Property Investory
Ricky Phoon - How to Party Your Way to Pandemic-Proof Success
September 5, 2021
Ricky Phoon is a daring developer and runs Melbourne-based company BEKL. With a depth of experience in finance, negotiation, development management and acquisitions, Phoon’s experience has been instrumental in the delivery of a number of complex and high-end luxury projects, including a $25 million luxury mansion in Toorak, a $40 million luxury apartment in Hawthorn and the management of a $70 million lifestyle hotel development in Carlton.
Join us on this episode as we discuss how 2020 slapped him in the face, but he has invigorating plans to get him back on his feet— the social butterfly isn’t going to let a pandemic keep his business from taking flight! We’ll talk about his laser-sharp focus on the student accommodation market and his determined plans to get it to snap back. We also delve into his entrepreneurial family’s life in Hong Kong, where the property market is a rapid roller-coaster but occasionally lets you off to do some shopping... followed by some more shopping. Plus, hear how one of his early businesses bubbled over as he took off like a shot before learning to walk!

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Transcript:
**SHORT SNIPPET**
 
Ricky Phoon:
[00:12:15] When I was in Hong Kong, there is actually no way I can learn property, to be honest. You can learn property as a normal buyer, right? It's like you buy and sell because Hong Kong apartment market is quite crazy, like a roller coaster. But you won't be able to expose yourself as a developer. 
 
**INTRO MUSIC**
 
Tyrone Shum:
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 speaking with Ricky Phoon, a Melbourne-based developer who has delivered upwards of $140 million in developments in the last 8 years. After growing up in bustling Hong Kong, he now proudly calls Australia home and shares his plans to extend that feeling of connectedness to incoming students.
 
**END INTRO MUSIC**
 
**START BACKGROUND MUSIC**

Development Now

Tyrone Shum:
Phoon is one to watch in the property development space, with his strong trajectory and innovative approach to each project.

Ricky Phoon:   
[00:00:47] My role is really about development management. So I will plan out the strategy for the company. We'll be the problem solver when there's anything comes up to me and no one knows what the next step should be. And I pretty much spend a lot of time on negotiations, either on acquisitions, on contract terms, or even for bargaining on fee proposal.

[00:01:24] I always want the best team. But it can come at a big cost, right? So I'm just hopeful that I can get a really good bargain. That's what I want.

Tyrone Shum: 
He describes his business, BEKL, as a family-owned private office. Although you may not have heard of it until recently, it’s far from a new venture for Phoon.

Ricky Phoon:   
[00:01:54] It has been in the market for a long time, actually. But we have rebranded ourselves from MSM Property to BEKL for two reasons. One is just want to set the image right, because MSM property was created by the father of our other two directors. And back then we are like a investor rather than a developer. 

[00:02:20] So about three years ago, we have rebrand ourselves. And we have set ourselves to become a developers. Previous development has involved in student accommodations, apartment, etc. And also some office. Everything we changed to BEKL, then we have focused a lot more on creating more income generating assets. So we still do our personal combinations. But then we do a lot more on hotels or similar accommodations or service apartments. So that's what I'll share the is at the moment for the next five years as well.

The Snap Back

Tyrone Shum:  
The student accommodation market is BEKL’s main focus, even during the COVID-19 era.

Ricky Phoon:    
[00:03:21] It doesn't impact the development part, it actually impacts the existing asset that we have. So definitely we have heavily hit because there's literally no overseas student here. So that give us a big slap in the face! But in saying that, we're still hopeful, and very positive on the student market, mainly because we know that this education market is a big piece of Australia. So unless you're telling me that Australia as a country, changing their strategy of not allowing the student is just impossible, because we've got all the good Unis and good schools here. We still think that the student market is going to come back and going to be like a V shaped kind of comeback.
 
[00:04:06] So that's why we never stopped. So we still have development happening. We're still trying to acquire more sites and bring in more student accommodation offering to the market.

Tyrone Shum:   
[00:04:17] Is that also the reason why you've also divested it out to hotels as well, because you know that the tourism industry will also pick up as well, eventually?

Ricky Phoon:   
[00:04:26] Tourism market, we have been really positive. COVID actually never stopped us at all. So the fact that I think when Victoria came to the first lockdown, we actually transacted one site for a hotel as well. So we didn't stop. We just keep buying site for hotels. It may change a little bit of the offering. So we may not follow the traditional hotel offering to the market, we just blend it in with some mixed use, just to diversify the risk. But we didn't actually stop on our acquisition. 

Tyrone Shum:   
[00:05:04] And did you get better deals, then, I guess during that time? Because the market had uncertainty that whole time?

