The long-suffering investors in The Airport Mall may at last be seeing some light at the end of a very long, dark and difficult tunnel. However, it comes at a huge cost to someone.
The estimated cost of completing the original project, when it first started, was $12,000,000.
However, the development stalled at birth. Morsima Sdn Bhd., the original developer and still the owner of The Airport Mall, claimed that progress payments from the bank, TAIB, were frequently delayed, and that this caused huge problems for the company and the project.
Eventually, in 2005 Morsima Sdn Bhd reluctantly agreed to handover responsibility for finishing The Airport Mall project to TAIB. This was at TAIB's suggestion, and on the understanding that TAIB would complete the project without delay.
TAIB appointed HAHD Engineering and Associates, to oversee the project. HAHD stated in December 2005, “With reference to our prepared Work Programme, the target date of completion is by the end of April 2006.”
The estimated cost of completion at that time was $4,000,000.
But, this completion date never materialised. In fact, very little work seemed to be done at The Airport Mall, causing even more worry, frustration and anger among investors.
Nearly three more years passed before TAIB appointed a contractor, and signed a widely publicised agreement in September 2008 with United Engineering. UE are a highly respected company with considerable expertise in their field. TAIB never explained why it took them nearly three years to appoint a contractor to finish The Airport Mall.
Could all parties involved in The Airport Mall now heave a collective sigh of relief?
Not quite. In those three years, the cost of raw materials and other services had risen and the estimated cost of completion was now nearly $9,000,000. More than double the $4,000,000 that it would have cost three years earlier!
In fact, the contract awarded for completion of The Airport Mall was for the sum of $8,836,330.90.
However, even though this is more than double the four million dollars that was estimated in 2005, apparently it is still not enough!
The cost of finishing the project has now ballooned to a whopping $12,703,247.54. More than the cost of the whole project back in 2002 when it first began.
This represents a huge increase in costs. About 50% more than the awarded contract amount and this on a building that was nearly completed anyway!
The time that the project has taken to finish is another matter causing some speculation. The project should have taken ten months to complete; the planned completion date was 14th June 2009. However, it is now running five months late! For a 3 year contract to be five months late is bad enough; for a comparatively short, ten month contract, to over-run by five months indicates that there is a major problem somewhere in the system. Where could it be?
I asked the two parties involved TAIB bank and United Engineering, “Why has The Airport Mall cost so much to complete and why has it taken so long to complete it”?
Hjh Zazarina bte Hj Zainuddin of TAIB's Corporate Finance Division refused to comment about the reasons for the huge increases in the cost of completing The Airport Mall. When asked why the project had taken so much longer to complete than expected she again refused to comment.
The CEO of United Engineering, Mr. John Lee, when asked what caused this huge budget blowout and the long delay in completing the project said he could make no comment on these matters as he was bound by terms of confidentiality to his client, but that his company, as the main contractor, was not responsible these aspects of project.
The Managing Director of Morsima Sdn Bhd, Mr Wong Yep Meng, who is still the owner of The Airport Mall, was both stunned and alarmed when informed of the huge cost increase in his project.
He says that TAIB never informed him of these massive cost increases. In addition, TAIB have never informed him about any other problems that they were having completing The Airport Mall on time or on budget.
He cannot understand how TAIB can justify spending the nearly thirteen million dollars that they claim to have spent, on the project. He says that The Airport Mall was about 80% finished when TAIB took over responsibility for completion in 2005. He cannot understand why it was not completed for four million dollars back in 2006, as he expected it to be.
So far, almost everyone seems to be a loser on this project. However, there is no bigger loser than Brunei. The Airport Mall, with over 170 shops, a supermarket, and bowling centre, will create about 700 jobs.
To put this in perspective, the four hundred million dollar methanol plant in Sungai Liang will create, (according to the BEDB website), about 130 jobs. The Airport Mall represents a huge lost opportunity for Brunei.
With the best will in the world, the government can no longer be expected to find jobs in the civil service for everyone. It is up to the private sector, to do all it can to create jobs for the nation’s most important resource, which is no longer oil, but all those young Bruneians who need jobs upon which to build their lives and their future. But, the private sector cannot do it without the cooperation of the banks.
It is to be hoped that when The Airport Mall finally opens its doors for business that it will live up to the hopes and dreams of Mr Wong Yep Meng, the man who created it, as well as all those who have waited so long for their investment to bear fruit.
