Sime Darby Property Bhd may incur losses from ongoing projects in a prolonged period if the present pandemic continues, says its group managing director Datuk Azmir Merican.
Azmir said there will be losses only if the company cannot cover the costs of all projects now under construction.
He clarified last week during a media briefing that as of now, there are no losses as a result of the construction delay.
"When a building project is delayed, it does not automatically result in a loss. There is only a billing delay. You'll have a lot of lower billings. If you do not cover the expense over a lengthy period of time, you may suffer losses," he said.
Azmir said Sime Darby Property was forced to halt building on around 70 active sites worth between RM2.5 billion and RM3 billion due to the Movement Control Order (MCO).
He said this is the value of projects that are stalled until the company can reactivate them.
"But it's not just us...all developers were unable to continue building. We can't make progress at the locations if we can't build. We cannot progress bill if there is no progress on the job site," he said.
According to Azmir, this is an industry-wide issue, and up to 95 per cent of developers will be unable to complete their projects on time.
"One issue is that we have to shut down the construction sites during MCO. We have no revenue when we close the building site because there is no progress billing. The second issue is that delivery has been delayed since construction work has been paused," he said.
Azmir proposed an automatic extension of time (EoT), enabling developers to build and recoup from revenue losses.
He said the EoT provision should be clear so that there is no disagreement between the purchaser and the developer.
Without the EoT, there will be uncertainty because the product will be delivered late, he said.
The EoT clause provides a mechanism for the completion date of a construction project to be adjusted, where necessary.
There are numerous challenges that could delay the construction of a project, including resources and financial issues, overruns on key construction elements, and the MCO due to the Covid-19 outbreak.
Meanwhile, Azmir said that the company has a longer-term view because it did very well in the first half and should be able to recuperate for the remainder of 2021, despite some revenue losses.
Azmir said he is more concerned in the second half, adding that it'll be more visible in the third quarter.
"I don't want to pre-empt it, but most developers will be impacted in the third quarter. But on a full year, we are still quite optimistic...we think the worst is behind us and that we will gradually recover, just not as fast as we initially thought, "Azmir said.
On the performance of Sime Darby Property, he expects the company to remain in the black for FY21.
Last week Sime Darby Property announced a net profit of RM19.91 million for the second quarter ended June 30, 2021, versus a net loss of RM93 million a year earlier.
The developer attributed this to a significant improvement in residential property sales due to intensive online marketing.
Azmir stated that the group is on track to meet its RM2.4 billion sales target for FY21, thanks to new launches in strategic locations with a gross development value (GDV) of RM2.1 billion (2165 units) for the second half of the year.
"The fact that the Home Ownership Campaign is there will make it a catalyst for us to get the numbers as soon as possible," he said.
Azmir also said that the group's unbilled sales of RM1.83 billion as of June 30, 2021, remain a good sign of revenue visibility.
The group's township developments account for 85.2 per cent (RM1.56 billion) of unbilled revenues, while integrated developments account for 14.8 per cent (RM272 million).
Azmir said that there are plans to capitalise on industrial properties.
"We have specific plans in this area. We're working very hard, and we'll be announcing some ideas very soon. Because of the high demand, we need to be more aggressive and offer more products. To accomplish so, we need to bring in the necessary experience "Azmir said.