaysian Chamber of Commerce
StarProperty.my chats with the knowledgeable Datuk Michael Yam on his views on the current property market and his priorities for REHDA.
Do tell us about yourself.
I was born more than 50 years ago in Kluang, Johor. I had a very normal upbringing and am from a fairly large family. All I knew was that I worked hard and played hard. But I guess the highlight of my life at that time, was when I filled in an application form for Royal Military College. All I was told is that it’s the only school we should go to. It’s the top school. So I think 10 of us were given the application form. We filled it in and in the whole town four of us were selected. I went for examination, sat for written tests, went through a series of sports, and lo and behold, I was selected.
I was the only one from my town who went to Royal Military College (RMC). It was the best all-round education that one could have. Some of my schoolmates are still my best friends today. All I knew was that I wanted to go overseas and there was only one place I wanted to go – London. There’s one course I wanted to do and it has something to do with building, construction, engineering or property. One of those four – it didn’t matter which. That is probably shaped by the fact that my father was a small-time contractor. By the time I went to RMC, he was already a Class A contractor, at the top of his league.
I went to University of Westminster, previously known as Polytechnic of Central London, because they had one of the best environment courses in architecture, building, and so forth.
What did you do after your studies?
After finishing I actually worked in UK (United Kingdom) for about five years. Then in 1979, the recession hit UK and by that time I had a mortgage and I got married. That was the first time we heard of recession. So I thought I better find a safe job. I spent three years working in the National Health Service. I was looking after the maintenance, capital works and repairs of one of the largest hospitals in UK called Shenley in Hertfordshire. There was a beautiful country side and it is a huge hospital. It was a mental hospital. That’s another lesson. Their mental or psychiatric hospital is not the Tampoi and the Tanjung Rambutan we know. I remember it was something like 50 wards and only two were locked up, the more aggressive ones. The other 48 are basically like your holiday camp or resort. The psychotic definition there is not about mad and crazy people. It is about people who are depressed, people who have post-natal depression and so on.
In 1983 I was given a wake-up call by my father who was still a Class A contractor. He asks if I wanted his scholarship (laughs). He said, “Either you come back, pack your bags or you are going to be forgotten in terms of succession planning and everything.” I decided that it was time to uproot, and 10 years in UK is a long time. In 1983, I returned to Malaysia but I had other plans.
What were these plans?
There was an advertisement looking for project engineer and project managers for large projects in Malaysia. I applied and I got the job. I came back and to the disappointment of my father, I joined this English project management firm. People asked me why. I said, “I didn’t want to be known as Mr Yam’s son.” Today he is introduced as Datuk Michael Yam’s father (laughs). That’s a slight difference.
My first job was in Ipoh as Project Manager. The British always gave quite good perks and I spent a year there before I came back to KL to do far larger projects. Within four to five years, I was made director of the company. There’s a second recession I went through inn 1987, 1988. In 1989 I joined Landmarks Berhad. That was a great experience because it involved large properties. I was group property manager, and I was more well-known as the CEO of Sungai Wang. Apart from that, I was running Parkroyal Hotel as the director in charge. Then, I started Carcosa Seri Negara with the Government—the hotel where the queen stayed.
So that was good; the exposure to hotel, retail and in 1993 there was a change in ownership of the Landmarks Group. The holding company sold out and that company was Peremba. I was invited to join them and was involved in the development around Saujana—the Hyatt and golf course was part of the group. I stayed there from 1993 to 1996 and that’s where I picked up golf and became quite a good golfer. In 1996, I joined Country Heights as the Chief Executive and in 1997, and I was offered the post of CEO for Sunrise Berhad. I went there and someone asked why? From a co-pilot of 747 to a captain of an airbus. Why did I downgrade?
Going into Sunrise in March 1997, just before the Tsunami of the Asian financial crisis, it was a lot about putting together all the talent, management skills and conviction into running a company on your own because nobody else is going to help you. I left in perhaps 2008, and the company has never lost money. Apart from building condominium which Datuk Alan Tong (founder of Sunrise Sdn Bhd) did a good job. Plaza Mont Kiara is a hive of activities. Then we went to South Africa to build successful shopping malls, we went to London to get permission to build apartments and hotels, and we went to Australia where we started an international school. So the branding, acknowledgment of quality, and the fact that Sunrise delivers was there.
