Long-term prospects outweigh current price volatility, says the company
(TOKYO) Mitsui Fudosan Co, Japan’s largest developer, plans to open more shopping centres in China as the company bets consumer spending will spur demand even as the government attempts to cool the housing market.

Mitsui Fudosan plans to build ‘several’ shopping centres in cities including Beijing from 2014, after completing its first mall in Shanghai by 2013, said Takehito Fukui, a project manager of the retail properties division at Mitsui Fudosan. The plan will depend on the completion of the Shanghai project.

Mitsui Fudosan, which generated less than 10 per cent of its profit overseas last fiscal year, is expanding its business in China amid rising consumer spending in the world’s fastest-growing economy. Disposable income in the country has grown an average of more than 10 per cent a year in the past decade, according to data compiled by Bloomberg based on government figures.

‘There is still plenty of room for growth in China in terms of consumer spending and we would like to continue to develop commercial properties there,’ Mr Fukui said in an interview in Tokyo on Aug 25. ‘We see China as a place to expand our business including developing and operating commercial properties.’

China has tightened property lending and cracked down on speculation since mid-April on concern last year’s record US$1.4 trillion of new loans fuelled a housing bubble that could lead to a surge in delinquent loans. The China Banking Regulatory Commission has told lenders to stress test for home prices dropping as much as 60 per cent in some cities and warned some developers may run out of cash.

Property prices in China rose at the slowest pace in six months in July and the value of sales fell 19.3 per cent from a year earlier after the government introduced measures to cool prices.

The long-term growth potential in the Chinese market outweighs the short-term volatility seen in the pricing, said Ryosuke Uematsu, Tokyo-based general manager of the overseas department at Mitsui Fudosan in the interview.

‘While the market has been suppressed at the moment, we see it as stable and attractive in the long run,’ he said.

China surpassed Japan as the world’s second-largest economy last quarter. Japan’s nominal gross domestic product for the second quarter totalled US$1.288 trillion, less than China’s US$1.337 trillion, the Japanese Cabinet Office said earlier this month.

On the residential side, Mitsui Fudosan is developing apartments in Tianjin with locally based Sino-Singapore Tianjin Eco-City Investment & Development Co and Tiong Seng Properties based in Singapore. Mitsui Fudosan also has a condominium project with a subsidiary of Marubeni Corp in Shanghai.

The Japanese developer plans to build more residential units in other areas of China, Mr Uematsu said.

The unit price per condominium has declined in China, because of the government’s policies and competition by some developers trying to sell apartments at lower prices to receive a return on investments to pay off debts, said Mr Uematsu.

The company will decide on pricing and the number of units it plans to put up in its first round of sales for the Shanghai residential project by the end of September, after studying market conditions, he said.

Mitsui Fudosan’s stock has fallen 9.3 per cent this year, compared with a 9.4 per cent drop by the 44-member Topix Real Estate Index. The stock gained 1.7 per cent to 1,413 yen at the close of trading in Tokyo yesterday. — Bloomberg

Source: Business Times, 31 Aug 2010

(BEIJING) Agricultural Bank of China Ltd will halt all lending to property developers for the remainder of the month, three sources familiar with the decision told Reuters on Wednesday.

The move by AgBank, China’s third largest lender by asset value, underscores how the government is still curbing credit to the property sector, even as worries about a global double-dip intensify.

‘If other state banks follow suit, a new round of tighter property lending is very likely to materialise,’ said a bank official in Shenzhen, who declined to be named.

The property sub-index on the Shanghai Stock Exchange ended yesterday down 2.87 per cent, underperforming the 2.03 per cent decline by the benchmark Shanghai Composite Index.

AgBank would resume lending to developers in September, according to the sources who were informed of the decision.

They said management had decided on the halt to ensure the bank’s loan-to-deposit structure was properly balanced, adding that it had not been ordered by regulators.

But one branch official said AgBank would be cautious in lending to property developers for the rest of the year. ‘Credit will be for high-quality clients only,’ he said.

