(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

Prices in 70 cities across China rose 10.3 per cent in the year to July, down from 11.4 per cent in the 12 months to June and a peak in April of 12.8 per cent, the National Bureau of Statistics said yesterday.

But prices on the month were unchanged in July, following a 0.1 per cent drop in June.

‘House price inflation is slowing and should continue to ease further in the months ahead, but so far it has been a gradual deceleration rather than an abrupt correction in prices,’ said Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong. ‘Despite all the measures aimed at tightening credit in the property market introduced earlier this year, overall liquidity conditions in China remain accommodative, and this appears to be providing support to house prices.’

The government introduced an array of measures in April to deter speculative buyers for fear that prices were feeding on themselves in some markets and putting the cost of a flat beyond the reach of ordinary people – an incendiary social issue for the ruling Communist Party.

Beijing increased downpayments and mortgage rates, made it tougher for people to buy multiple homes and tightened financing for developers. But the government has eschewed draconian measures, anxious not to topple a vital pillar of the economy.

Real estate accounts for a quarter of investment and 10 per cent of total output.

Investment in real estate rose 37.2 per cent in the first seven months from a year earlier, slowing from a 38.1 per cent rise in the first half, the statistics office said. Newly started floor space fell, year to date, for the second straight month. — Reuters

Source: Business Times, 11 Aug 2010

BEIJING – China’s property prices rose at the slowest pace in six months in July as the government clamped down on speculation to prevent asset bubbles and keep housing affordable.

Prices in 70 major cities climbed 10.3 per cent from a year earlier, the Statistic Bureau’s newspaper, China Information News, reported this morning. That was less than an 11.4-per-cent increase in June and the median estimate of 10.5 per cent in a Bloomberg survey of eight economists.

China’s banking regulator said on Friday that the government will maintain policies to cool the property market, damping speculation that slowing economic growth would encourage an easing of the measures. The regulator has told lenders to conduct stress tests to gauge the impact of home prices falling as much as 60 per cent in the hardest-hit markets, a source said last week.

“The government’s resolve on property curbs will be tested as increasing risks to external demand and slowing domestic production and investment cool growth later this year,” said Mizuho Securities Asia economist Shen Jianguang. “The government may continue to rein in property speculation, but some of the most stringent measures may be adjusted at the end of this year when price corrections start to spur transactions.”

Restrictions imposed by the government this year have included higher down-payment and mortgage rates for multiple- home buyers and instructions for lenders to halt third-home loans in areas with “excessive price gains”.

Price increases have slowed from a record 12.8 per cent gain in April. Prices were unchanged in July from June, following a 0.1 per cent month-on-month decline in June that was the first decrease in 16 months.

Investment in real-estate development rose 37.2 per cent in the first seven months of 2010 from a year earlier to 2.39 trillion yuan ($476 billion) after a 38.1-per-cent gain in the first six months, the newspaper said. BLOOMBERG

Source: Today, 10 Aug 2010

(BEIJING) China’s trust firms are channelling a growing amount of money to real estate developers eager for access to credit, but such funding might be curbed later this year, the China Business News reported yesterday.

Trust companies invested 80.2 billion yuan (S$16 billion) in the real estate industry in the second quarter, up 34.1 per cent from the same period a year earlier, the newspaper reported, citing data from Noah Private Wealth Management, a firm that tracks Chinese fund allocation.

‘This shows that property developers are really in need of money and that trust funds have become an important financing channel for them,’ the newspaper paraphrased Li Yaoshen, a senior researcher at Noah, as saying.

Lending by trust firms has taken off this year as banks have used them to skirt government-imposed credit quotas aimed at cooling the real estate market.

Beijing will likely clamp down on developers raising capital through trust firms in the second half of this year as part of its campaign to cool down the real estate sector, Li said.

Data from Financial China Information & Technology Co, an information provider, also showed strong flows from trust companies to the property industry. – Reuters

Source: Business Times, 10 Aug 2010

(BEIJING) Property prices in China’s major cities will fall later this year because of the government’s tightening campaign and a coming surge in housing supply, the country’s top listed developer said in comments published yesterday.

The government will not end its clampdown on housing speculation even as the economy slows, and developers who try to resist lowering prices are being unrealistic, Wang Shi, chairman of Vanke 000002.SZ , was quoted as saying by the Securities Daily.

‘Many developers who do not cut prices now are making a bet on policy,’ said Mr Wang, suggesting that they were hoping that Beijing would back down on its property controls.

Mr Wang said the issue was of social, not just economic, importance. ‘Property prices in some cities have risen to levels unacceptable to the middle class,’ he said.

