Harbour Village (Pvt.) Ltd, a joint venture between construction giants, Access Engineering PLC, China Harbour Engineering Company Lanka Ltd (fully-owned subsidiary of China Harbour Engineering Company, Beijing China) and Singaporean retailer Mustafa’s Pte Ltd, is developing the Marina Square mixed development project in North Colombo. Mirror Business sat down for a chat with Access Engineering Managing Director Christopher Joshua on the upcoming project and the property sector. Here are the excerpts from the interview.
Can we get a brief background of the property development sector of Access?
It’s a normal forward integration for us into the property development sector. Among the first completed projects was Access Tower II. We built it ourselves and it has been in the market since August; it was quite a successful project. We leased it out prior to the completion of construction and most of the blue-chip companies took spaces there; about 200,000 square feet were rented out.
A lot of technology went into it from an engineering perspective. Being an engineering company, we have put some additional value engineering designs into it, which gives it a better efficiency in terms of floor plates, usage of floor spaces, energy efficiency and of course, parking. We take such knowledge and experience into the property development sector, which is a natural integration, where we have ventured into two projects right now. One is in Rajagiriya, which is called Capital Heights, which has already been launched. It’s very well-located and in line with the demand for the type of development taking place in that vicinity. The units are bigger and of course the demand has been very good.
What’s the concept behind your upcoming Marina Square project?
This particular project is interesting, as this could also cater to the Sri Lankan upper-middle segment and professionals. Within the city we haven’t seen that much development for this segment. We have partnered with Mustafa Singapore and China Harbour has also come in as an investor. In fact, this is the first proper joint venture between Chinese, Singaporean and Sri Lankan companies for a property development project. This is also the first joint venture for China Harbour in
Our main intention here is to do the development incorporating all the luxuries and conveniences at an excellent location in the heart of the city and most importantly yet to be within the reach of our targeted market segment. With that in mind, we teamed up with RB Realtors to get some input from them and of course, the expertise of China Harbour came in. As they have done a lot of property development in China and the rest of the world. With such input, Design Group Five, our principal architect, has come up with a very interesting design, optimizing the benefit, which could be given to the final owners/uses.
The design, layout, view and facilities provided are certain to give the consumer a fantastic living experience. Another great benefit of this development is its location, where it is located within very close proximity to the area, which has the highest development potential in our country – the Port City, now also known as the International Financial City. We’re talking about a walking distance from the Port City, which has green areas comprising 65 hectares, compared to the Galle Face, which has about five hectares. So, you can imagine the parks and recreation facilities, which will be available in the Port City, including a three-kilometre stretch of public beach within walking distance from our development.
Furthermore, apart from being an international financial city, this development also comprises international schools, state-of-the-art hospitals, shopping, food and entertainment areas, which has not been previously experienced or seen in our country. It’s within a three-kilometre radius to the Colombo Intermodal Transport Hub, The Hilton Colombo, Dutch Hospital, expressway interchanges, many leading hospitals, schools and businesses. Within a five-kilometre radius, it covers almost every other place of interest and significance Colombo has to offer.
Apart from the huge value proposition of the project, we have come up with a price grid to make it affordable from a lump sum perspective for a consumer seeking to live in the heart of Colombo, who currently can’t afford to do so. So, from a price range of Rs.12 million upwards, you could get a proper single bedroom apartment unit and move upwards depending on affordability. We have seen that there’s a lot of excitement and interest because this type of development hasn’t happened in the city.
You’ve seen a lot of high-end developments and you’ve seen a lot of concentrated development in smaller land extents. But here, we have five acres, so the density is pretty good and a much better proportion of liveable space. There will be facilities within the development, from food to shopping to super markets, etc. For the residents, there would also be many amenities, which any other high-end development would offer. Another interesting part of this development is being in North of Colombo and overlooking the harbour, we have uninterrupted views for almost 65 percent of the units, which is quite unique for developments in the city.
That area isn’t that well developed currently. When are you expecting it to develop?
Yes. You’re right. North of Colombo has experienced that limitation in development because everything has been happening in the south of Colombo with big business and residential addresses. Although Pettah has been a big commercial centre, the subsequent migration has been to the south of the city. From a location perspective, it is located at the same distance as Colpetty or Union Place from the heart of the city. With the Port City coming in, the whole equation and perspective of North Colombo changes.
Basically you’re talking about 200 plus hectares being developed there and the Port City is going to be the most planned and from a development perspective, it’s going to be the most interesting development for the next couple of decades. So, from a land use and appreciation perspective, Marina Square will be in proximity to the biggest development footprint in the country. From a return of investment view, there’s a huge upside, as fortunately we’re ideally located. From a land parcel perspective, five acres of freehold land is very rare to come by, so we’re fortunate that this was available. Furthermore, it’s a gated community once you get there and the travelling distance is very insignificant.
Mustafa was looking to do this on its own. How did Access join up?
Basically, their development idea was to do a hotel there – a three to four-star hotel, with a serviced apartment complex and a shopping centre. When the detailed feasibility was done, that location was not prudent for that type of development. It had to be more residential, with condominiums because considering the hotel developments coming in within the city limits and the anticipated development within the Port City, that was not prudent. Subsequently, they were looking to do an integrated development and that was the time we approached them and said ‘look, this development option is there’, which they were happy to accept.
And how did China Harbour come into the picture?
They wanted to engage themselves in the property development sector and they were looking at various options. When we came up with the development concept, they did their own detailed study and were very keen to participate in this project, even as a minority stakeholder.
What’s the shareholder structure like?
We own 60 percent, China Harbour owns 30 percent and Mustafa owns 10 percent.
