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Developers – what were they thinking?

April 2, 2009

I was driving back from a client’s place in KL yesterday when I noticed a number of construction projects going on. Some had a few workers doing something, quite a few looked abandoned.

My associate who was riding with me pointed out what I had already known, that some of these projects are new. The one adjacent to our client’s office is one. From the site billboard, it’s supposed to become a huge shopping mall with office tower and serviced apartments.

Construction work began last September. I remember it because I was cursing about parking and they were bulldozing the only one available near the office tower. A hundred workers went about and huge machines came and went for weeks. Then one day in January everything suddenly stopped. All that’s left now is a deep hole in the ground the size of two football fields. Not a soul in sight.

It got me thinking.

The financial crisis had been a year in the making and frankly, you’ve got to be living under a rock not to see it coming. And yet despite the alarms, these developers went ahead and sunk good money into the ground. I remember marveling last year with my associates, “Gee, aren’t these guys brave.”

No I’m not talking about projects that started before the financial crisis began. I’m talking about the ones that kicked off AFTER the world financial train wreck had left the station, when there was still time to stop the bulldozers from clearing the land and retreat to safe mode. Yup, that means any big project that broke ground in 2008.

Did these developers have a suicidal urge? Did they have so much cash they absolutely HAD to spend it before Christmas 2008? Do they know something we don’t?

Anyone have any idea?

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3 Comments leave one →
  1. LC Teh permalink
    April 2, 2009 11:59 am

    I was just thinking; is there a way these guys can declare bankrupcy and get away after they’ve sunk those piles in yet have some cash stashed somewhere else for themselves after they’ve done some accounting gymnastics? Just wondering… Maybe the word is ‘gungho’ and that relates to the pirates of yore.

    Maybe, if they are a fly by night operators trying to get creditors off their backs by playing dead. There are cheaper ways to do that though; by transferring assets to another company and then playing dead, without having to spend a million digging an XXL-sized hole in the ground. My own suspicion is that these companies acted on bad advice and found that its cheaper to honor outstanding earthworks contacts than get sued for canceling them. In other words they got effed.

  2. April 3, 2009 7:35 pm

    Hmm most developers who are sane enough, would have delayed their project launch. IOI is one example (thankfully since I’m still holding their shares). As for the rest, yeah, some of them just want to get rid of the materials that they have. And some of them just…well…miscalculated, or are too confident with their QUALITY that they believe people will still buy even if the whole world collapses. 😛

    And some are using those build-and-sell marketing plan. Some buyers prefer that way actually.

    This particular developer turned a revenue-generating private parking lot with 100% occupancy into a hole in the ground that now generates no revenue and immense parking problems. By wiping out the parking lot which I think could fit 300 cars easy, he lost $2,000 a day or $600,000 a year in parking fees. If the recession lasts 3 years, he just kissed ~$2 million goodbye. Add another $2 million he would have spent on earthworks & piling, he just blew away $4 million – money he won’t be able to collect until at least 2015. It just doesn’t sound like smart business to me.

  3. LC Teh permalink
    April 6, 2009 8:15 am

    …and the millions of mosquitoes those stagnant pools of rain-water could generate.

    Ah yes, it has become a health hazard in more ways than one.

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