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FACULTY OF ARCHITECTURE, PLANNING AND SURVEYING

SEMESTER MARCH 2019 – JULY 2019

Task 2 – Case Study

Tiana, Elmina Garden by Sime Darby Elmina Development Sdn Bhd

Submission Date : 22ND April 2019

Program : AP224 Barchelor in Quantity Surveying

Subject : QSM 656 – Construction Economics IV

Group : AP224 6G

Prepared for : Pn Nor Azlinda Mohamed Sabli

Prepared by :

1) Wan Haziq Azri Bin Wan Mahazir 2017488748


2) Izzul Azri Bin Ismail 2017488416
3) Mohamed Afifi Daniel Bin Mohamed Azman 2017488582
4) Muhammad Nizar Bin Selamat 2017488512
Table of Contents

1.0 INTRODUCTION .............................................................................................................2


2.0 BACKGROUND DETAILS OF THE CASE STUDY AND APPROACH OF THE BTS CONCEPT ...3
3.0 BENEFITS RECEIVED BY THE DEVELOPER IN IMPLEMENTING THE CONCEPT..................6
3.1 Fast-track approval .......................................................................................................... 6
3.2 Cheaper license fee .......................................................................................................... 7
3.3 Enhanced housing quality ................................................................................................ 7
3.4 Practice professionalism and responsibility ..................................................................... 8
3.5 Protecting home-buyers’ interest .................................................................................... 8
4.0 CHALLENGES FACED BY THE DEVELOPER IN IMPLEMENTING BTS .................................9
4.1 Lack of Support from Financial Institutions...................................................................... 9
4.2 Higher Financing Costs for the BTS System .................................................................... 10
4.3 Limited Supply of Housing ............................................................................................. 11
5.0 STRATEGIES UNDERTAKEN BY THE DEVELOPER IN BTS IMPLEMENTATION ................12
5.1 Ensuring the workmanship quality of a building construction work .............................. 12
5.2 Strategic campaign to promote new and completed developments.............................. 13
5.3 Preserving green spaces................................................................................................. 13
5.4 Providing best infrastructure and transportation network ............................................ 14
5.5 Enhancing overall customer experience ........................................................................ 15
6.0 CONCLUSION ...............................................................................................................16
7.0 REFERENCES ................................................................................................................17
1.0 INTRODUCTION

Housing market play an important role in economy of Malaysia. The demand on housing
market increasing year by year since the population of Malaysia is increasing. Undoubtedly,
buyers nowadays buy a house is not only for living use, but also for investment use
(Subramaniam, 2017). This criterion causes the housing market become larger than before.
In addition, home-buyers who have ability nowadays also require a quality house for their
living place.

To support the large market, the developers act as a key role to supply the large number of
housing needed and high quality houses. Therefore, housing delivery system plays an
important role to supply the houses to home-buyers. Currently, there are two important
housing delivery system adopted in Malaysia that is STB system and BTS system.

The developers in Malaysia had implemented the conventional STB system for many
decades, and with this system, developers successful to meet the housing market needed
(Nooi and Hong, 2016). However, there is no system can be implemented perfectly without
any flaws. According to the housing provision performance in five years of Malaysian plan, it
shows that the public and private sectors have over-supplying the houses needed by using
STB system (Mustafa and Ghazali, 2012). Furthermore, the badly performance of supplying
the housing have risen during the economic downturn and the abandoned projects occurred
in 1980s and early 1990s had make the home-buyers disappointed with this situation
(Mohamed Aris et al., 2018). Thus, government had first time introduced build-then-sell (BTS)
system to be implemented in 1990 to solve the abandoned housing problem.