What will be the investment in the project?
From an equity perspective, the total equity is approximately Rs.5 billion.
But the total investment will be around Rs.10 billion, won’t it?
From a development perspective, yes, the total investment would be around Rs.15 billion plus.
How are you hoping to raise the remaining funds?
We have sufficient funds to commence the project and looking at bridging finance options based on the cash flow requirements. Some more equity might also come in, if required.
Who’s leading on the construction front – you or China Harbour?
We’re a joint venture and we look at the best value proposition for the construction. We will tender it out. In fact, our Rajagiriya development is being done by China State, who gave us the best value proposition. China Harbour or Access Engineering would be only awarded work provided they give the best value proposition for the project.
Has Access undertaken a project of this magnitude before?
From a construction perspective, of course, we have undertaken much bigger projects. From a property development perspective, this is our biggest.
When are you expecting to start construction?
The project already commenced in January this year –where we have carried out some site development and infrastructure work. We have finalized the designs and we’re hoping to roll out the contracts for piling and superstructure starting from December 2017 and before the middle of next year all the contracts will be in place, and we’re hoping to do phased development. We expect to complete the first phase within 36 months from commencement and the second phase within 48 months from commencement. We are targeting to complete the entire project in four years from now but make it liveable within three years from now for part of the residents.
So, how many units are being added through each phase?
The total residential development will comprise five towers comprising a total of 997 units and in the first phase we’re looking at developing 600 units.
There are views that the apartment market is now in oversupply, that it’s saturated. What are your thoughts?
There has been a lot of talk and we too, getting into this sector did a lot of research to see if we’re comfortable with what we’re doing. Already, from the Rajagiriya pre-sales and interest, we don’t see a saturation. This particular segment we’re catering to in Marina Square, it’s been neglected for quite a while. We have already seen that there’s huge demand from the responses we’ve had. I was recently at a UDA property forum and the numbers, which were presented by a property developer, were quite encouraging. There’re about 400,000 houses in Colombo with most of the land parcels utilized and only 10,000 apartment units it seems, so where is the saturation? What’s the option you have if you want to live in the city?
I am not too sure whether there is saturation in certain segments such as the high end but every developer you talk to, would tell they are well within their sales targets. This particular development has a good price range with all the luxury facilities, which any resident can have. So with the value proposition we are offering, if this doesn’t go, anything else won’t go. Most other developments have lacked this variety. It’s not a price per square foot sometimes, it’s how much you spend on a unit at a very good location and that’s been addressed very well in this development.
After Marina Square, do you have plans to develop anything else in the same area?
Fortunately, we got the best located and biggest land plot in that area and not seen something even close to this up to now. We will of course keep looking and an option might be even within the Port City in the future. We have also acquired a land bank in Malabe comprising around 20 acres.
That’s Horizon Holdings with the Horizon campus?
Yes, the Horizon cluster. From an ownership perspective, we own a majority of it, other than one eight-acre residential land parcel, which is a 50:50 ownership with Horizon College. The rest of the parcels, Access Engineering has almost 100 percent ownership and we maintain the Horizon name because of the locality and the exposure it has there.
Are you looking at an education project?
There’s education and residential both. It’s a zone; part of the property is for educational purpose. Bulk of the property is for residential purpose.
Property makes up around one percent of the Access group revenue but profit contribution jumped up to 16 percent last year due to reduced profitability in the construction segment. Is this trend going to continue? Will revenue also increase drastically?
It will, especially with these condominiums coming in, with the IFRS revenue recognition framework and policy, which is still under debate and which we are discussing with our auditors. Immediately, with Access Tower II coming in—that’s a tax-free development—from a revenue perspective we will have a substantial contribution from Access Towers I and II. As for the condominiums, depending on the IFRS interpretation and ruling—we’re waiting on a ruling—some say the revenue recognition will come when the title passes; that means once you sell the units, so there will be some spikes in the revenue.
Another debate is that you may be able to recognize progressed development. Depending on the policy of the revenue recognition, when the Capital Heights and Marina Square developments are completed, there may be a huge spike in revenue and profits in those particular years.
Your property segment did well over the first half of this year too. What contributed?
It was mainly Access Tower I.
How do you view the property sector going forward?
We’re quite confident that there is still demand and that sector will continue to progress.
Is it in a specific consumer segment?
The floodgates will open depending on the government’s policy on what foreigners can buy and sell in this country and what incentives they will have for holding such properties. Now they’re talking about giving residential visa for certain investments. If that happens, you’re talking about a completely different segment. Currently, the upper middle/high-end apartment sales comprise around 65 percent in local sales, around 20 percent is expat Sri Lankans and foreigners amount to less than 5 percent. So, that 5 percent segment will substantially increase if there’re incentives.
Are you looking to do more commercial projects similar to Access II due to the dearth in office space supply?
Yes, with our experience with Access Towers I and II. Tower I we built 20 years ago and since the day we built it, it’s been almost fully occupied. Even Tower II has been 100 percent occupied even before we finished construction. So, there’s big demand for quality office space in a good location, so we’re looking at any prudent developments in that segment. There is demand and in the medium term, there will be some supply coming in from Shangri-La and John Keells. Still there is room for growth because bigger offices want to move because they aren’t comfortable having offices in houses or residential areas. They want to move into commercial facilities.
The government has around 220 acres in the Beira Lake area. Are you in conversation with the government on the opportunities?
I am not too sure of the volume of the land available for development. In fact, we’ve been to some of the property forums, where some land parcels around the Beira Lake area (North Lake) will be tendered out. We will also look at the prospect of participating based on the value proposition it could offer.