Hot property mart attracts 'outsiders'

A hot property market has not just pushed existing firms to expand, it is also attracting other players: those who are not in the business in the first place.


While it is unclear if Bank Negara Malaysia's recent move to cool speculation in the sector would change this trend, analysts are clear about one thing - the business is not without its risks.

So far this year, companies like timber and auto group Permaju Industries Bhd, multi-level marketing (MLM) firm Hai-O Enterprise Bhd, and timber outfit Eksons Corp Bhd have announced plans to build properties.

The main reason for doing so is to reduce their reliance on their existing core businesses. Property is also an attractive venture as the barriers to entry are low.

"You don't need special skills. If you have land and cash, you can become a developer as construction is awarded to third parties," said TA Securities analyst Tan Kam Meng.

But like all businesses, there is no guarantee these ventures will turn out well. A major factor is that property is not their core business.

"As a developer, you need to know the market well.

"But nobody will buy a property where the company is not recognised or the properties are not well planned," Tan said.

MIDF Research senior analyst Syed Muhammed Kifni said the trend of companies diversifying into property development is only good as long as property prices continue to rise.

In the case of Hai-O, OSK Research said in a report that its venture into properties will add more risk to the group, given that its MLM business is still trying to recover locally.

Hai-O's business has become volatile, affected by a slowdown in membership growth and the poor buying among members.

Still, there have been cases where diversification has been successful.

One example is Mah Sing Group Bhd, which now has 21 projects worth RM6.3 billion. Listed in 1992, it started as a plastics manufacturer and moved to properties in 2000.

A more recent example is privately-held Takashimaya. Some 70 per cent of its flagship project, Times Avenue, a RM160 million office and retail building on Jalan Imbi, Kuala Lumpur has been sold, a month ahead of its launch.