AgBank declined to comment. It was not known whether other banks would implement similar lending freezes.

China has waged a campaign to cool its real estate market since April, when soaring prices fuelled worries that a dangerous bubble was building. Policies from lending curbs to higher downpayments have slowed the pace of price rises, but analysts said they could take off again at any hint of relaxation.

The AgBank halt also shows how banks are bumping up against credit quotas imposed by regulators, a blunt tool used to control lending activity and money growth.

The government set a target of 7.5 trillion yuan (S$1.5 trillion) in new loans for 2010, down from the record surge of 9.6 trillion yuan last year.

With Chinese banks having already extended 5.16 trillion yuan in the first seven months, they will have to keep monthly new loans to about 500 billion yuan or less over the rest of the year if the target is to be met. — Reuters

Source: Business Times, 26 Aug 2010

(BEIJING) Chinese property developers are facing strained cash flows and will be forced to cut prices beginning in the fourth quarter, a state newspaper reported on Tuesday, citing several bankers.

Beijing has strictly controlled financing to real estate developers by limiting their lending from banks and fund-raising from capital markets – part of its efforts to cool speculative purchases and prevent prices from rising too fast.

‘As far as we know, property developers are feeling very strained cash flows now and many of them have made preparations to tighten their belts,’ the official Shanghai Securities News quoted an unnamed executive at the Shanghai branch of China Everbright Bank as saying.

Property developers purchased a large amount of land lots in 2009 when the market was booming. Under current regulations, they are not allowed to hold land for a long period of time without developing it and have to speed up construction. That will likely increase the supply of housing in the coming quarters, the newspaper said.

‘Housing prices will probably show an evident drop as early as from the fourth quarter,’ the newspaper quoted another unnamed banker at Shenzhen Development Bank as saying.

Earlier this month, the National Bureau of Statistics reported that housing prices in 70 major cities were unchanged in July from June.

But the National Development and Reform Commission said property prices in 36 key cities actually rose 1.6 per cent in July from June. — Reuters

Source: Business Times, 26 Aug 2010

(BEIJING) Chinese companies in Shanghai have falsified answers in replies to some surveys by the national statistics agency, calling into question the reliability of the country’s property market data.

The problems, from omitting information to reporting incorrect prices, were identified by the Shanghai arm of the National Bureau of Statistics (NBS). The NBS announced the findings on its website (www.stats.gov.cn) yesterday, but it did not say that any of its specific surveys or reports had incorrectly characterised the country’s housing market conditions.

Data about China’s housing prices is in large part derived from surveys conducted by the NBS. The Chinese public has long been critical of some of the figures, saying that they understate how expensive property has become.

A striking example of discrepancies within official data came to light last week. The NBS said housing prices in 70 major cities, the index most closely watched by the market, were unchanged in July from June.

But the National Development and Reform Commission said property prices in 36 key cities actually rose 1.6 per cent in July from June, according to information gathered by that agency’s price monitoring bureau. — Reuters

Source: Business Times, 24 Aug 2010

(SHANGHAI) Sales of new homes in Shanghai dropped 48 per cent in the first seven months of 2010 from a year earlier, as China’s efforts to cool the property market began to bite, state media said yesterday.

By the end of July, sales in terms of floor space totalled 9.11 million square metres, the Shanghai Daily reported, citing the city’s statistics bureau. It did not provide comparative figures for 2009. Chinese authorities have issued a slew of measures in recent months as they seek to prevent the property market overheating and causing a bubble that could derail the country’s economy.

The government has tightened restrictions nationwide on advance sales of new developments, introduced curbs on loans for third home purchases, and raised minimum down-payments for second homes.

The property price index for July was 10.3 per cent higher than a year earlier, down from a record rise of 12.8 per cent in April, the National Bureau of Statistics said earlier this month. Prices in Beijing remained flat month-on-month in July, while they dipped 0.6 per cent here, and 0.4 per cent in the southern city of Shenzhen, on the border with Hong Kong.

