In this episode you’ll hear about Phoon’s fateful trip where the intention was to buy a bottle of wine but he ended up walking away with more than he intended— and no, it wasn’t a hangover! He delves into his eventful experiences building and developing purpose built student accommodation and explains how it’s different to typical uni accommodation, and tells a tale of when the circus came to town, except the circus was a brigade of builders, and town was his development.

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[00:23:30] I think number one is, the student influx in Australia is actually huge. So there's no way for a uni to actually handle all their student needs. So there is so much more student in the market who are trying to look for good accommodations. That is the nature of it. 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode, we’re back with Ricky Phoon, Director at pioneering development group BEKL. He shares some building mishaps that you wouldn’t believe, featuring what resembled a bumbling circus troupe, and the reason why a five-year wait for a permit to build is worth the wait for everybody, whether they know it or not. 

Tyrone Shum:  

When Phoon came back to Australia, he was working for his father and uncle while also creating other businesses as an import and export trader.

Ricky Phoon:   

[00:00:31] When I came to Australia, I still can manage this business for a little bit. But then I wanted to put my feet on the ground again, in Australia. And I was talking to one of my old clients when I was doing my multimedia business. And he's running a spare parts, like an automotive spare part business. And then that is actually literally my favourite first drop down that I actually worked under someone. So I worked for that friend for quite a long while, and for one funny event, when I was at Dan Murphy's, I was doing some wine tasting, as you know, I love my wine! I come to another person, there's some communication problem between the store manager and this person. 

[00:01:22] And I'm trying to help because I'm quite a busy body, right? When I see something not right and I think I can help I'll go in and help. It was purely a language problem back then. So I will just tell you that later I get things sorted, and then I become friends with this person. And this person is a startup developer. So he got me in and then yeah, that's how I actually get my first taste of property development.

Tyrone Shum:   

[00:01:47] Wow, sometimes it pays to be a busybody, doesn't it?

Ricky Phoon:   

[00:01:51] It does! It was so unexpected.

Tyrone Shum:    

The developer he met was working on luxury home constructions as the owner, and there were language issues between him and the builder. Enter Ricky.

Ricky Phoon:   

[00:02:42] For me, I have got no knowledge of a property. So that's why when I told you just then I had to start off learning everything from scratch. And really go to the construction sites and talk to tradies and talk to the foreman, predominantly the foreman to tell me what's going on about the site, and I start to learn all the terms and jargon. And then understand how they work and understand what is good and what is bad. So that's how I started. It's been many, many years from now already, but there are people, a lot of project managers, I know that they feel that 'how come I know so much?' Because I was at the very bottom to start off with.

   

[00:03:49] So I will say that, yes, he created who I am now, but it's also quite hard for anyone to copy the same way because it's long. It's takes very long to do that. And also, you have to be very patient to talk to different people. Especially if you don't know anything, you try to get into tradies and all that. They know that you don't know anything, you can imagine the situations.

Tyrone Shum:   

[00:02:28] That first development that you mentioned, that luxury house that you're building there, how'd that go?

Ricky Phoon:   

[00:04:33] It turns out well, but it was a testing run for me on my problem-solving skills. There were so many things that was unexpected. You can either surrender and just settle as it is or you try yourself to fix it up. So we ended up having to get a lot of different tradies and even different builder for the final stage. Because when this project was started off, it wasn't actually started off correctly. Things hasn't been managed properly. And then when you're close to finish, then you realise all the problem. 

 

[00:05:12] Then straight away, you need to talk to so many people to work out solutions to fix that, because it's too late. There's many things that you cannot change. Which means you've got to be very, very smart to make it work again.

Tyrone Shum:  

The problems he faced during the build were certainly unusual, but could happen to anybody.

Ricky Phoon:   

[00:05:38] There are a few things that has been heavily impacted. One is it was meant to be a five bedroom and becoming a four bedroom. Reason being one of the room was done incorrectly, the wall suddenly exists out of nowhere, there's a wall, there's additional wall they created. So luckily, that still can be fixed. But we just turned it into a rumpus room. It still makes sense. 

 

[00:06:04] Other stuff would be, believe it or not, like the planter box was not done in a proper way. And you can see all the cracks everywhere, even for a short period of time. And also, not only as I think there are many, many developers, if you are coming from an Asian background, you will try to import stuff yourself. So those items are either in compliance to the Australian standard, or just not functional.