At that time I chose to join REHDA because I thought the strong should be helping the weaker ones, if needed. Sunrise is good enough as a brand to represent REHDA. I attended the first meeting and was roped in into the committee. I am also one of only two Asians who were elected into the Chartered Institute of Building. Sitting on that board, I could network into the international arena. Most of them were British. I represent the Asian part of the world and we have quite good interaction looking at world issues.
In REHDA, I have a very good rapport with the Government. We tell them the challenges we face, how to house the nation and so on. This country’s cross-subsidy and social engineering is probably one of the more stringent compared to any other country in the world. The requirement to build 30% low-cost units, and the requirement to give discounts to certain segments of the society—this, you won’t find in many parts of the world.
What are your thoughts on low-cost subsidies and Bumiputra quota?
I think that inefficiencies have been built because it has been going on for too long. It serves as a good purpose because it needed to encourage home ownership among the largest segment in the industry—the Bumiputras. We don’t have a problem with that but for very expensive properties, I think that it defeats the purpose. The 30% low-cost that you impose might be fine. But today, cars are twice the price of low-cost units. So, something is not right. There are inefficiencies. Any business enterprise is not going to lose money. Someone is paying for that and ultimately, it is the consumer.
If it is a free market, and the IRB (Inland Revenue Board) is efficient as it is, then the developers are bound to make money and from that additional profit we make, you tax on that. The Government will get more money and they can redistribute. After 20 years, inefficiencies like everything else has been built in and people are doing things without thinking. Do you really need that many low cost houses now? I think that the Government is looking into it now. We see it in papers that these low-cost units are being rented out at such fantastic yield.
Subsidising would be fine, if the poor and rightful person stays there, but it’s not. It’s rented out. And if you look around, there must be about 400,000 - 500,000 low-cost houses when the total housing stock is only 4 million. You mean that there are that many poor people in this country? I am a bit concerned. These are issues that we want to engage with the Government. We understand our responsibility and I think that it needs further examination.
Has REHDA had dialogues with the Government about these issues?
Yes, but it needs someone brave to say that we need to relook at this whole thing. Developers did not mind delivering those affordable housing, which the Government so badly needed 20 years ago, or maybe even up to 10 years ago. But today, is that what is really required?
Despite an economic slowdown last year, property prices did not drop drastically. Why?
The banking crisis actually happened in 2008. Subsequently, Dubai imploded. That’s about a year ago. There were uncertainties at that time and the typical consumer reaction is to hang on to their money and see what happens. So in 2008 and the first half of 2009, it was quite slow. People were cautious. Prices didn’t really drop and the second half of 2009 was a good year.
I think 2009 was a catch-up year. Those who did not buy in 2008, started to buy in 2009. For 2010, we are going to do a survey by asking developers members’ feedback on the market situation. We can only trend it because property development is unlike some other business such as manufacturing, where you press a button and it starts and goes on. The fact that you didn’t do certain things six months ago and you start to do now, you can’t rush it. The process takes a number of months. So sometimes, even if there’s demand but no supply, you may not notice the actual sales. But that’s where pent-up demand comes, because there is a stop in supply. So it is important for the Government to smoothen that. The volatility throws certain numbers.
Property prices are on the uptrend. Are we in a bubble?
I don’t really see that happening. You have to analyse the cost component of our property. For example, let’s take at look at high-rise strata property. If you look at the price per square foot in Hong Kong or Singapore, 60-70% is actually the land component, and only probably 20% is the construction cost. The developer has a margin of maybe 15 to 20%. That’s the profit. So when prices collapse, the developer takes 10 to 20% profit out because he needs to sell to get cash flow. His construction cost cannot go any lower.
For cash flow, the developer might be able to take another small cut on the land cost that was originally paid for. That’s what you call impairment of land cost. So prices in those countries can drop down to 50%. In Malaysia, it’s very difficult for that to happen because 50 to 70% of that cost is actually construction cost. Labour cost is based on cheap migrant labour. So only 10 to 20% of that cost is land cost. That shows that our land is still very cheap.
So where’s the bubble? That’s the reason why Malaysia is still one of the cheapest property places in the world. If you look at the more developed countries, I believe the formula is one-third profit, one-third construction cost and one-third land cost. So they can drop one-third on the profit, so the price will come down 30%, plus maybe half of the one-third because land impairment cannot be less than 50%. Your land cannot drop so much.