At the weekend, Vice-Premier Li Keqiang urged local governments to implement the central government’s policies to curb speculation in the real estate sector and increase the supply of affordable housing, the Xinhua news agency reported. — AFP

Source: Business Times, 24 Aug 2010

(BEIJING) With one arm, China is pouring cold water on property speculators. With the other, it is tossing a life buoy to the real estate sector via increased spending on affordable housing. It is a tricky balancing act, and the stakes are high.

The government must rein in housing prices before a bubble forms, while ensuring that investment in property, a cornerstone of the economy, remains robust.

The early verdict is that Beijing might just pull it off, having made the construction of public housing a priority for officials throughout the country at a crucial juncture in the Chinese political cycle.

‘The affordable housing scheme can partly compensate for a slowdown in market-based real estate investment this year. The top leadership has repeatedly demonstrated very strong political will on this issue,’ said Yu Jun, a property analyst with CITIC Securities, China’s largest listed brokerage.

China tried to push public housing before, but investment was halting and controversy erupted when some of the homes ended up in the hands of relatively wealthy people.

Meanwhile, property prices have continued their seemingly inexorable climb beyond the scope of affordability for most Chinese, fuelling public anger that the government is now trying to assuage with its most ambitious programme ever for cheap housing.

The government plans to build 5.8 million housing units for poorer citizens this year, which analysts estimate will involve spending of up to 400 billion yuan (S$79 billion). That compares with total investment in real estate of 2.39 trillion yuan in the first seven months of the year.

It may not sound like all that much is going into public housing, but it should provide a real boost to the economy.

Total floor space under construction could rise 10 per cent this year and 6 per cent next year, even if private investment flatlines, Morgan Stanley strategist Jerry Lou estimated.

‘There is a common concern in the market about the extent to which social housing can compensate for a slowdown in the commodity housing market. Our analysis shows that social housing is a good growth compensator,’ he wrote in a recent note.

Earlier this year, property prices were soaring across China. Some top-tier markets – notably, the southern island of Hainan – were in a state of frenzied buying, and others looked frothy.

Worried that a bubble could grow out of control, the government raised down-payment and mortgage rates and curbed lending to developers.

In recent months, as the Chinese economy began to slow and global markets dipped, some observers predicted that Beijing would back down and relax its tightening campaign. But top leaders have held fast to their line.

This was crystallised two weeks ago when Vice-Premier Li Keqiang, heir apparent to Premier Wen Jiabao, used a visit to a series of public housing projects here to say that the crackdown on property speculation would continue.

The government was stepping into the breach, he said. ‘The affordable housing scheme is an important step to improve people’s lives and also an important measure to maintain stable and relatively fast economic growth,’ Mr Li said.

In the past, promises to build more affordable housing amounted to little. Not enough was built, and much of what was built went to families who did not need subsidised homes.

Analysts expect better follow- through this time. ‘My optimistic estimate is that the government will implement half of its plan this year,’ said Bai Hongwei, a property analyst with China International Capital Corp (CICC).

That alone could account for about 1.24 percentage points of GDP growth in 2010, he said. Economists polled by Reuters expect the Chinese economy to expand by 10 per cent this year, up from 9.1 per cent last year.

Local leaders have traditionally chased higher growth at all costs, with assessments of their performance based largely on economic results. In May, Beijing instructed officials across the country to sign letters of responsibility, stressing that construction of affordable housing would form a key part of their appraisals that weigh in deciding promotions. With the government set for a big reshuffle from late 2012, officials will not want to disappoint.

The societal need for cheaper housing is clear. There are only enough affordable homes in China now for about 6 per cent of the urban population. The country needs to build 50 million more units to increase the coverage to 30 per cent, and that could take another 30 years, Mr Bai from CICC said.

‘The affordable housing market has huge potential and we are optimistic about it as a driver of economic growth,’ he said.

The government has plenty of money to build homes. What it lacks is expertise in building attractive apartments. For that, it is trying to bring in real estate developers, calling on them to oversee construction and management.