[00:06:40] So many things happened there. Numerous things. Bit by bit, you have to do a big sacrifice, dispose some of the items, but try to find an alternative and fix it. So yeah, it's a long journey on that. 

Tyrone Shum:   

[00:06:56] I still can't believe how people can get one room missed. I mean, how is it possible if they had the plan? It was supposed to be a five bedroom house and it turned into a four or is it the other way around?

Ricky Phoon:   

[00:07:08] The plan was not coordinated properly. So there was some changes happen. And this is a big lesson to learn for any new developers when they're doing houses, is that you can't fully trust your design person, we need to check it as well. Because it's not that the design guy has done anything wrong, but it's just that because if there's no one to do the coordinations and imagine there's structural engineer, there's other stuff going to a plan. Things can somehow miscommunicated. So that's exactly what happened.

 

[00:08:03] After that scenario, there's another funny construction, funny example that I got. There's a house that we designed, that's one of the doors actually cannot be opened. Because for whatever reason, there's something blocking the door to open. We need to step up just for that part, so that the door can open again.

Tyrone Shum:    

[00:08:34] I think I would have just been just looking at this going, ‘This is just a complete class or clown act here.’ It sounds like a circus came through the door.

Ricky Phoon:   

[00:08:44] I was actually laughing when the builder told me that there's some readability issue because this door cannot be open. How do you get to the backyard?

Tyrone Shum:  

He has done six developments and is always keen to share his experiences.

Ricky Phoon:   

[00:09:36] I wouldn't say it's not about the scale. It's actually about the technical. There's a project that I work that heavily involved the government decisions, so that can get quite political, a lot of different boxes to tick. So it's not simply saying that, yep, I'm fully compliant, therefore, you get your permit and you can build. It's not about the scale of it. To be honest, to do a luxury house and to do a high rise, the amount of effort is about the same. The amount of time is also about the same. But obviously the money is not the same.

Tyrone Shum:   

[00:10:18] When you say high rise, how many apartments or units have you built before?

Ricky Phoon:   

[00:10:25] High-rise wise, the tallest one hasn't been built. The highest one was meant to be 40 levels. But yeah, that gets stuck with the government. So that is also a long negotiation process.

Tyrone Shum:   

[00:10:41] Roughly, how long does it usually take for something like this to go on? 

Ricky Phoon:   

[00:10:47] Normally, in an ideal world, you will expect your permit can be up in one year or max one and a half years. But with this particular scenario, it has been waiting for five years, it's not taking off.

Tyrone Shum:   

Five years is a long time to wait for a permit— he explains the factors that have been keeping it tied up.

Ricky Phoon:   

[00:11:04] There are some government policies, it has been changing a little bit. It's in the hot discussion all the time. But it's not uncommon, because I think Melbourne has been developed so rapidly, that a lot of the old rules and laws may not apply now. And look at Hong Kong, for example. If you don't really amend your law to suit, you end up creating a big screen, or building screen, blocking all the light, the wind and everything. I can see where the government is coming from, I know why they're doing this. But at the same time, as a developer, obviously we get impacted that way.

  

[00:11:55] This is just an apartment, not a hotel site. The hotel site is probably come quite late in my journey so far. Because hotel was not popular in Melbourne. But the reason I got into hotel is when I was trying to make a site more profitable, I was looking at different type of asset class. And I realised that hotel is something that we can do, and not many people doing it back then. That's how I got into it. And as soon as I got into it, it just opened up a new world.

 

[00:12:47] Traditionally, most developers, when they got into development, they were talking about build to sell. So you'd build an apartment and you'd sell it. So meaning if you want to make a big profit, the easiest way is to sell high and build low. So that's why you hear a story that people are just complaining about developers or not having heart and all that, right? 

[00:13:09] But in hotels it's different, because hotel is a development that a developer have to hold. So you're holding the whole development, which means you cannot really compromise on your quality. Because you'll backfire yourself. The hotel itself is a business. So as soon as it becoming a business, then the formula will change. It's not about how much you sell for, it's about how much income you're generating. And therefore you will increase its valuation because of its profitability.

