Forbes Asia 1/29/2014 @ 10:00AM
Malaysia's Teh Kiak Seng Builds Affordable Housing
This story appears in the February 10, 2014 issue of Forbes Asia.
By Noelle Lim
At 63 Teh Kiak Seng still wakes up early in the morning to inspect the
construction projects of his company, Tambun Indah. The low-profile
property outfit in Malaysia’s Penang state emerged as one of the Forbes
Best Under A Billion smaller firms in 2013. From 2007 to 2012 its
revenue and pretax earnings each had grown almost 25% on a compounded
annual basis. Compared with 2012, in the first nine months of 2013 sales
were up 16% while earnings grew 40%.
Most of this growth comes from its Pearl City project, situated on 1,100
acres in Seberang Perai on the mainland side across from Penang Island.
Tambun accounted for 14% of the total number of homes sold in 2012
(latest data) in that area, which makes it a significant player there,
according to real estate analysis by the Henry Butcher firm. Once Pearl
City is completed it will be one of the biggest townships there, serving
neighboring industrial parks. Seberang Perai has the longest industrial
belt in the country, stretching 21 kilometers, and is home to
multinationals like Honeywell and Dell . It is next to Bayan Lepas Free
Industrial Zone, Asia’s early Silicon Valley, and is the production hub
for semiconductor companies like Intel INTC -0.85% and Western Digital
WDC -0.91%.
Teh saw the potential in Seberang Perai while others were building homes
on the island, considered the more cultured and affluent side of
Penang. It was an easier story to peddle as the old capital enjoyed a
renewal in recent years, but Teh, who grew up on the mainland, held out
for better land deals. He says, “Land on the island has become very
expensive to acquire and develop. Young families would be looking for
more affordable housing. That would be in Seberang Perai, where there
are jobs.”
Tambun bought its first parcel of land in Pearl City for only $3.11 a
square foot in 2008. A recent nearby purchase of 50 acres for $12.44 a
square foot was made by Eco World, which is linked to Liew Kee Sin, a
veteran property developer who led the takeover of the iconic Battersea
Power Station in London. On Penang Island parcels are going for $37 to
$47 a square foot, says Fook Tone Huat, an associate director at Henry
Butcher.
Teh foresaw spinoff interest after noting resurging interest in Penang.
In 2008 the island’s capital, George Town, was designated a Unesco World
Heritage site for its architecture and history, which can be traced
back to its status as a bustling port in the 18th century under British
administration. It was then known as the Pearl of the Orient .
The year 2008 also witnessed a landmark general election for Malaysia.
The incumbent federal coalition Barisan Nasional (National Front) lost
two key states, Penang and Selangor, to the opposition after decades of
rule. The states are the country’s most industrialized, with sizable
ethnic Chinese populations. The new chief minister, a former accountant,
went on a blitz to clean up state tender processes, trim spending and
court investors. Buoyed by renewed optimism, property developers flocked
to build million-dollar homes on the island.
The opposition maintained its grip on Penang and Selangor in the 2013
elections. Teh says, “The state government has been working hard, and
there are more jobs for youngsters.” The Malaysian Investment
Development Authority reported that from 2008 to 2012 Penang saw $8.4
billion worth of projects, second after Selangor (surrounding Kuala
Lumpur) at $10 billion and just ahead of much promoted Johor in the
south, $7.6 billion.
Connectivity is also improving. A second bridge, measuring 24km, linking
the island and mainland, and a modern railway track in Seberang Perai
are due to open in 2014. A train ride to the KL metropolis would take
only three hours.
According to Teh, it’s not easy to acquire sizable land parcels in
Seberang Perai because so many plots have been subdivided by moneyed
families over generations. But in 2008 Teh’s reputation in the area led
to a contact from Nadayu Properties to jointly develop land it owned,
now Pearl City. Tambun Indah bought out Nadayu, resulting in it emerging
as a 14% shareholder in the former.
Pearl City will comprise 11,000 homes as well as offices, light
industrial plants, a retirement village, a village for furniture makers
and a shopping mall. An international school, GEMS from Dubai, is
expected to open in 2015. “The quality of Tambun’s properties is
slightly above average,” Fook says.
Of the 1,100 acres of land roughly a third remains to build out. All in
all the development should translate to pretax earnings of more than
$187 million over the next six to seven years, according to a company
estimate.
It was by chance Teh became a property developer. He was a civil
engineer who’d designed and built 100 factories across the country. One
was Dell’s assembly plant in Penang (also another in China’s Xiamen). In
1994 Tsai Yung Chuan, a client and Taiwanese businessman who operates
an industrial fastener factory in Penang, asked Teh to jointly purchase
and develop 101 acres of land in Seberang Perai. Tambun was incorporated
with them as equal shareholders. Teh says, “The bank would not have
lent me the money [for the parcel] had Mr. Tsai not guaranteed the
loan.” In the latest filings Tsai’s shareholding is down to 8.5%, while
Teh holds 38.4%, worth $67 million.
Tambun’s first project was gated housing. Teh says, “People told me I
was mad to build bungalows on the mainland when it was more popular to
stay on the island. To succeed we had to offer something different,
which was big bungalows and a guarded community. Nobody was building
quality homes in this area.” Those homes more than doubled in price from
1995 to 2012, to $286,000, according to Henry Butcher. Today Tambun’s
residential units, aimed at middle-class buyers, are mostly priced below
$187,000.
Teh, however, cautions that there could soon be a slowdown in housing
demand in Penang. “But I believe we can overcome this as most of our
projects are priced within what the general public can afford,” he says.
“We have overcome the Asian financial crisis, which was severe, the
dot-com crisis and the global financial crisis.” The company keeps a net
cash position. Teh says his conservatism stems from growing up in a
poor family.
He is the third of 12 children. In the runup to the Communist revolution
his father fled China in the 1940s and settled in Penang as a
storekeeper for his brother, who had arrived years earlier. After
completing secondary school Teh followed a family friend to work in a
construction site in Bertam, a remote island in Indonesia. That was his
first taste in construction.
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