ETC SINGAPORE: 2Q17 revenue up 14.6% at S$10.2m in seasonal lull

The residential and commercial development project of Emerging Towns and Cities Singapore located in Yangon, Golden City, contributed 92.6% (S$9.4m) of the Group's 2QFY2017 revenue. (Artist's impression)

Emerging Towns & Cities Singapore has posted a healthy top line for 2QFY2017 even though the quarter marked a seasonal lull for property sales in Myanmar.

Revenue recognition for its Golden City project in Yangon helped to lift the Group's revenue by 14.6% year-on-year to S$10.2m in 2QFY2017.

Sales of 15 units in Golden City worth about S$9.4m were recognized in 2QFY2017. The remaining S$0.2m in revenue from sale of properties was contributed by sales of 2 units from its Daya Bay project. Another S$0.5m in revenue was contributed by the rental of holiday apartments at the Daya Bay project.

“Our financial position has significantly improved: Cash reserves have doubled to about S$25m compared to a year ago.”

- Tan Thiam Hee
CEO
Emerging Towns & Cities S'pore

(NextInsight file photo)

Q: Why did you adopt a sales strategy for your investment properties at Daya Bay?

We had entered an agreement to rent out the 399 units at Daya Bay at RMB 2,000 per month per unit with a clause to adjust the rental upwards subject to occupancy levels. However, the rental yield has not been ideal so far.

While we haven’t been able to adjust our rental rates upwards, the selling prices of residential units in the vicinity have gone up to RMB 18,000 per square meter or more. So, we decided to sell some of the investment units in 2Q2017. That is the main reason why our distribution cost went up. We have yet to recognize income from the sales of the property investment units.

We have already released 200 units for sale. We may release more, depending on the demand.

Q: What was the occupancy rate of your rental apartments prior to the sales of the investment properties?

From what we understand, only about 40% has been occupied. The holiday homes are very packed during the weekends but relatively quiet during weekdays.

This did not affect us directly as we get a fixed rental income from the third party agent.

Q: Are the apartment units of the investment properties that are rented out located right next to the apartment units of the development properties?

Yes, they are. The buyers buy to invest in holiday homes that are rented out for income through the same third party agent that we use.

Property prices for Daya Bay are supported by underlying property demand in first tier Chinese cities. Daya Bay is very near Shenzhen, like from Singapore to Malacca. Many buyers of our Daya Bay units are from Shenzhen.

Prices are also supported because there is no oversupply in the housing market. However, property prices have been tapered because of cooling measures rolled out by the PRC government.

- CFO Joseph Lim
(NextInsight file photo)The buyers are usually from Hong Kong or China. When they are not staying in the holiday home apartment, the third party agent lets the unit out on their behalf.

As each unit is only about 50 sqm, the Daya Bay apartments are more for holidays than for anything else.

Q: What is the status of Myanmar’s regulation for selling homes to foreigners?

The Myanmar parliament has passed a law that gives foreigners the right to buy up to 40% of units in a condominium project.

However, procedures such as how to sub divide the property so that the title deeds can be given to individual owners are not yet in place.

At this point in time, home sales to foreign buyers are transactions recorded only between the project contractor and the buyer. There is no official registry of property title deeds. Conservative foreign investors are not buying because of this ambiguity.

We have yet to launch sales and marketing activities that target foreign investors. Our current foreign buyers are expatriates who live and work in the vicinity, and who are happy with just a contractual arrangement. More than 90% of the buyers of the Golden City project are locals.

We are working with lawyers in Myanmar on how we can provide more assurance to buyers before we launch sales and marketing activities that target foreign investors.

In Myanmar, it is very difficult to get home loans. In the past, the home loans had a term of only 2 to 4 years. It is only recently that local banks in Myanmar are extending home loans with a term of 10 to 15 years. However, the problem is interest rates on such home loans are as high as 12% to 13% a year. Some property project developers have taken the approach of subsidising this interest expense for home buyers.

We are currently providing an interest-free instalment for 2 to 4 years to home buyers who pay a deposit of 20%. We do not allow home buyers to take possession of the unit before 50% of their outstanding loan has been paid. This instalment plan has placed a burden on our working capital structure. That is why we need bank loans.

The Group's loans are currently solely for the Golden City project.