However, some of the developers claim that BTS system still not feasible to implement in
Malaysia housing sector. From developers’ viewpoint, many considerations need to be
considered such as the approval of planning process, financial supports, firm characteristic
and others in implementation of a suitable housing delivery system (Zairul, Noor and Ibrahim,
2008).
2.0 BACKGROUND DETAILS OF THE CASE STUDY AND
APPROACH OF THE BTS CONCEPT

Figure 2.1: Perspective view of Tiana at Elmina Garden (SDED, 2014)

The case study for our project is Tiana at Elmina Garden by Sime Darby Elmina Development
Sdn Bhd launched in March 2016. It is a 21.1 acres residential development of 80 units double-
storey semi-detached freehold housing with density or plot ratio of 3.8 units per acres (SDED,
2015). Tiana is located at the east of Elmina township with the distance between Bukit
Jelutong is 10 kilometres, Ara Damansara at 16 kilometres, Subang Jaya at 20 kilometres and
Klang at 19 kilometres.

Figure 2.2: Location of City of Elmina Figure 2.3: Location of Elmina Garden
The concept used by the architect is ‘Plantation in the City’ which providing total wellness to
the community and to bring forth an enhanced lifestyle to established professionals with
growing families. The average selling price is RM2,028,000 to RM2,184,000 with RM520
average price per square feet (SDED, 2015). The units have an average build up area of 3,900
to 4,200 square meters. It is a higher-end semi-detached development in Elmina that provides
luxurious space inside and outside. It caters for established professionals with growing
families and also upgraders and retirees with a minimum household income of RM250K per
annum. The construction details of the housing development is as follows:

Client Sime Darby Elmina Development Sdn Bhd


Project title CADANGAN MEMBINA 80 UNIT RUMAH
BERKEMBAR 2 TINGKAT YANG
MENGANDUNGI 1 UNIT PENCAWANG
ELEKTRIK DI NO 2 JALAN FREKUENSI U16/
135, SERTA 5 UNIT WAKAF DI ATAS
SEBAHAGIAN LOT 360, FASA G6, ELMINA,
SEKSYEN U16, 40160 SELANGOR SHAH ALAM
DARUL EHSAN UNTUK TETUAN SIME DARBY
ELMINA DEVELOPMENT SDN BHD
Construction Cost RM 72,976,007.96
Gross Development Cost (GDC) RM 104, 853,443.00
Gross Development Value (GDV) RM 149,760,000.00
Gross Development Profit (GDP) RM 44,906,557.00 (29.99%)
Gross Development Profit per acre RM 2,128,273.00/acre
Date of construction commencement 19th September 2016
Date of construction completion 18th March 2018
Defects Liability Period 24 Months
Main Contractor AIMA Construction Sdn Bhd
Consultants Almaz Architect Sdn Bhd (Architect)
Expertech Engineers (M) Sdn Bhd (C&S Engineer)
Perunding Juru Jasa Sdn Bhd (M&E Engineer)
AAJ Associates Sdn Bhd (Quantity Surveyor)
Urbanscape Consultants Sdn Bhd (Landscape
Architect)

Table 2.1: Construction details of our case study.


The housing delivery system used in the development is partial 10:90 build-then-sell (BTS).
The system combined both BTS and sell-then-build (STB). The sales and purchase (S&P)
agreement is signed before the construction start. Under this 10:90 concept, purchaser make
a 10% down payment to reserve a particular house unit upon signing the S&P agreement. The
purchaser would resolve the remaining 90% when the house is ready.

Figure 2.4: Model Housing Delivery System Build Then Sell 10:90 (Mohamed Aris et al.,
2018).
3.0 BENEFITS RECEIVED BY THE DEVELOPER IN IMPLEMENTING
THE CONCEPT

The are many advantages gained by SDED as the developer in implementing BTS concept.
To encourage the adoption of BTS system as a housing delivery system, Malaysian
government has offered many incentives. Hence, the developers can enjoy the advantages
while adopt the BTS system.

3.1 Fast-track approval

In the process of planning approval, the approving authorities give priority to the developers
who adopt BTS system. Therefore, the developers that implement BTS system will obtain
approval of development faster than the developers who adopt STB system. They can obtain
the approval through fast track of four months while the other will obtain the approval in six
months.

Figure 3.1: New development application process (MHLG, 2008).