Ricky Phoon:   
[00:05:10] Everyone asked me the same! In short, no, I didn't get a better deal, but I got an easier deal. Because normally, we need to fight with a lot of different developers an awful lot for a good site. What we experienced is it's become a lot more sensible. So the prices are reasonable. We don't have to keep bidding for a much higher price, but we're still paying for the market price. So at least we don't have to fight too hard.

Shop ‘Til You Drop

Tyrone Shum:    
Phoon grew up in Causeway Bay in Hong Kong, before moving to Singapore and then eventually to Australia.

Ricky Phoon:   
[00:06:03] I spent my teenager time in Hong Kong, mainly. But my family and my grandparents came from different places of Asia— Singapore, Malaysia, Hong Kong, Indonesia, and Thailand. So I actually did spend a little bit, about two to three years in Singapore, before I came over to Australia. And then I basically just permanently stayed in Australia.

[00:07:39] I think, to be honest, childhood was not that exciting, because I actually never had any comparison with the other country and all that, right? But what I do notice, it's actually very convenient. You just get down to your apartment and there's grocery stores everywhere, shopping centres everywhere. Shopping is mainly your main event all the time. Other than that, to be honest, Hong Kong is really, really small. So other than shopping, it's only... shopping!
 
[00:08:17] But on the other hand, is I do notice when I was following my parents and all that, because it's so small, people really have to think really hard to create opportunities or find an opportunity. So yeah, that part do inspire me a lot when I grew up. Watching how all my uncles and how do they do the business, how did they create opportunity with different people and all that. So yeah, that do actually affect me quite a lot when I grew up.

Tyrone Shum: 
He explains the typical occupation in Hong Kong, though to the casual observer you wouldn’t be able to tell.

Ricky Phoon:   
[00:09:22] On the face, you probably seeing them working for someone in a corporate environment and all that. But behind the scenes, they still create, they're trying to look for some opportunity to start their own business and all that. So in Hong Kong, to have your own business is actually quite common.

Tyrone Shum: 
Phoon attended the average Hong Kongese schools throughout his childhood, where he learnt a not-so-average language.

Ricky Phoon:   
[00:10:02] I just go to normal schools, because it's pretty common that what you do. The only reason for anyone would like to go to international school, mainly because they actually came from overseas. So if your parents actually migrated to Hong Kong, then you probably will go to international school, or your parents from day one already prepared to send you out. It's only these two scenarios that will happen. In my case, because I already came from a quite diversified background, my parents just don't think there's a need. In fact, she actually sent me to a primary school that helps me to learn my Mandarin. Because it's actually quite uncommon for Hong Kong to speak fluent Mandarin.

Tyrone Shum:   
[00:10:52] That's right. Mostly Cantonese.

Ricky Phoon:   
[00:10:54] I speak fluently. But thanks to my parents, because they sent me to the primary school that teach 100% Mandarin.

[00:11:16] To be honest, we didn't actually expect that. Just purely because my parents came from Indonesia, if they don't speak Mandarin, I won't be able to communicate with my relatives.

Tyrone Shum:  
Phoon’s parents were in a wide variety of businesses as he grew up, each one being completely different to the next.

Ricky Phoon:   
[00:11:51] They're in all sorts of business. They were in foreign exchange, they were in a hydraulic business. And at one point, they were in autopass injections.

Phoon Learnt Everything From Scratch

Tyrone Shum:   
[00:12:05] Wow. That's a very, very, very broad business. I'm curious, when did you learn about property development? 

Ricky Phoon:   
[00:12:15] Much later. Because when I was in Hong Kong, there is actually no way I can learn property, to be honest. You can learn property as a normal buyer, right? It's like you buy and sell because Hong Kong apartment market is quite crazy, like a roller coaster. But you won't be able to expose yourself as a developer. 

[00:12:34] Only when I came to Australia, working for few years, and then there's an opportunity for me to start to get into it. And then I learnt it. So actually, a lot of people think that I'm a finance background, property background, I'm not. I'm actually a marketing background. I really learn everything from scratch, learning from the foreman on the construction site, and then bit by bit learning from different bankers, architect, and this is how I learn property. 

**ADVERTISEMENT**
 
Tyrone Shum:
Coming up after the break, we’ll hear about Phoon’s first business he opened in Australia...
 
Ricky Phoon:
[00:15:09] When I say I wasn't a very good student, just purely because I do spend a lot of time to create my own business, being foreign and grew up in Hong Kong. 

Tyrone Shum:
The innovative and effective way he got the business off the ground...
 
Ricky Phoon:
[00:18:42] And from there, obviously, within the building, I start to get some business. But then at the same time, referrals starts to comes in. So that's how I start to generate more leads.
 
Tyrone Shum:
He delves into the other venture he tried his hand at and why it wasn’t the failure he thought it was.