Tyrone Shum:   

[00:13:41] So therefore, when you're dealing with the hotel model, you've got to be able to ensure that there’s strong serviceability through the income that you receive from the tenants, I guess you can say, coming in to stay at the hotel. And if we’re valuing a commercial loan, I guess you can say, is that looking at the income and ensuring that the income that is up the value of the property? Because in commercial, they usually look at the income that helps determine the valuation of the property?

Ricky Phoon:   

[00:14:07] That’s right. In hotel you would, of course, as usual, you'll watch your costs, your fuel costs. But then at the same time, you need to understand that if you cut your cost too much, does it make sense in terms of logistics and all that for the business to be running efficiently? Because that translates to your profit. And also it's about durability, you don't want to keep paying for maintenance costs and all that. So it's suddenly becoming a very complicated formula. But of course, because it's an asset with income generating capability, then you can expect the property is actually much higher than when you do a typical apartment.

 

[00:15:06] I'm actually more than happy to stay as a developer than the operator. I'm actually always invite the global or national brands come in and work with us. So in this case here, we have a site in South Melbourne, we invited Intercontinental to come in, reason being that they are the top five brand, and if not probably the top two brand in the world. They know what they're doing. They understand how to how to tackle the market well. So that's the reason that we want them to be here.

Coming up after the break, we hear about the difference between a traditional PBSA and Phoon’s visionary concept...

[00:20:34] Personal PBSA is really offering something that, a student can goes in and they can really focus on their study, and their social, if they want. 

His plans to bring the more reserved international students out of their shells...

[00:21:49] Because otherwise, some people are too shy, maybe they don't have that network to connect to the right people. That's why we have it. We will help you out. So that's what we're offering.

He reveals the plan he has for his kids now, after being in property so long changed his mind on some things.

[00:27:20] A lot of people from different sectors of industry will try to say that I'll try to work hard, and then I can either pay a deposit for my kid, or simply give a house to my kids so that they can have a much better life when they grew up. I was at that point before.

And that’s up next. I’m Tyrone Shum and you’re listening to Property Investory.

Tyrone Shum:  

Phoon’s development journey has been a long and fascinating one— what would he say was the pivotal moment where he realised this is what he wanted to do?

Ricky Phoon:    

[00:16:17] I think the aha moment is actually, which we just touched on, it's actually the hotel. Because the question for me was like, I'm not satisfied with the current profit. What can I do to make it better? There's no point for you to keep driving up on the sell price. I've been told to drop the prices so that hopefully, if I get lucky, then I will sell well and therefore achieve the profit. But it's too much of a risk. And as soon as I start to look into the hotel, and then yes, it has a bigger equity exposure, it has a longer duration for your money to come back, but the profit is actually much higher. But as soon as I see that, it was like you found a goldmine.

Tyrone Shum:   

[00:17:10] But then when you shift, as you said, your strategy to something that's very unique, like hotel building, or student accommodation building, that becomes your market and you can start to dominate that. So is that sort of the kind of strategy that you've been thinking about going down the path now?

Ricky Phoon:   

[00:17:55] There are things also quite beneficial to us as a developer. You can see that pre-sales has been a big topic all the time. If you don't get enough results, you don't get your finances to support you in order. But if you have a good operators in either student accommodations or hotel operator, you should wait. It met that criteria. You take a lot of your pressure away on pre-sales. 

 

[00:18:23] So I'm just using this as an example. So we are doing this mixed use of the development. And this development, because it has a big component of hotel, I can then comfortably telling my agent saying that, I will definitely start my construction on time, because I've got no pre-sales pressure at all. So that makes a big difference. Which means my apartment can afford to sell at the right timing, my apartment can actually sell at the right specifications that I want, without being affected by other factors.

Tyrone Shum:  

He focuses on what’s called PBSA in the student market, which stands for purpose built student accommodation, something he wishes had been available when he was a student. 

Ricky Phoon:   

[00:19:52] Compared to my time when I was a student, it wasn’t exist. It was like you can either share a flat or apartment with your friend, or you go and stay in a homestay. 

[00:20:20] But now PBSA is literally a hotel offering to a student, you can put it that way. Of course you don't really have that kind of room service and [so on], but personal PBSA is really offering something that, a student can goes in and they can really focus on their study, and their social, if they want. That's important. So that's what a traditional PBSA would offer. 