3.2 Cheaper license fee

The implementation of the Housing Development (Control & Licensing) (Amendment) Act
2012 and (Amendment) Regulations 2015 is appended with the Housing Development
(Housing Development Account) (Amendment) Regulations 2015 which has come into force
on 1 July 2015 as well (REHDA, 2015). In line with the amendments to the principal Act, the
deposit for obtaining a Developer's Licence has been revised from RM200,000 to an amount
equivalent to 3% of the estimated cost of construction as certified by an architect in charge of
the housing development (REHDA, 2015). The cost of construction for Atiana is RM RM
72,976,007.96. Therefore, the original deposit amount needed in obtaining a developer’s
license would be RM 2,189,280.24. However, the developers are exempted from RM200,000
for license fee if they implement BTS system. SDED only required to deposit RM 1,989,280.24
after the exemption. Therefore, the SDED save RM200,000 and use the money for other
purposes.

Developer’s license fee 3% x RM 72,976,007.96


3% from construction cost RM 2,189,280.24
Less
Exemption after implementing BTS system (RM 200,000.00)
Developer’s license fee RM 1,989,280.24
Figure 3.2: Developer’s license fee after exemption.

3.3 Enhanced housing quality

Since the developers need to complete the houses before sell to home-buyers, the quality and
workmanship of the development will be enhanced. If the quality of houses is bad, the
complete houses cannot sell out and the developers will sustain the loss of bad quality houses.
In the past, the many developers adopt STB system as their housing delivery system and
there are many houses had a lot of defects and poor workmanship. Some of the developers
are dishonest and use low quality materials to build the houses to earn more money. Under
BTS system, if a developer builds a low-quality house, the home-buyer can decide to not buy
it without sustain any loss. Therefore, the quality of houses will be enhanced under BTS.
During the construction phase, the marketing department provide potential purchasers with
housing brochure which provides them with necessary information such as the design,
specification, location and etc. Purchaser would make 10% down payment once they
confirmed with their intention. After the issuance of CCC of the project, these purchasers can
check whether the brochure is on par with the actual product. This forced SDED to not only
promise flawless product on brochure, but also produce it in meeting purchaser expectation.
Figure 3.3: The specification of Tiana (SDED, 2014)

3.4 Practice professionalism and responsibility

In addition, using BTS housing delivery system also train SDED to be more professional and
responsible. Under the implementation of BTS system, only the genuine developers will
involve in the development field. Since the developers need to sustain most of the
development cost during construction stage under BTS system, therefore incapable
developers not dare to adopt BTS system. Hence, only developers who has ability and strong
in financial will adopt BTS system to build quality houses for home-buyers. This can make the
home-buyers increase their confidence in development sector and the market of property can
be increased.

3.5 Protecting home-buyers’ interest

The home-buyers no need to worry when they buy a house under BTS system. This is
because the developers will build good quality houses and build according to the specifications
in the brochure. Additionally, the CCC is obtained before home-buyers make the payment for
the house, therefore they no need to worry about being cheated by developer when they buy
the houses under BTS system (Mohamed Aris et al., 2018). The sentiment from the banks is
that with the 10:90 BTS system put in place, house buyers will be well protected, as the 10:90
BTS system only allows housing developers to sell their houses when the properties are
completed. If house buyers have the opportunity to view the completed unit, developers will
have to build quality houses in order to persuade the house buyers to purchase their products.
4.0 CHALLENGES FACED BY THE DEVELOPER IN
IMPLEMENTING BTS

For housing developers, the BTS system increases the difficulty of securing funds to finance
the projects and decreases the housing supply which in turn may raise house prices (Chua,
2013).

4.1 Lack of Support from Financial Institutions

The main concern about the 10:90 BTS system is the difficulty of getting funding from the
banks. Other than from the developers’ own internal funding, they still need to approach the
banks as their main source of financing (Ng, 2007). Financial institutions will be more inclined
to lend to those developers with a strong financial background (Nooi and Hong, 2016). Under
this BTS system, as cost of financing has gradually become more expensive, only the qualified
housing developers with strong financial background would be able to survive. The small or
new housing developers will be slowly pushed out of the housing industry, resulting in raising
the bar for new entrants.