This is a question that I am often asked. The long answer is it depends what your investment objectives are. The short answer is a house is the best investment. The advantage of investing in a house is that you can rent it out and get an immediate return. With land, you may not get a return for years.
Another big advantage of buying a house, compared to land is, you don’t have to pay for it! If that doesn't whet your appetite, nothing will. Your tenant will pay for your house, or most of it. Apart from your deposit and initial costs, the rental income will pay for most of the house loan. A nice arrangement.
You will have to maintain the property, and there will be occasions when the house will be empty, but otherwise you have a very generous tenant who also acts as an unpaid janitor that takes care of your house. It is a fantastic investment.
WHAT IS THE BEST HOUSE FOR INVESTMENT?
What type of house should I buy?
Times have changed in Brunei. There was a time when ‘the bigger the better’ was the rule for house buying. Investors bought big, detached houses and the government rented them for three or four thousand dollars, often more, a month. Bank loans were typically repaid over a seven-year period. Nowadays it is more likely to be a 20-year repayment period. That says it all!
There are fewer European expats living in Brunei and the demand for expensive rental homes has fallen. For the same reason, rents have dropped dramatically. The 'bigger the better' days have gone. In today’s market, ‘less is more’. Your prospective tenant wants a smaller, less expensive, but more modern rental home. For the investor, it is better to buy two smaller houses for $250,000 each, rather than one big house for $500,000. The smaller houses are easier to rent out and the rental return is usually better.
HOW TO MAKE A SUCCESS OF YOUR PROPERTY BUSINESS
Being a professional property owner is a serious business. You have invested perhaps, two or three hundred thousand dollars or more in your business. To protect your investment and to make it profitable you must look after it and maintain it to a high standard. Just as a taxi driver must service and maintain his vehicle, so the professional property owner must service and maintain his house. Allowing it to fall into disrepair is bad for your business.
Many older houses in Brunei have not been properly maintained or modernised and they are no longer desirable to renters in the higher end of the market. Houses built in the boom years of the 80’s and early 90’s that have never been properly maintained, can only be rented if the rental is very cheap. Many of them have sub-standard kitchens and bathrooms and are in poor condition generally. These houses need to be fully modernised to make them attractive to higher paying renters.
HOW DO YOU MAKE YOUR HOUSE ATTRACTIVE TO POTENTIAL TENANTS?
The most important rooms in a house are the kitchen and the bathrooms. They should be equipped with modern fixtures and fittings. Many older houses have badly designed and built kitchens and bathrooms. They are simply unacceptable in the 21st century and many tenants will not even look at them. These houses are still suitable for use as cheap rental accommodation for workers. If you want to attract a higher paying tenant then you have to invest and renovate your property.
The kitchen is the most important room in the house. It is the heart of the modern home. It is like a small factory. Food has to be stored and prepared in a hygienic and modern environment. Houses that have old, poorly equipped kitchens are difficult to rent. The old-fashioned concrete, tile covered, kitchen cupboards are only acceptable to tenants looking for cheap rents, around $600 to $800 per month. Renters paying more want a modern, hygienic kitchen with plenty of cupboard and workspace and a modern cooker.
Bathrooms are also very important. A shower stuck on the wall, without a proper shower cabinet or even a shower curtain, belongs in the past, along with the squat toilet, and is no longer acceptable in the 21st century. You must replace bathroom and kitchen tiles that are grimy, blackened and cracked, with new tiles. The same applies to dirty or torn curtains.
Cupboard doors that are broken or damaged, (in kitchens and bedrooms), have to be repaired or replaced. Walls that are dirty or grimy must be repainted. And please, not white! White paint is OK on the outside of a house, (if you cannot think of anything better), but inside white is a poor choice, it gets dirty very quickly. Paint interior walls in an attractive pastel colour. In addition, a single colour is better than using half a dozen different colours! It is also easier and cheaper for you to touch up and maintain.
HOW MUCH RENT CAN I CHARGE?
There are not so many companies renting houses today, and those that are, usually want fully furnished properties. They pay about $1500 to $1800 per month for a fully furnished house in BSB. In Kuala Belait, rents are much higher.
