Published November 16, 2010


Understanding property developers

Hong Leong Finance has many clients in capital intensive industries, reports EMILYN YAP

ANYONE gathering case studies of the management principle 'vertical integration' need look no further than Singapore's property development industry.

Several small to mid-size developers here started out as construction or engineering firms, building homes or offices for other developers. With bigger margins to be made down the value chain, these firms later decided to go into property development themselves.

Tee International is one such example. It began operations in the 1980s as an electrical and mechanical engineer. In 2007, it started to acquire properties for redevelopment into new homes, sometimes with joint venture partners.

Tee International's projects include Thomson Duplex and Cantiz @ Rambai. It will be co-developing a condominium project at Cairnhill Circle with another partner.

Teambuild Construction Pte Ltd is another example. It started out in 1992 handling small sub-contracting jobs for Housing and Development Board projects, and later moved on to doing full construction and upgrading works.

Today, the firm is also a private property developer, with residential projects such as Casa Aerata, D'Casita and Blissville under its belt.

Obtaining funding for new ventures is critical and Tee International and Teambuild were both backed by Hong Leong Finance (HLF).

Established relationship

According to Tee International's group chief executive and managing director Phua Chian Kin, the firm started borrowing from HLF four to five years ago and went back to it for construction and land loans for its first property development Thomson Duplex.

Tee International is also taking up loans from HLF for the Cairnhill Circle project. Having an established relationship with the lender helps as the firm does not have to re-acquaint bankers with its entire business, Mr Phua said.

There was a similar progression in the relationship between Teambuild and HLF. Teambuild had struck hire purchase and cash flow financing arrangements with HLF in the earlier years, and continued to borrow from the latter for residential projects.

The initial steps into property development were challenging not only because the product was different, but also because the firm had to obtain loans for sites, said Teambuild executive director Tang Hee Sung. The firm had worked with HLF for years and was comfortable going back to it for funds, he said.

HLF has many clients in capital intensive industries, said its president Ian Macdonald. 'Each company has got its own issue, each company's got its own requirements,' he said. 'You just can't pull something off the shelf, you've got to be able to understand the business.'

Continued support

Other clients of HLF include Mini Environment Service Pte Ltd and Double Wong Foundation Pte Ltd. For these two companies, HLF's continued support during the recent recession kept their businesses going.

Double Wong relies on hire purchase loans to buy machines for foundation works and while other banks 'removed the umbrella when it was raining', HLF continued to lend, said the firm's CEO Wong Tuck Wai.

Mini Environment CEO Mohamed Abdul Jaleel also said that HLF recently revised rates for its loans as the Singapore interbank offered rate fell.

HLF recently set up an SME centre at City Square Mall to serve more clients in the area, and is looking to open another at Jurong East by year-end.

Not all businessmen want to go to the central business district to meet their bankers, Mr Macdonald said. Also, 'it's much better for us to go out to someone's business. Then you can actually see, touch, feel, get to know your customer.'

The financing company is continually exploring ways to improve the banking experience, he said. 'No one wakes up in the morning and wants to borrow money. What they want to do is buy stuff, grow their business, look at overseas opportunities. So it's how we can provide that service in the timeframe that customers need.'