‘The overall interest (of developers) is not very high,’ said Xu Ke, a project manager with Vanke here. Mr Xu looks after an affordable housing development with 1,575 flats that was built in 2007, one of the first in the capital.

Vanke had hoped for a profit margin of 5-10 per cent, but it cut that to 3-5 per cent after sales slowed when Beijing started to screen buyers more carefully, to ensure that only deserving people were getting homes.

Despite the shortfall, Vanke, China’s biggest listed developer, is still committed to the scheme. ‘The government is directing 50 per cent of residential land supply to the affordable housing sector. As a mainstream developer, we must take part,’ Mr Xu said.

Liu Yajuan, a housewife in her 50s, was one of the lucky few, awarded a permit to buy a unit at the Vanke project at 6,200 yuan per square metre, less than a third of the going rate in the neighbourhood.

‘My son has got a new home and so can get married at last,’ she said after touring the apartment for the first time. ‘I’m satisfied with everything, except that there is no balcony,’ she said. — Reuters

Source: Business Times, 24 Aug 2010

THRUST centre stage as a result of the decline in the G-7 economies in a post-2008 credit crisis world, the Chinese economy has gained a new level of significance and scrutiny that often generates unwanted, alarmist racket.

Is there a property bubble in China? The answer bears more significance now than ever before. China’s construction and real estate sectors are likely to contribute to an estimated 11 per cent of its GDP in 2010. The construction industry employs 14.3 per cent of all workers in urban areas and consumes 40 per cent of all steel and lumber produced in China.

The private residential sector currently accounts for almost 40 per cent of the buildings completed by the construction industry. Never before has the health of the Chinese construction and real estate sectors been more closely followed.

Analysing a large, diverse economy like China’s is complex, to say the least. Her sheer size and diversity in terms of economic development makes nationwide average figures rather meaningless. For example, from April 2009 to April 2010, residential property prices in China rose by 15 per cent and when juxtaposed with the price declines in 2008, would hardly set alarm bells ringing.

However, a closer examination of tier 1 cities revealed that in the 12-month period to April 2010, property prices rose by 64 per cent in Beijing, 39 per cent in Shanghai and actually doubled in Shenzhen.

The tier 1 cities accounted for almost 22 per cent of urban residential property sales, rather disproportionate to their share of 8 per cent of total floor space. Prices in Beijing reached a stratospheric 28,000 yuan per square metre in the same period.

Although long documented trends of urbanisation, rural to urban migration and a shortfall in the supply of public housing have resulted in property prices in China rising steadily over the last five years, what actually fuelled the extraordinary climb in prices over the last 12 months has largely been attributed to the increasing participation of state-owned enterprises (SOEs) in the property market.

Higher price

A study conducted by researchers from the National University of Singapore and Tsinghai University found that the transaction price of land tends to be 27.4 per cent higher when it is successfully bid by an SOE.

In certain cities like Beijing, the local and central SOEs’ share of developers’ land purchases have reached an estimated 71 per cent in early 2010, up from about 37 per cent in 2003.

Leverage, another indication of whether an asset bubble is building, has also seen a steady increase. If we assume that only urban households have access to mortgage lending, then mortgage debt as a proportion of urban household income is near 50 per cent, which makes it a tad uncomfortable.

We also need to take into consideration that in the case of China, where a large share of household wealth exists in the form of bank deposits, it is vulnerable to various forms of asset bubbles as and when households decide to shift a certain proportion to other asset classes, including property.

Although property purchases require a larger amount of capital (initial down payment), it is clearly not a major obstacle, especially in a period when property prices are escalating and return expectations get artificially inflated.

In that sense, we view the property tightening measures announced by the Chinese government in May with measured relief.

The policies are largely aimed at stabilising the market by curbing speculative demand and at the same time, increasing the supply of housing, in particular public housing.

