In Conversation-- Mohamed Ismail, CEO PropNex

Mohamed Ismail, CEO Propnex

1) In an interview once, you described yourself as "Mohamed Ismail, newspaper boy turned CEO" Could you give us a brief background on yourself, how you entered into the real estate market and how you made your mark?

Mohamed Ismail (MI): My dad is an immigrant from India and he started off in the newspaper business. Contrary to the believe that my father was an entrepreneur, it scared me to become one because life was all about waking up at 4 am and ending at 10 pm. Since at a young age I've been blessed with the values of working hard, being good with money and being disciplined. When I signed on as a regular officer in the army, I acquired greater skills in leadership and organisational skills and stayed there for 13 years.

I decided to resign for the simple fact that somehow deep in me I felt that I could be an entrepreneur, and I always believed that we only live life once and I was confident that I could do something else. So, I took the risk of resigning from a pensionable officer position and decided to enter the real estate business, which I was not even familiar with but felt right.

2) Where did the interest in real estate stem from?

MI: As an 18 yr old boy when I was going into the army, a buddy of mine who was also an army personnel impressed upon me that his uncle owned a property near Cavanaugh Road and he just sold it and made a profit of about a quarter million dollars.

That really opened my mind.

My parents have been delivering newspapers for the last 10 over years and are constantly struggling and then there are people owning property, selling property and earning a quarter million was something that was mind boggling to me. That was when I decided than when I grow up I wanted to deal with property. That created the interest and from there I started to learn more about property.

3) How did you start your real estate business?

MI: The first company that we started was called Nooris Consultants. When we started the company within two years we became the biggest Malay Muslim Real Estate Company. Then we decided to join forces with another company by the name of Poo Ling and we eventually became Propnex in 2000.

4) What, in your opinion, are important qualities needed to thrive in a real estate business in the current economy? How is PropNex maintaining its competitive edge?

MI: It is not the size of the company. When I say that I want to qualify. I agree size matters from the perspective of economies of scale. But size purely for a numbers sake makes no sense.

Regulation is an important factor. Today, the industry is not regulated and I realised that there can be far more greater damage to the consumers by not regulating. On that note, PropNex has decided to self regulate.

We have taken the lead in the industry by terminating almost ½ of our 8000 agent staff strength which is one aspect of our two step exercise. We have about 40% of the HDB market share for 2007-2008 and 33% of the private secondary resale market. We do not believe in quantity of agents but quality of agents and customer satisfaction. By doing so I have already seen a trend of attracting better quality agents.

Secondly, we have also introduced a couple of policies the first one being that all PropNex agents will have to be covered by professional indemnity insurance. This is not available for all agents in Singapore.

It's easier for a small company to achieve this. It's an industry first and takes guts on our part. This is basically to protect the consumers and increase the professionalism of the agents.

Secondly, starting from 1^st Oct 2009, all PropNex agents will be subjected to 12 hours of continual professional development or CPD. Within a year they must clock 12 hours of knowledge based training. The objective here is to keep agents relevant by updating them on policies.

5) PropNex does not only have a strong foothold in Singapore but you also have presence in other Asian countries like Shanghai and Chennai. Could you tell us more about what purpose these offices fulfil?

MI: We have an office running in Shanghai and at this juncture the office helps in promoting Singapore properties in Shanghai and vice versa. This has helped in facilitating the bridge between Shanghai being the commercial city of China. We are in our 3^rd year of operation and whilst it is not as extensive as Singapore, it is nevertheless a foothold in Shanghai looking at the future market. In India, we have not gone full swing. We have a registered office with an associate company. We bring in Indian properties but not in a full scale operation like Shanghai.

6) Why the choice of China & India? Do you have plans to expand further?

MI: I think these are the 2 emerging Asian countries that we cannot afford to ignore because the potential and the growth are tremendous. By having a foothold we are actually able to understand their culture, the market, the system, the norms etc. Our next destination to expand into would be Dubai.

7) What are the challenges you expect the real estate industry to face in 2009?

MI: I think the market sentiment is not at its best. We can expect a little bit more of economic crisis, more retrenchment, but I am quite upbeat about the real estate business because for the simple reason being every newly married couple needs a roof over their head and how many marriages last even five years? For those people who are in a stable, paying job, it would be the best time to upgrade, for those who are retrenched, they won't have a choice but to sell or downgrade. What I'm trying to say is that real estate is an ever green business. There is always a need for people to sell or buy.

8) With the economic drag expected to persist into 2009,how do you think this would affect home buyer sentiments and developer launch activities?