[00:20:50] But what makes our offering a little bit different as well is we also care about how they [international students] can actually connected to the local and becoming 100% Australian. So we will help them on how they should make friends with others, how they should build a connection in the business before they graduate, how they write their CV. We offer a lot of that. Because otherwise, I mean, as a student, you can't just study. When I was saying, Oh, my friend, when he was still studying, just saying that before you graduate, go and look for a job. Build your experience first. Otherwise, once you graduate as a fresh grad, how are you going to compete with other people with experience? So that is something they need to do. 

[00:21:37] This is something that I have been advising my friend, and this kind of opinion is also quite important to offer to our students in our accommodations, that for them to aware on this, and we help them. Because otherwise, some people are too shy, maybe they don't have that network to connect to the right people. That's why we have it. We will help you out. So that's what we're offering.

Tyrone Shum:  

While some universities offer their own on-campus accommodation, Phoon has a plan to work with them rather than compete against them.

Ricky Phoon:   

[00:22:34] All our location will be will be really, like, a few minutes walk from the uni. So that's number one and that's why we will definitely talk a lot with the university, to see what sort of help we can provide. On the other hand, we can ask them, 'Can I invite your lecturer or tutor come to our building, just get to know my students?' Because my student's your student too, because it dedicated to your uni only.

 

[00:23:30] I think number one is the student influx in Australia is actually huge. So there's no way for a uni to actually handle all their student needs. So there is so much more student in the market who are trying to look for good accommodations. That is the nature of it. And also the offering is quite different. So those who live on campus, we focusing on their study alone. But then those who live off campus, they may be treasured about lifestyle and freedom and all that. And where we are, we sort of stand in between. We are not far away from the uni. In fact, we are really, really close. But we are not in uni. Plus the offering that we are trying to give, that kind of community experience and all that, so that give ourselves a different space to work on.

Tyrone Shum:   

[00:24:27] Because you're building student accommodation, do you retain that within your development business? Or do you actually sell it out to potential landlords who want to retrieve rental returns from this? How does that model work?

Ricky Phoon:   

[00:24:38] We maintain it. So far, BEKL will will hold on to all the asset that we created. The only reason that we need to sell the asset is because of equity exposure. But we are very reluctant to do it. And therefore you can see a lot of the development that upcoming are all mixed use. So we will sell down part of the building, but not the whole building.

[00:25:09] But then on the other hand, it give us a good reason to make sure that whatever part we're selling is still in good quality, because it's one part of the building. So what I've been telling either investors or buyers is you know what, we are not selling you anything, and then we walk away. We are your neighbour. We will always be your neighbour. 

Tyrone Shum:  

His method is to look at things backwards, so he can figure out potential profits before starting so he can help his family in a less traditional way.

Ricky Phoon:   

[00:26:10] I would look at the outcome, and whether this outcome is what I want first, and then I try to bring it backward. And look at where my starting point should be. So that is actually the why. So for example, if I want to do a hotel, number one is I want to look at whether Australia has a market for hotel. How much build costs, I need to spend to build that quality there to achieve that. And then I start to plug in all the numbers and audit and all that.

[00:26:57] It's probably predominantly for my family. I wish I can get to a point where I got that big heart to dedicate it to the community, but I'm not there yet.

[00:27:09] I do a little bit, as much as I can. But I think really I'm focusing more on my family. A lot of people from different sectors of industry will try to say that I'll try to work hard, and then I can either pay a deposit for my kid, or simply give a house to my kids so that they can have a much better life when they grew up. I was at that point before. But then as soon as I get into property longer and longer, I do realise that I'd rather give an income generating asset to my kids rather than the house. 

[00:27:44] Because imagine that if I give them a house, and if they're not earning, well, they still have to pay for the maintenance, the house get rundown, how are you going to survive, right? Even worse, at the end, you sell the house. So what I believe now is I'll give them an income generating asset, it will be managed by someone that understand what they're doing, and this is their protection, this is what I'm trying to pass out. 

He doesn’t have one particular mentor or type of person he turns to for advice, but rather an assortment of people he learns from.