At this stage of its economic cycle, a slowdown in China’s property market is very much welcome news. If the Chinese real estate sector continues to grow at breakneck speed with little breathing space, it would certainly magnify the risk of overheating followed by a systemic collapse. This would have serious ramifications for Asia, including Singapore.

A collapse in China’s property market resulting in financial contagion might affect the Singapore property market both directly and indirectly. As of July this year, Chinese nationals are currently the second largest source of foreign buyers of property in Singapore. Any crash in China’s property market and subsequent economic slowdown would probably change that equation.

Furthermore, over the past two decades, systemic crises have always negatively impacted Singapore’s property market. The Asian financial crisis in July 1997, Nasdaq crash in March 2000 and the credit crisis in 2008 all resulted in double-digit declines in the local property market.

However, it is the indirect impact that is actually more worrying. Since 2007, almost all home loans in Singapore are based on floating rates. Mortgage rates are usually pegged to the three-month Singapore Interbank Offered Rate (Sibor) or three-month Singapore Offered Rate (SOR), plus a premium that ranges between 1.25 per cent and 1.75 per cent.

Spike

Therefore, if Sibor or SOR spikes up suddenly and remains at stubbornly elevated levels for a period of time, property owners tied to such loans might suddenly find their monthly mortgages taking up a disproportionate amount of their monthly income.

Have there been instances when Sibor suddenly behaved erratically? The Asian financial crisis was one such example. Sibor spiked up to a high of 7.75 per cent before finally sliding to 1.9 per cent in December 1998. The average rate of Sibor during that 18-month period hovered at 4.9 per cent. As Asia was fortunately not at the epicentre of the credit crisis in 2008, Sibor did not behave erratically but averaged around 1.3 per cent, more than twice the current rate of 0.56 per cent.

So what is the likelihood of the above scenario panning out? Fortunately, we believe the chances are slim. The sharp appreciation in property prices in China have been largely restricted to the tier 1 cities, leaving the fundamentals of the broader market intact.

Although we do not expect China’s property sector or economic growth to collapse, we believe that there may be a rather visible slowdown in housing starts and construction towards the end of this year, with any possibility of a reversal of the property tightening measures and/or loosening in monetary policy likely to be in early 2011. We believe this could potentially be the catalyst for the Shanghai A-Share Composite index, which is currently the worst performing stock market in Asia ex-Japan, to outperform.

The writer is chief investment strategist Singapore, at UBS Wealth Management.

Source: Business Times, 20 Aug 2010

(SINGAPORE) Property fund manager MGPA plans to build malls in smaller Chinese cities as it sees opportunities arising from China’s rapid growth and international retailers planned expansion into the country’s interior.

MGPA is also looking to buy offices in Japan as values have fallen sharply and should recover even if rents remain flat.

Most of the investments in China and Japan will come from MGPA’s US$3.9 billion Asia Fund III, which is currently about 50 per cent invested, MGPA managing director and Asia portfolio manager John Saunders told Reuters in an interview.

But MGPA, which specialises in Asian and European real estate and is part owned by Australia’s Macquarie, intends to stay away from Beijing and Shanghai for now, Mr Saunders said.

‘I wouldn’t say bubbles as such but there is a lot of competition in these markets and they are fully priced,’ he said of China’s two main cities.

‘Most of the international brands will tell you they feel fairly, fully represented in Beijing and Shanghai, particularly Beijing, where there was a real rush prior to the Olympics to get a presence there.’

By contrast, shopping malls in smaller Chinese cities offer good growth potential with international retailers keen to expand in a bid to tap the country’s growing affluence.

Rents in these Tier-2 cities are also high relative to property values, with many retail properties transacting at cap rates of around 6.5 to 6.75 per cent, which means there is potential for a rise in valuations even if rents stay flat.

Despite Beijing’s moves to cool the real estate market, property investors remain keen on developing malls due to strong consumer demand. Retail sales jumped 17.9 per cent in July from a year ago, led by luxury goods such as jewellery which jumped 44 per cent.

Mr Saunders said MGPA was looking to develop its own malls rather than buy existing properties because Chinese laws make it difficult for foreign investors to buy over existing projects.