The support from banks in providing financing to embark on the 10:90 BTS system is crucial
to make the implementation of the system a success. Meanwhile, the small-scale developers
will not be able to develop any projects as house buyers will only pay the 10% deposit, while
the balance will only be paid after the properties are completed. As a result, housing
developers cannot collect progress payments from house buyers to fund their development
costs.

However, from the bank’s viewpoint, they are willing to finance the housing development
project as long as it is viable (Nooi and Hong, 2016). The viability of the project is a crucial
element that banks will take into consideration during the credit evaluation and assessment
process. Furthermore, banks will also assess the housing developer’s credit worthiness
compared their reputation in terms of past performance and track records as well as their
ability to repay the loan. Besides, bank would also consider the:

i. Project and its viability


ii. Management of the firm and its strength
iii. Source of repayment
iv. Financial strength and present indebtness
v. Collateral as securities for the loans
4.2 Higher Financing Costs for the BTS System

There is always the possibility that house buyers may not bother to buy the house once it is
completed since there is no guarantee that they will settle the remaining 90% of the house
price. Under the suggested 10:90 BTS system, house buyers are only required to pay the
initial 10% deposit upon signing the S&P agreement. There is a possibility that house buyers
may choose not to pay the remaining 90% after the completion of the housing project .

As there is lack of assurance that the house buyers will take ownership of the property upon
completion, this will probably make the process for financing bridging loans harder, due to no
pre-sales records and higher risk exposure for the banks to grant the loan (Nooi and Hong,
2016). Before a developer acquire bridging finance, the financial institution would do credit
evaluation. Developers are required to submit supporting documents such as:

i. Resume of shareholders, directors, or management.


ii. History of company and list of construction programmes
iii. Project feasibility study
iv. Detailed cash-flow analysis
v. Latest audited account
vi. Valuation report

If the developer have good track records, it can easily obtain bridging finance and vice versa.
SDED did not worry on the credit valuation as they have good reputation and relation with
financial institution in Malaysia. The large-scale adoption of the 10:90 BTS system is dim in
the near term because not all housing developers have sufficient financial strength or the
capability to implement this system.

Figure 4.1: Relationship between Bank-Developer-House buyers in Financing BTS


(Mohamed Aris et al., 2018)
4.3 Limited Supply of Housing

The 10:90 BTS system might be a cause for the housing market to slow down. Essentially,
developers will only be able to build limited quantities of housing units, which may result in an
eventual shortage of housing supply. Developers who can afford to implement this system will
only be able to build limited quantities. If this happens, it may cause houses prices to escalate
and go out of reach for ordinary folks, especially for those first time home buyers (Nooi and
Hong, 2016).

The BTS system is only workable in the UK, USA and Australia because developers over
there opt for smaller scale development, which does not cause a great financial burden to
them (Mustafa and Ghazali, 2012). As far as Malaysians are concerned, developers are
unable use such a system to meet the nation’s housing demand.

The current STB system is still an effective and efficient method for the housing industry in
Malaysia. As with many other developing countries, Malaysia has suffered an acute housing
shortage due to the ever-increasing demand resulting from urban migration and increasing
population growth (Zairul, Noor and Ibrahim, 2008). Furthermore, there is an inadequate
supply of housing especially for the low-income groups as land in urban areas is limited and
expensive. It is imperative that the housing delivery system in the country be economically
viable, socially acceptable, and technically feasible if it is to ensure that all can have access
to adequate and affordable housing.

SDED view the national problem as their challenges. If the prices of houses increase,
purchaser would not afford to buy their house. During the launching of Atiana (Q1 2016), the
housing price index increasing at a fast pace. It was until the quarter 3 of 2017, it start to slow
down which influence purchaser to invest on property.

Figure 4.2: Malaysian Housing Price Index (SDPH, 2018)


5.0 STRATEGIES UNDERTAKEN BY THE DEVELOPER IN BTS
IMPLEMENTATION

The price of house delivered by BTS method is higher then houses delivered by STB. Besides,
SDED has encountered many challenges in producing and selling their products using BTS
system. However, they view the challenges as the opportunities.