If you have a new house that cost you $350,000, and you rent it for $1800 per month, you are getting about 6% gross return on your investment. That does not sound too bad, but you will have to deduct some costs and expenses from that. Like all businesses, you have to look at your costs. If you have a bank loan to repay that will be a major expense. You must also consider the property taxes that you will have to pay from next year. Add to that the cost of furnishing and maintaining your properties, and times when you have no tenant, and will have to bear all these costs yourself, then the net rental return is lower.
In other countries, the main source of profit from a rented house is not the rent itself, but the capital gain. That is, the amount that the property increases in value over time. Capital gain is not a factor in the Brunei property market, so you have to try to get the best rental return that you can from your house rental business.
IS IT BETTER TO OFFER A FURNISHED OR UNFURNISHED HOUSE?
If you want to reduce your costs, you may consider renting out an unfurnished house. But first, let us clarify what an ‘unfurnished house’ IS NOT! It is not an empty concrete shell, with just doors and windows. An unfurnished house should include fixtures and fittings that make a house 'liveable' like, air cons, water heaters, built in cupboards in kitchens and bedrooms, plus a cooker and curtains.
These are not ‘furniture’. These are fixtures attached to the walls of your property like lights and doors. Your tenant is not going to buy these things for your house because he knows that when he leaves they are no use to him. These are standard fixtures in todays' homes and they add value to your property. If you do not have them then get them fitted. It will make your house a much more attractive proposition to clients and it will give your business an advantage over others.
Never forget that you are in a business. And a very competitive one. Part of your job as a business owner is to stay one-step ahead of the competition. The tenant should be able to move in his furniture and live in the house he is paying good money to rent. He is not the house owner and he should not have to buy fixtures and fittings!
The main advantage of renting out an unfurnished home is, you do not have to buy furniture and you do not have to repair or replace it. In addition, a tenant who provides his own furniture is likely to be more careful and considerate with your property. So renting out an unfurnished house may be worth considering.
If you want your business to be a success you have to take care of your customer; the tenant. If you do, just like any other businessperson, you will have a good chance to be successful.
INVESTING IN LAND
I do not propose to say as much about investing in land as the reasons for doing so are more varied and complex.
Land can be developed for profit or simply held and re-sold later when, (and if), prices and demand rise. Well-located land, within say 30 kilometres of the city centre is a good future investment, but it is already becoming quite expensive.
Buying land for your children can be a great investment for them. It can be an excellent way to help secure their financial future. If you are buying for the long term, for your kids use for example, consider buying land in more distant locations. They may seem out of the way today, but they are still affordable and they will be busy suburbs in the future.
We can expect land outside the 30 kilometre zone to be an attractive option for the future and many Bruneians are investing in land in Lumapas, Batong, Maraburong and other locations well outside the BSB city boundaries. If the bridge connecting Mukim Lumapas is built then Lumapas land will become much more valuable. If you are considering buying land for long term investment, it should be considered.
Supply and demand plus location determines the value of land. There is a huge supply of land in Brunei compared to population size. Most is state land so it can be ruled out as an investment. In addition, much of the most desirable land never goes on the open market. It changes hands privately between families and friends. For this reason, it can be difficult to buy well located land close to town. Land within a 30 kilometre radius of BSB can be considered desirable. Land within 15 kilometres of the city centre, very desirable. And already expensive! However, if you can afford it, it should prove a good investment for possible development. We always have clients looking for land to develop in the right locations.
Property is one of the few things that it is worthwhile borrowing money to acquire. If you buy a new car, by the time you have finished paying for it, it may be worth very little. If you borrow money to buy a house, it will always be valuable, and if rented out, will provide you with an income for the rest of your life. A house will pay for itself many times over.
Whether you choose to invest in a house or land you will be following in the footsteps of many of Brunei's wealthiest businesses, whose growth and prosperity has been based upon inherited or acquired land.
Consider investing in property carefully and get good, professional advice to help you avoid the pitfalls. It could be the best decision that you ever make. It can help assure you of a happy and prosperous future and it can provide a legacy that will be appreciated by your children and their children, for generations to come.
Ron Knox is one of Brunei's leading authorities in the real estate business and has about 20 years experience in all things Real Estate from Australia to Brunei Darussalam. He is also an avid contributor to the Borneo Bulletin (the following articles have been published in the newspaper) and can be contacted at firstname.lastname@example.org for any questions and queries you may have about getting a house or land.