So, their price can drop say, 30 plus 15, so maybe 45%. For the person who is doing proper business, and let’s assume that the construction cost is RM300 per sq ft. The land cost is RM60 to RM100 per sq ft. So RM400 per sq ft is the cost. I can only sell at RM500 per sq ft, otherwise it is not worth doing the business. So, RM500 per sq ft is the selling price, of which 60% is construction and the other 20%, half that is land cost. You can’t get free land free. Even Government’s land has a premium on it. So that’s why the collapse is not going to be imminent.
Our Prime Minister wants to drive Malaysia into a high income economy aka USD15,000 in year 2020. When you factor in inflation, the affordability issue remains. What are your thoughts on this?
I think one way of measuring via the affordability index. I remember giving a talk four to five years back where we displayed an affordability index. In Malaysia, it takes a bank manager eight times the salary to own a house. It took nearly a hundred times for a bank manager in Mumbai. Maybe that’s the easier to measure. How many times your salary to own something. And if you think about it, it is quite affordable. For example, a 1,000sq ft apartment that costs RM300,000. If you earn RM5,000 per month, then you are earning RM60,000 to RM72,000 per annum. So if it is RM60,000, it is only five to six times the salary.
Perhaps Malaysians have to lower their expectations. We are so used to the three or four bedroom link houses. You want the type of house that your parents live in. Look around the world. People are starting off in studio units. But I am not suggesting that we go that way. For them, heating is expensive (so studio units make sense). But if you are a young couple who are just starting out, then two to three bedrooms is something that a lot of people in other countries would give their arm and leg for.
When you buy a RM300,000 to RM400,000 apartment, you still get car park and swimming pool. You might not get Grade A location but RM60,000 is still less than 10 times. It is still affordable. I think people still dream of (staying at) Damansara Heights or Bangsar. Those are for old folks, people who have built up a fair amount of money. So the issue here, as developers, we need to read the signs, the wants and the desires of the younger population. I think people now don’t mind going for smaller units that are of higher quality, in an area that is fairly accessible.
What are REHDA’s key priorities for the year?
We would continue to engage with the Government on the issues regarding property’s impact on the country’s economy. We want to impress the Government that we are responsible. We would like to move towards self-regulation and lesser legislation.
We would improve the efficiency of the system and we do want to help the Government realise its ambition that four sectors of the community are being taking care of their housing needs; matching what the different segments require. We need to know the market. I think basically, that’s REHDA’s mission.
What are some of the immediate changes you would like to see in the short term?
I think we have approximately 10 things on our wishlist that we have given to the Government. We request for things like more transparency for approval processes. We ask for Bumiputra quotas to be reviewed. We ask for perhaps discounts to be given for only the lower valued properties and not across the board. We ask for automatic release mechanism.
They impose the Bumiputra quota and there’s no definitive process when these are free to sell to the open market. Some places, we have challenges in meeting or fulfilling the quota. There’s no clear-cut release mechanism, so we ask for it.
Developers are consumers, and so are the employees and so are the people in the supply chain. So why penalise developers? Some of these things, we are asking for them to look at it from a logical point of view. It’s bad enough to overcome all the challenges in the market place without having to deal with over-legislation, which a lot of it seems to be unfair. Let us go and do the things we want to do. One of my fears is that with too many of these (legislations), we might see a trend where developers go overseas, and the situation (overseas) is not so bad and FDI is going to be reversed. In some countries, although they have some of these things, CSR and all those, it seems to be a bit more transparent.
Our (REHDA) members must elevate themselves, and be different from the other non-member developers. There are developers who are non-members of REHDA who still flout the law because of either ignorance or they really did not know anything about it. We need to create a brand for ourselves. The Government should continue to promote more properties so that foreign ownership is easier. So, the Government has listened to some advice and have taken action.
What’s next for you? What’s your next project?
I actually spend more time working for NGOs (non-governmental organisations) as you see from my involvement with REHDA and of course, being on the advisory board for DBKL (Dewan Bandaraya Kuala Lumpur). Given the chance, I would influence the thinking of the Government of what I had mentioned. I hope what I said will provoke a few thoughts. We need to come up with lot of factors that would encourage development that will improve our lives and our quality of life. So that’s basically what I want to do, without being too academic about it.
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