Ricky Phoon:   

[00:29:03] I learnt it from multiple person, like, it's a lot of person. So when I was starting up, I told you I'm learning from the foreman and all that, and after that I learnt from architects, understanding why they're doing it. And then I learnt from bankers, understanding how to finance works. And after that, you will then realise that the valuation is important because that's what the banker needs. You learn from the valuer and understand. 

 

[00:29:30] I know that a lot of people will just simply outsource the thing to all these consultants, let them do whatever they need to do and come back to you and then if you're not happy you just tell them what to do, right? Well, I'm actually the type of person that will try to understand why they give you that piece of paper. I do learn every single bit. So I will be able to understand how this valuation was created. I will understand why this lending was given that way. So all these people are actually my mentor, and that's why it allows me to work backwards. Because if you don't understand all this, this is just impossible for you to actually work things backward.

Tyrone Shum:  

As a social being, Phoon prefers people to books, but keeps up-to-date with news mixed with opinions.

Ricky Phoon:   

[00:30:40] I don't read books anymore. Because seriously, I actually don't have enough time to do it. Most of the time, before I go to bed, I will actually either check my email or just return all the messages. But what I enjoy and what I do highly recommend to anyone to do is to network with the right people. I'm still learning a lot from different people at different time. So I hang out a lot with different developers, or consultants, to get my understanding on the industry, to get my understanding on the view, as a financier or as a developers or whatever, about the market. 

 

[00:31:25] So that's why even though I don't read anything, my news is actually pretty updated. Plus, they have their opinion, which you don't read from the books. So I'd rather spend a lot more time to communicate. So that's what lockdown is a problem to me! As soon as it lifted, I go out every day, every night, just making sure that I meet enough people, I understand a lot. And sometimes opportunity also come in discussions. So that actually has been serving me quite well.

Tyrone Shum:   

[00:32:32] If you say you met yourself 10 years ago, 10 years ago Ricky Phoon, what would you have said to him?

Ricky Phoon:   

[00:32:39] I would have said that, okay, number one, pick it slowly. Don't think that you are a genius. You are not a genius, you are just like everyone. And do more networking. Talk to more people. Don't just try to work within yourself. Try to listen to different people and understand why they're doing it. 

  

[00:33:03] I still remember when I was young, because there was a period of time that I think the money was quite easy to earn. I don't really listen to many people. So I think that was quite wrong. I won't do that anymore. So I think that is something that I would I would actually tell my younger self, the younger Ricky.

Tyrone Shum:  

As for future Ricky, he’s looking to COVID-proof the world.

Ricky Phoon:   

[00:33:37] I didn't actually know where I am, back then, like when I was trying to do. But now that I'm a property developers for quite a bit, and I still enjoy being developers. So I think in five years time, I will still be developers. But I also can see that what I'm good at is to create a new opportunities within the property sector. So I will be seeing that. In five years time, I'll be a developer of some other stuff. 

 

[00:34:09] Now I'm having student accommodation and hotel. Next thing, for example, we are looking at future rent at the moment. So I think in the next two to three years, you will see us equal to a sector. But in five years time, what else will come up— I don't know yet. But every day I'll be trying to look for something. For example, like now with COVID. Is there anything that is COVID-proof that I don't get impacted? Imagine that now if I got all these hotel opening at the same time, and then COVID, come and hit all my hotel, then my income will stop. So what is the next property that I should be investing? And not the fact that, this is something that I'm actually constantly asking myself.

Tyrone Shum:  

[00:34:46] Last question to you, Ricky, is that you've done so much and you've achieved so much in your development journey, and you're always growing and achieving. How much of your success has been due to your skill, intelligence and hard work, and how much of it has been due to luck?

Ricky Phoon:   

[00:35:26] I have to say that the luck is only a very minor bit. I will say that probably five to 10% is luck. Especially in property, I think luck, no way you can rely on luck. Because as soon as you buy a site wrong, you will almost finish. It will cost you 1,000% to fix it when you bought the wrong site. So you cannot rely on luck. I mean, if you are in luck, you bought a good site. But if you still don't know what you should develop, you earn less. Or maybe you actually don't earn anything at all, which was quite common in property developer. So yes, I will say that the skill is extremely important than luck.

Thank you to Ricky Phoon, our guest on this episode of Property Investory.