5.1 Ensuring the workmanship quality of a building construction work

The quality of the finished house is important to be on par with the brochure. If a developer
builds a low-quality house, the home-buyer can waive their 10% down payment and decide to
not buy it. Therefore, ensuring the quality of the housing is really crucial. Under every
construction contract documents of Elmina developments, the developers or client sets out
the standard on quality of workmanship for various construction elements of building
construction work. The quality of workmanship of a construction work is assessed according
to the requirement of the standard that is Construction Industry Standard (CIS 7:2014) (CIDB,
2019). Marks are awarded if the workmanship complies with the standard. These marks are
then summed up to calculate the QLASSIC score (%) for a building construction project. The
scoring will be done on the works that are inspected for the first time. Rectification and
correction carried out after the assessment will not be rescored. The objective of this practice
is to encourage contractors towards doing things right the first time and every time.

Figure 5.1: List of landed residential project awarded with High QLASSIC Achievement 2019
(CIDB, 2019).
5.2 Strategic campaign to promote new and completed developments

Sime Darby always worried on the pending progress of their unsold housing. As at September
of 2018, Sime Darby Property Berhad had RM 1,033,900,000.00 worth of inventories and this
include 39 units of Elmina West housing development (SDPH, 2018). Working on this very
competitive industry, different developers came out with different ideas and strategies in
promoting new and completed developments. Sime Darby Property organize strategic
campaign to promote new and completed developments ranging from The Signature
Collection, The Features Exclusive and Rediscover Landed Gems. This campaign start on
September 2018 and ended on November 2018. The target is to reduce the existing inventory
level by 6% to 10% by end of 2018.

Figure 5.2: “Rediscover Our Hidden Gems” held by Sime Darby Property (REHDA, 2015).

5.3 Preserving green spaces

Green spaces are often perceived as a luxury, especially in rural areas in need of basic
services and characterized by housing needs. Recent studies proof the necessity of providing
green spaces, captured in terms of the social, environmental, health and economic benefits
that such spaces offer to urban and rural communities, along with the core linkage to
sustainability and enhanced quality of life (Juaneé Cilliers, 2017). The key catalyst of Elmina
Development is the 3,000 acre of green space. This include 300 acres in Elmina Central park,
and 2,700 acres of Tasik Subang Dam Forest Reserve (Sime Darby Property, 2016). Elmina
city is an award winning township after nominated as winner in best landscape architectural
design, highly commended in best township development and winner in best universal design
development. This would attract more buyers in the future and eventually boosting their
reputation.
Figure 5.3: The location of Elmina Central park and Forest Reserve (Sime Darby Property,
2016).

5.4 Providing best infrastructure and transportation network

Elmina City has good connectivity as they always monitor and manipulate the developments
along the Guthrie Corridor Expressway. By opening of the Elmina interchange, the upcoming
Damansara-Shah Alam Elevated Expressway (DASH) and potential connectivity via mass
rapid transit (MRT 1 and KTM), this township will be able to benefit from the better connectivity
and attract more buyers in the future (SDPH, 2018).

Figure 5.4: Accessibility of Elimina City to major road systems and railways (SDPH, 2018)
5.5 Enhancing overall customer experience

Customer experience is interactions between a customer and an organization throughout their


business relationship. An interaction can include awareness, discovery, cultivation, advocacy,
purchases and service (Steven, 2019). In order to maintain the customers to stay loyal, SDED
have to invest in their experience. They enhance data driven customer insights and roll-out
online community marketplace and digital innovation. The key enablers in achieving this
objective is by maintaining brand value and marketing, enhance people and HR capabilities,
strengthen operating model and business process, and improve innovation and technology
(SDPH, 2018). Purchaser don't just to buy something, other than purchasing the product,
home-owners want a great experience that complements the product or service. Therefore it's
important to deliver a level of customer experience that delights the home-owners and builds
an everlasting relationship with them.
6.0 CONCLUSION

There are many advantages gained by SDED in implementing BTS system as their housing
delivery system for Tiana, Elmina Garden. One of the advantages is fast-track approval. This
is government incentives which approve planning approval for BTS developments faster than
any other system. Besides, SDED also waived RM200,000.00 from license fee as the
exemption is another government incentives. The implementation of BTS also forced SDED to
enhance housing quality which eventually protecting home-buyer’s interest. Furthermore,
implementing BTS system also practice SDED to be more professional and responsible. This
eventually make SDED as No.1 developer in Malaysia trusted by home-owners.