MI: I think the public housing market will not be affected at all because the demand is far greater than the supply that is available right now. And as such public housing is expected to do well especially the smaller flats of public housing-- the 3 bedroom and 4 bedroom is expected to increase by 5-8% in 2009. Public housing in 2008 as of the first three months has increased by 12% and is expected to increase by 15%. in 2009, I'm expecting the smaller flats to increase by 5-8% and the bigger flats 3-5% (5 room and executive).

9) Why so? Why is public housing not going down unlike private property?

MI: As I said the demand is greater than the supply, as for the private property, the outer areas- those where the prices are below the $1000/ sq ft, and especially for those below the $800/sq ft, already there are many HBD upgraders who are prepared to look into this market because it's a buyers' market. Developers are also very sensitive to this and they are pricing it right to clear their stock. I also don't see any negative impact in terms of volume of transaction in the outer areas.

The area that might see some slack is likely to be the high end which is the downtown, the district 9 and 10, Sentosa etc. because these are the places where the price has moved up very fast the last 2 or 3 years. The prices have doubled and because the market sentiment is not so positive, many investors are having a wait and see attitude. As such in this scenario, the supply is greater than the demand and therefore the price may well go down another 5-10%.

10) When do you see the property market recovering from the economic downturn?

MI: It is very difficult, I don't have a crystal ball. I wish it will recover but I am not expecting any major recovery in the next 6 months. I would take a more cautious approach to wait and see. But honestly I'm also hoping and thinking that it is not going to go down any much lower. I hope the rock bottom is over with all the shock that we are expecting from global and I am not expecting any further crashes. Why do I say that here is because today we are talking about our private property, a launch by developers for $600/sq foot. I don't expect such prices to go down from $600 - $400 because of construction cost, land cost, holding cost and interest cost. They are almost already at the rock bottom price on that basis so I expect it to move for the better but how much it can move can only be determined by the market confidence and the economy turning right. Which may not happen in 2009...

11) You talked about the HDB dwellers showing interest in the private property market. What do you see as the key drivers for this trend?

MI: Couple of reasons, the HDB resale price has moved up and as I said in 2007 HDB prices went up by 17%. in 2008 it was expected to go up by 15% having already achieved a 12% in the first 9 months. That shows prices are just moving. The gap between the bigger HDB properties which are already going above the ½ million dollar mark, to $600,000 and a decent private property, not the same size but a 1000 sq ft private property at $600/sq ft is about the same price. The gap has, in a way narrowed. But it's not an apple to apple comparison. For those people who have decided to have a better lifestyle, it's an opportunity because the developers are willing to price it with low margins to clear the stock. This is something the developer will not do when the sentiments are positive, there is no reason why he should do that. That's why it's a buyers' market and HDB upgraders are seeing that they are affordable and when they sell their HDB they are able to cash out something. It is a good transaction platform.

12) How do see foreign investments faring in 2009-both inbound and outbound-and where do you see the interest coming from?

MI: I generally think the foreign interest will be lukewarm in 2009 especially after the crisis that came about from the collapse of the many financial institutions. People are now very worried to invest. It is in a phobia stage.

But I expect that to clear and property being one of the more brick and mortar such that when it collapses it cannot even collapse because there is a price. I expect some of the foreign investments predominantly to come from our traditional source of buyers, which is Malaysia, India, China, Indonesia. These four countries contribute to almost 50% of all our private property purchase. The other more speculative investors like what we witnessed in 2007 when some investors from the Middle East or the USA enter into the market to buy some en-bloc because they are just parking the funds there can be expected to not happen in 2009. So it will be more of an individual purchase of foreign investments who will look at Singapore not from a speculative angle but from a long term angle because he sees Singapore as a safe haven of investing due to the fundamentals of the economy, the government and security.

13) What about outbound foreign investments?

MI: The Singaporeans are to an extent well informed and savvy when they want to spend money buying properties elsewhere. I've noticed that when we bring in properties from overseas especially properties that are linked to their long term investment, which means when we bring properties from Australia that are near good universities there are Singaporeans who still buy. When you bring properties that are totally from nowhere such as American properties ,Singaporeans are not ready to buy. For reasons because the person may not have any intention to go up there and manage it. Therefore, generally speaking yes the Singaporean buyers of foreign properties are still there but at a smaller number and only if it satisfies his needs. Besides Australia, people do buy properties in Malaysia and very few but some from the UK as well.

14) What advice would you give investors in 2009?

MI: Buy within your means and buy with the intention of holding the property for five years and beyond, not from a speculative angle. Make sure you are able to ride out within the next 5 year even if there is a further decline retrenchment or a crisis you are still able to finance the mortgage. If not you will be at the mercy of the bank and that's when you will start to lose a lot of money. And definitely it's a good time to buy because it's a buyers' market!