Striking when the market’s cold turns out to be a profitable strategy for developer
TINY home-grown property player ACT Holdings has long made money by jumping into the market just when other investors are cautious or even want out.
A decision to invest in Sentosa Cove properties in early 2005 before they became highly popular proved a shrewd and profitable move. Now the company is looking at a market where few would dare to tread - the United States, where many homes are hit by mortgage foreclosures.
‘Right now, there’s a property slump in the US. We actually think this is a good time to invest even more in the US because this is a time when valuations are very low,’ says ACT’s managing director, Mr James Toh. He said the company is trying to raise a US$20 million (S$27 million) fund to invest in distressed US real estate assets.
This strategy of not adopting the herd mentality paid dividends on Sentosa. ACT bought nearly a dozen exclusive homes in the waterfront enclave when the market was decidedly cool. The firm then found itself with red-hot homes as the market roared to life in 2006 and 2007.
As a result, ACT’s profits grew 10 times in just two years to $15million last year, from $1.5 million in 2005.
Mr Toh, 43, says ACT’s growth in the past three years was mainly due to its Sentosa foray. It sold three bungalows for $8 million to $12 million as well as eight terrace units at healthy prices.
‘It was a decent profit margin,’ he says. ‘We were very lucky to get in when there was a lot of uncertainty.’
* Buy low and wait
MR TOH has had a taste of the US market before.
The son of the firm’s founder, Mr A.C. Toh, he made his early money from investing in US projects in the early 1990s when everybody wanted out.
Mr Toh’s father started up his business as a local joint-venture partner for Japanese firms such as Hitachi back in the 1960s.
The elder Mr Toh then invested in land in Atlanta, Georgia in the mid-1980s when prices were very low, but died in 1990, leaving James to run the business.
‘It was really the beginning of one of the worst US recessions,’ recalls Mr Toh.
They had just completed a new condo in Atlanta and had to lease it out at a loss as there were simply no buyers.
‘We were bleeding money because we had a loan from Citibank at 10 per cent interest. The rental income couldn’t pay for the loan.’
But instead of cutting his losses, Mr Toh decided to bite the bullet and buy more property. ‘I felt the market was so bad that it was actually a good time to invest more money.’
He found a few investors and bought five properties with about 100 to 150 units each at about US$30,000 per unit. These turned out to be some of the best investments the company had ever made - a fact borne out when the market turned around about three to five years later.
‘We either doubled or trebled our money,’ says Mr Toh, who did his MBA at Wharton Business School in the early 1990s.
* Baptism of fire
BUT it wasn’t until 1996 when Mr Toh was 31 that he decided to become a property developer in Singapore.
He felt it was more worthwhile to run his own company after working for leading consultancy firms Booz Allen Hamilton and A.T. Kearney. Mr Toh’s first project on home soil came in 1996 - the award-winning conservation project Gambier Court in Kim Yam Road. ‘Most people felt that the market topped up at that point,’ he explains.
‘Being not very experienced, I was willing to take risks that other people may not want to.’
Naivety helped for someone who is not much of a risk-taker. But there was a price to pay. A year after he won the tender for the Gambier Court site, the Asian financial crisis struck. Banks pulled theircredit lines.
‘I launched the project in ‘98. Everybody thought I was mad. Relatives and friends, nobody bought,’ he says.
ACT offered 30 per cent price cuts and stamp duty absorption to entice buyers.
‘It was like a baptism of fire,’ says Mr Toh. ‘But touch wood, in ‘99, the market recovered and from then, we have been doing a few small projects.’
* Growing the business
IT HAS been largely smooth-sailing for the firm since then. Another project, Empire Lofts in Mosque Street, also won an URA Architectural Heritage Award. Mr Toh restored the four-storey shophouses into a residential project, which ACT leases out.
When Mr Toh decided to redevelop his family home into the 39-unit The Ventana in Pasir Panjang Hill, he kept part of the house as a clubhouse and gym in the spirit of conservation.
Apart from conservation properties, ACT also focuses on small landed homes, cluster housing and boutique apartments.
The only project to lose money, out of 10 that ACT has undertaken, was the 20-unit Eastside Loft in Tanjong Katong Road. Launched in early 2001 at prices below those of nearby developments, it nevertheless remained half-sold for about five years.
For every project the firm takes on, Mr Toh almost always shares the risks - and rewards - with other investors.
The firm is controlled by Mr Toh, his mother and two sisters - one a doctor and the other a lawyer. But he is the only one who is interested in running it.
‘I believe in living in the developments I developed,’ says the man who built himself a 4,500sqft bungalow to get a taste of what it is like to have his own home before venturing into luxury houses.
Dealing with steel and concrete is something he compares to storylines. ‘The director is like an architect,’ says Mr Toh, who keeps up another life as a film-maker. A partner in local film company Zhao Wei Films, he worked with Eric Khoo on the screenplay for 12 Storeys in 1996 and has just adapted it into a book.
‘If I had been less of a practical man, I could have become a writer,’ he says.
He has grown the business slowly but steadily. ‘I have been pretty conservative. If I have $200, I will not use all of it,’ says Mr Toh, who is married with two young sons. ‘Investors know that I will try to protect their money. I would rather be safe and not make the last dollar.’
When it comes to getting investors, he has been fortunate to have friends in the market with whom he works. For instance, Mr Toh got listed Nobel Design in as an investor through his former classmate at St Joseph’s Institution, Mr Terence Goon, who is the firm’s general manager.
This year, ACT, with partners Nobel Design and Fortune Group, aims to launch 40 units of cluster houses near Queen Astrid Park - a project called Astrid Hill Residences.
It will also launch 60 units of cluster homes at Watten Rise called Watten Residences, together with a private investor and Sin Heng Chan - also its partner in the 50-unit NOMU, a freehold development in Handy Road.
It is building three bungalows in Braddell Heights that have yet to go on sale.
One day, after its US foray, the firm may venture into another foreign market if it is fairly safe to do so. ‘As long as we can continue to grow without a lot of risks, we will continue to grow,’ says Mr Toh.
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