Ricky Phoon:
[00:23:57] But another big lesson to learn that I was trying to walk too quickly, I tried to expand to Sydney. And obviously, the business around there is very different from Melbourne. The communication and culture is so different, that I don't really get the hang of it. 

Tyrone Shum:
And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.
 
**END ADVERTISEMENT**

Party Hard, Work Harder

Tyrone Shum:  
Coming back, Phoon dives into the time in his life where he decided Australia was the place he wanted to be.

Ricky Phoon:   
[00:13:16] I actually left Hong Kong pretty early. I was a student, studying in Singapore, and then I studied in Australia. And then I worked in Australia. So I only worked in Hong Kong for a very short period of time after I graduate, because my parents want me to go back and help with the business for a little bit. But I still decide I wanted to stay in Australia. So at the end, I quit a job quickly for mojarra and come back to Australia. 

[00:15:09] I'm not a good student, just so you know! I loved to party a lot, and I still do. When I say I wasn't a very good student, just purely because I do spend a lot of time to create my own business, being foreign and grew up in Hong Kong. So actually, I came up to Australia, I think, when I was doing my year one in uni, I've started running an internet cafe in Chinatown. So that's why I actually have spent way more time in the business than at school. 

[00:15:50] But luckily, the degree I was doing is actually marketing, so the business experience actually helped me a lot, because when you have a real life experience, everything on a textbook becoming sensible, rather than you try to hard swallow whatever your lecturer was trying to teach you, and you really don't know whether it's actually useful. I think that actually becoming more meaningful for me.
 
[00:16:39] It's where the IT sector start to boom. It's pretty early. So back then we were talking about 56k modem, 33.6k modem.

Tyrone Shum:   
[00:16:49] You do remember it, too!

Ricky Phoon:    
[00:16:57] They make so much sense. Because you want a speed connection, and you're happy to go out and use Internet. That's where my first business is.

Tyrone Shum:   
[00:17:07] Wow, that's amazing. How long were you running that business for?

Ricky Phoon:   
[00:17:14] One year, roughly for one year. And then it got evolved, actually. So from there we becoming a Internet Service Provider. Because it's the same mechanism. So I realised that, okay, the student wanted to have the internet connection at home. And back then we were talking about ratio, right? So one modem, you are offering to 11 people. So when I will try to offer it to seven people, suddenly I'm becoming a quality service. 

Tyrone Shum:   
[00:17:40] I can start to see where the themes are coming from, where the student market came in.

Ricky Phoon:   
[00:17:47] That's how it is. So from there, that'd be further involved in becoming a multimedia company. I think that was my first encounter to property as well, because I was dealing with some big projects with the property developers. So we create website, we create back then the city room, the multimedia presentations, and all that for them, to show that to the investors or potential buyers and all that. So that is probably my very first encounter on about property market. 

BYO Networking 

Tyrone Shum:  
When he jumped into the student market, he got the property developers on board in an unusual but highly effective way.

Ricky Phoon:   
[00:18:42] I was actually a fairly socialised person. I still remember when I first tried to introduce myself, what I did was actually— as I said, I love party! So actually, we [had a] move in party for myself to the office building and I invited every single tenant in the building and come and join the party. It was a networking event to myself. And from there, obviously, within the building, I start to get some business. But then at the same time, referrals starts to comes in. So that's how I start to generate more leads.

Tyrone Shum:   
He decided against building a portfolio of properties in favour of what he’s doing now.

Ricky Phoon:   
[00:19:46] Back then, I wasn't really looking at other sectors as yet. Just purely because I was still too young. I don't understand that and if I earn some money, I'd rather spend it all, than actually spend on a property, right? No saving, try to spend as much as possible drained up, right. That's what I do. Well, I wasn't actually paying attention to that. But I just realised that the property investor, actually, do have big dollar to spend in terms of media stuff, they are definitely not one of my big client back then.

The Hong Kong Dream

Tyrone Shum:    
[00:20:20] Wow, that's interesting, because then that's how you obviously go, ‘Wow, this would be an industry to potentially tap into that,’ right?

Ricky Phoon:   
[00:20:29] Not at that time to be honest, it's actually came from my parents. So when I was young, still in Hong Kong, I was told all the time that eventually, if you want to get to the top, finance and property sector is where you need to be. But to be honest, finance is quite a big game and property, same thing in Hong Kong. It's a very small circle game. In Hong Kong development is only controlled by less than 20 people.

[00:21:02] In Hong Kong it's probably like a dream, rather than the things that you can really touch. But Australia is actually quite different, right? Because the government control a lot. And therefore, you are on a quite fair environment to choose whether you want to become this or that. So I do think that in terms of property, you give us a lot more opportunity in Australia.

From the IT Bubble to Bubble Tea

Tyrone Shum:  
The whole process with the Internet service provider lasted about three years in the early 2000s.