However, there are a few challenges faced by SDED. In their opinion, there are lack of support
from financial institution in the implementation of BTS. This problem forced small developer
to only produce small amount of units per development due to insufficient capital. When the
amount produce is low, demand from purchaser will increase. This eventually increase the
cost of middle and high end properties to be left unsold. When the properties are left unsold,
it is harder for the developer to acquire bridging loan and also increase the financing costs for
the BTS system simultaneously. As the result of this problems, it will cause limited supply of
housing.

SDED has taken a few incentives in order to overcome the challenges they faced. In order to
overcome the fear of unsold properties, they firstly always ensure the workmanship quality
of their housing construction. This can be done through QLASSIC requirement in every Elmina
projects. Besides, SDED also held strategic campaign to promote new and completed project
which offer many benefits to home-buyers. SDED preserve 3,000 acres of green space in order
to meet purchasing demand. Other than than, they aim to provide best infrastructure and
transportation network by working with state and local government agencies as City of Elmina
developing. Lastly, they enhance the overall customer experience. In order to maintain the
customers’ loyalty, SDED have to invest in their experience by enhancing data driven
customer insights and roll-out online community marketplace and digital innovation.
7.0 REFERENCES

Juaneé Cilliers, E. (2017) ‘The Importance of Planning for Green Spaces’, Agriculture,
Forestry and Fisheries, 4(4), p. 1. doi: 10.11648/j.aff.s.2015040401.11.
MHLG (2008) Improving the Delivery System Procedure and Process of Development
Proposal and Implementation of One-Stop Centre. Second Edi. Ministry of Housing and
Local Government.
Mohamed Aris, N. A. et al. (2018) ‘An Overview of Housing Purchase and Delivery System in
Malaysia’, International Journal of Engineering & Technology, 7(3.21), pp. 57–60.
Mustafa, A. and Ghazali, M. (2012) ‘Issues in housing delivery systems and customer
satisfaction’, Marketing Management, 48, pp. 9395–9399. Available at:
http://www.elixirpublishers.com/articles/1350463086_48 (2012) 9395-9399.pdf.
Ng, L. F. (2007) ‘Determinant factors of implementing build then sell in Malaysia: Housing
developers point of view’, pp. 1–24.
Nooi, P. S. and Hong, T. T. (2016) ‘Challenges of Implementing Build-Then-Sell Housing
Delivery System to Address the Abandoned Housing Problem in Malaysia’, Malaysian
Journal of Economic Studies, 53(1), pp. 135–151.
REHDA (2015) ‘Housing Development (Control & Licensing) (Amendment) Act 2012’, (11),
pp. 4–5. Available at: http://rehda.com/wp-content/uploads/2016/01/July-2015-
Housing-Development-Control-and-Licensing-Amendment-Act-2012-Amendment-
Regulations-2015.pdf.
SDED (2014) ‘G6 Elmina Product Brief’.
SDED (2015) ‘PDC Presentation’.
SDPH (2018) ‘Citi Asia Pacific Property Conference 2018’, in Investor Presentation.
Sime Darby Property (2016) Tiana at Elmina Garden.
Steven, M. (2019) 7 Ways to Create a Great Customer Experience Strategy. Available at:
https://www.superoffice.com/blog/customer-experience-strategy/ (Accessed: 21 April
2019).
Subramaniam, S. (2017) ‘Regional Economic & Business Outlook’, in How To Sell & Market
Creatively in The Current Market?
Zairul, M., Noor, B. M. and Ibrahim, R. (2008) ‘Enhancing the BTS (Build Then Sell) Concept
For Malaysia’, (Icbedc), pp. 757–773.