Turning to Japan, Mr Saunders, who also manages MGPA’s fully invested US$921 million Asia Fund II, said prices of office properties had fallen by as much as 40 per cent and the sector represented an opportunity even if rents remained weak.

‘Largely the pain has already been taken and it’s largely unwanted and unloved at the moment which is the first place you look if you are an opportunity fund,’ he said.

‘The near-term economic outlook for Japan doesn’t look that fantastic. But as you start to see a normalisation of risk again, there will certainly be cap rate compression even if rents are flat.’

The Asia Fund II’s investments include several office buildings in Japan and the former headquarter building of Singapore investment company Temasek. — Reuters

Source: Business Times, 17 Aug 2010

(SINGAPORE) It is getting increasing difficult to get a sense of the state of China’s residential property market.

Developers listed on the Singapore Exchange – both household Singaporean names and their China-based counterparts – continue to be bullish.

But analysts advise caution. There is also some speculation that another round of government tightening measures could be on the horizon as home prices in China continue to hold firm.

But for now, developers are still looking to expand in China. Last Thursday, City Developments said it has set up a new unit with some $300 million on hand to build up its presence in China.

Its fully-owned subsidiary, CDL China Limited, will target all segments of China’s property market – the high-end, mid-tier and mass market residential markets as well as the commercial and hospitality sectors. So far, 12 first-tier and second-tier cities in China have been earmarked for investment.

‘Going down the road, there is always a fear that the bubble in China will burst. I don’t believe that it will burst that much,’ said CityDev executive chairman Kwek Leng Beng during the company’s Q2 results briefing.

His move comes after one of Singapore’s biggest China proponents, CapitaLand, reiterated that it will continue to grow in China. The developer plans to set up a new business unit to build ‘affordable’ homes in China and Vietnam.

Developers are also going ahead with planned launches. CapitaLand said during its Q2 results briefing that launches were on track and selling prices will be maintained. The group’s target, which is to launch 3,000 units on average a year, remains intact.

China-based Yanlord Land Group has also said it is looking to launch new projects and new phases of its existing projects in the second half of 2010.

But on the ground, many are watchful, and wary. Citigroup reported earlier this month that speculation on a new wave of tightening measures led to a ‘mini sell-off’.

Caution returned to China’s property sector early this month due to recent speculation that the government may introduce a new wave of tightening, the bank said. Talk was that the authorities will target development schedules, crack down on land hoarding and further tighten mortgage loans for third-unit purchase, Citigroup analysts wrote in an Aug 6 note.

In addition, it has been reported by the local press that China banks have been asked to stress-test for a 60 per cent home-price fall. All the news resulted in a small sell-off in the China property sector in early August – even though most of the news had not yet been made official.

The Citigroup analysts’ view is that new tightening measures are unlikely. Instead, China’s central government will focus on the implementation of existing tightening measures in H2, they believe.

The trepidation on the ground is caused by the fact that the home prices are not falling by much yet.

Property prices in China rose at a slower pace in July from the previous month as efforts to curb speculative investment in the real estate sector started to take effect. Home prices in 70 major cities rose 10.3 per cent year-on-year in July, the National Bureau of Statistics said last Tuesday, down from 11.4 per cent in June.

The figure marked the third straight month of slowing year-on-year growth in prices after Beijing announced a slew of measures from January to April 2010 to prevent the real estate sector from overheating.

But prices are not easing much on a month-on-month basis. Despite all the measures, property prices only eased 0.1 per cent month-on-month in June 10 – marking the first time that prices fell since February 2009. And prices in July were unchanged from June, according to the statistics bureau.

But despite the riskier operating environment (as compared to Singapore), developers are heading in because ‘there is no denying that China will one day become the largest economy in the world’, as Mr Kwek put it.

For CapitaLand, its China residential properties continued to provide support to its financials for H1 and Q2 2010. The developer sold over 1,100 units in the first six months of the year.