Ricky Phoon:   
[00:21:52] The reason that we stopped is actually the IT bubble burst at that time as well. We are not actually leveraging from this bubble at all. But it's just that the market suddenly heavily impacted by the bubble burst financially. And will the company actually cutting down their budget. So normally media exposure, and all this kind of budget is the first thing to get affected when you have to cut costs. So that got affected a lot, so that's how the business was ended.

Tyrone Shum:   
[00:23:23] Did you ever choose that you wanted to go out and maybe work for someone to gain experience? Or did you keep running businesses alongside?

Ricky Phoon:   
[00:23:03] During those periods, I never thought I will work for someone, because you can see that when I was studying, I started my own business. Now, I don't know how to work for someone. It's not in my concept.

Tyrone Shum:   
[00:23:14] In your genes. 

Ricky Phoon:   
[00:23:16] It wasn't. But after I came back, so when the multimedia business finished, I was involved in a bubble tea business.

[00:23:31] It was a good business, it was really cool. Because there was not popular back then, is actually not popular at all. There's only one shop in Melbourne. And that's it. Other places you can have is actually go to restaurant and have it. So then I go to Taiwan, I go to Singapore, bring the supplies in, bring the education in and start to educate. So the bubble tea business was really good, when I was in that. 

[00:23:57] But another big lesson to learn that I was trying to walk too quickly, I tried to expand to Sydney. And obviously, the business around there is very different from Melbourne. The communication and culture is so different, that I don't really get the hang of it. I will say that I actually failed on that. It was fruitful. I earnt a lot of money through that process. But then the business didn't sustain. And it just happened that at the same time, my parents asked me to go back to help out because there was another disaster happening in China when they're having a trade war. So yeah, that's the time when I need to go back as well. So the business wound up and I had to go back to Hong Kong. 

Tyrone Shum:   
[00:24:41] You’re definitely a true entrepreneur. You've tried so many different types of businesses, you know, even before he got into property developers! 

Ricky Phoon:   
[00:24:49] It's probably because of the marketing background that I have. So marketing can fit in everywhere. So it doesn't really matter which sector, which industry I'm in.

Tyrone Shum: 
Bubble tea wasn’t very popular when Phoon tapped into the market, so where did the idea come from?

Ricky Phoon:   
[00:25:08] There's a brand called Happy Cup in Melbourne. And I was talking to them, and they were selling 1,000 cup a day, because they were the only one, they were so popular. That's how I started to pay attention to this business. I talked to different restaurant owners to get some understanding on whether it is profitable and all that. 

[00:25:31] And then the next thing I realised is actually the retail lease is actually very, very expensive. To me, I think it's a bit risky, if I just jump in like this. But I don't want to give up on this market. So I just changed my mind and from doing retail business and to a wholesale business. So I become an importer of this business. And then I help others who dare to take the risk to create a business.

Tyrone Shum:   
Following on from that, he went back to Hong Kong with a plan that didn’t exactly pan out as expected.

Ricky Phoon: 
[00:26:28] I was originally saying that I guess I don't really want to go back to Hong Kong at all. So I was telling them that I will go back for three months and try to revive the business and then I'll come back. But then I take it too far, that the business back to normal and expand quite a fair bit. Then I ended up staying there for three years.

[00:27:09] I was helping my father helping my uncle. So my father is actually in passing injections. So originally they were doing toy business with US. But then what happened and the order was not there. And then they change the model becoming disposable cutlery and utensils and all that. So it took me a bit of effort to convince my dad because he thinks the cutlery market is so small. And also think that the market is so small, but I just convinced him by I can bring you a big order that I can assure you, you will not have enough machine to handle my order, which I didn't.

[00:28:07] I think we had actually one discussion and my father was saying that he wanted me to explore the rice cooker market. I don't like it, because how often do you change your rice cooker? And I think cutlery, you use it every day and you dispose it, right? So and therefore it's proven that this is a more sustainable business that my father should have got in. And he did. And then with my uncle is basically just helping on communications just because of me being staying in Australia for quite a while. So it's easier for me to help the company to communicate with European. My uncle's business actually is a bridge between China and Europe back then. I would love negotiation. There's a cultural impact doesn't really turn out quite well. So I was flying in and out very often, on a daily basis. 

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.

Surrender or Settle

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?

Effort + Time = Money?

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?

Watch Your Costs

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.

**ADVERTISEMENT**

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

Ricky Phoon:
[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. 

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

Ricky Phoon:
[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.

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

Ricky Phoon:
[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.

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

**END ADVERTISEMENT**

Development Goldmines

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.

PBSA, Hold the Room Service

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.

When You Can’t Beat ‘Em, Join ‘Em

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. 

Family Focused

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. 

Tyrone Shum: 
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.

**OUTRO**

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