But DMG & Partners Research analyst Brandon Lee pointed out that CapitaLand’s sales volume in China fell to 382 units in Q2 2010 (from 801 units in Q1).

‘For H2 2010, we expect this trend to persist, suggesting subdued take-up for upcoming launches in Hangzhou, Kunshan and Shanghai,’ Mr Lee said.

A key project to watch out for next is CapitaLand’s luxury Paragon development at Shanghai Luwan. The company said during its recent Q2 results briefing that pre-launch interest in the project is extremely strong. It hopes to launch 116 units in Q1 2011.

‘While management is optimistic on the eventual pricing, citing the 100,000-150,000 yuan (S$20,061-S$30,092) per square metres achieved for comparable projects, we remain mindful of lingering policy risks in the region,’ wrote CIMB analyst Donald Chua about the project in an August 5 note.

Leading and ‘brand-name’ developers are still seeing decent sales in China in Q2 and Q3 on the back of better product quality and more flexible pricing strategies. Their profitability is likely to be respectable even if they cut prices going forward.

But to play it safe, some analysts are now advising investors to focus their attention on commercial properties and players instead.

Source: Business Times, 16 Aug 2010

 (SINGAPORE) City Developments Limited (CDL), which now gets most of its income from Singapore, has set up a new unit with some $300 million on hand to build up its presence in China.

The fully-owned subsidiary, CDL China Limited, will target all segments of China’s property market – the high-end, mid-tier and mass market residential markets as well as the commercial and hospitality sectors. So far, 12 first-tier and second-tier cities in China have been earmarked for investment.

The group yesterday reported an 18 per cent increase in second quarter net profit as economic recovery boosted demand for its homes and office space in Singapore. But CDL is looking at diversifying its sources of income geographically.

While the group’s focus will remain firmly rooted in Singapore – where it knows the environment best and serves as a proxy to the Singapore real estate market – China cannot be ignored, said executive chairman Kwek Leng Beng.

His elder son Sherman Kwek, who has been appointed chief executive of CDL China, admitted yesterday that the group has to play ‘catch up’ with other developers – such as CapitaLand – which had entered the China market earlier. But ‘this is the right time for a new market entrant to enter (China),’ he said.

With the Chinese government’s recent measures to control its over-heated property market, CDL believes that the time may soon be ripe to pick up land and/or investment properties at the right price.

Prices in 70 major cities across China climbed 10.3 per cent in July from a year earlier (the slowest pace in six months) the statistics bureau reported earlier this week.

The younger Mr Kwek said that CDL China’s preferred mode of investment will be to buy land directly from the government and then develop it on its own. But the unit will remain open to working with other developers in the form of joint ventures.

Right now, CDL China has just one major asset – the 36-storey office building Tianjin City Tower – in China. But this excludes assets held under CDL’s London-listed hotel arm Millennium & Copthorne Hotels (M&C), which the group has a 54 per cent stake in.

While CDL China’s $300 million worth of initial investment funds is not large, the move is significant as it shows CDL’s new determination to venture into China, analysts said. The group has not shown such strong interest in China before.

‘While the initial capital is negligible compared to CDL’s total net assets of $7.8 billion, the shift in strategy and attitude is significant as CDL’s overseas presence (excluding hotel operations) is fairly limited today,’ said OCBC Investment Research analyst Meenal Kumar.

DMG & Partners Research analyst Brandon Lee said that initial progress is expected to be tepid, with earnings contribution only in the medium-long term.

The move is also an example of CDL’s more proactive stance of late to provide a growth story for shareholders.

‘(CDL’s) management has been actively unlocking value from its older commercial buildings and is now looking to expand in China,’ said Deutsche Bank analyst Gregory Lui.

The developer recently sold its stake in Chinatown Point (the entire retail component of 283 strata shop units as well as four strata office units) for $250 million.

The elder Mr Kwek yesterday said that more such older buildings could be sold as CDL seeks to capitalise on current demand.

Source: Business Times, 13 Aug 2010