Vanke and other big developers, including Evergrande 3333.HK and Greenland, have cut prices, boosting their sales. The value of properties sold by Vanke in July rose 65 per cent from a year earlier to 8.44 billion yuan (S$1.68 billion). Showing its determination to cool the real estate market, Beijing has instructed banks to stop extending mortgage loans to people buying third homes in at least four major cities, including Beijing and Shanghai. — Reuters

Source: Business Times, 10 Aug 2010

Total foreign investment in Sino-S’pore project hits 28b yuan

(TIANJIN) The Philippines’ largest property company, Ayala Land, has become the fourth foreign real estate developer to join an ‘eco-city’ development project in north China’s Tianjin Municipality.

The company signed an agreement to invest US$220 million in the project on Tuesday, taking total foreign investment in the ‘eco-city’ to 28 billion yuan (S$5.6 billion).

Other foreign property developers involved include Mitsui Fudosan Group and Sunway Real Estate Investment Trust, said Wu Caiwen, president of the Sino-Singapore Tianjin Eco-City Investment and Development.

The Tianjin ‘eco-city’ development is the second of its kind between the Chinese and Singapore governments, following on from the China-Singapore Suzhou Industry Park.

Both projects feature cooperation in advanced technology and personnel exchange.

Located in the Tianjin Binhai New Area, the 30 square kilometre Tianjin Eco-City lies 150 km east of Beijing. It is hoped that the city would become a harmonious and sustainable community that meets the needs of China as it urbanises.

‘The Tianjin Eco-city aims to be a model for the cities of China’s future, as well as being a real international eco-city,’ Mr Wu said.

The ‘eco-city’ is 50 km away from downtown Tianjin. It is designed to be a modern metropolis where 350,000 residents can live, work and play by the time it is completed in 2020.

Ayala Land has agreed to develop a 9.78 hectare residential complex in the city designed to accommodate 1,100 households by 2013.

Mr Wu said that all buildings in the eco-city conform with environmentally friendly standards in design, technology, construction and management. ‘The foreign developers’ experience in building environmentally friendly properties will help push forward the project and allow it to meet its eco-targets.’ – Xinhua

Source: Business Times, 5 Aug 2010

Top state-owned banks may be sitting on enormous unreported debt

(WUHU) The Anhui Salt Industry Corp is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.

Now it has swaggered into a new line of business: real estate.

The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.

Anhui Salt is hardly alone among big state-owned companies. The China Railway Group is developing residential complexes in Beijing after winning the auction for a huge piece of land there.

Likewise, the China Ordnance Group, a state-led military manufacturer best known for amphibious assault weapons, paid US$260 million for Beijing property where it plans to build luxury residences and retail outlets.

And in one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid US$1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.

All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.

‘These are the ones that have the money to buy the land,’ said Deng Yongheng at the National University in Singapore. ‘Because in China, it’s the government that controls the money supply and the spending.’

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-fuelled speculative bubble – like the one that devastated Western financial markets when it burst two years ago.

Land records show that 82 per cent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers – up from 59 per cent in 2008.

A recent study by the National Bureau of Economic Research in Cambridge, Massachusetts, found that land prices in Beijing had jumped by about 750 per cent since 2003 and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.

The report pegged a big part of the increase to state-owned enterprises that have ‘paid 27 per cent more than other bidders for an otherwise equivalent piece of land’. Critics say the central government in Beijing unwittingly propelled the land frenzy by pushing a huge US$586 billion economic stimulus package last year and encouraging state-owned banks to lend more aggressively.

And as the prices of new apartments soar – in Shanghai, for instance, they exceed US$200,000, while the average disposable income is only about US$4,000 a year – the trend also threatens to undermine the central government’s social goal of affordable housing for the rising middle class.

In some cases, local governments – which earned more than US$230 billion from land auctions in 2009 – are also being accused of demolishing old neighbourhoods and unfairly compensating residents. In a recent poll conducted by China Youth Daily, a state-run newspaper, more than 80 per cent of the respondents said local governments were a ‘major driving force’ behind the skyrocketing property prices.

All of this is happening to the chagrin of private developers that dominated China’s property market for more than a decade but are now feeling squeezed out of a game that favours developers with state-backed financing.

‘It’s a little like a son who borrows money from his mother,’ said Yang Shaofeng, head of the Conworld Real Estate Agency in Beijing.

Last year, state banks made a record US$1.4 trillion in loans, nearly twice as much as the year before. Analysts now say they believe much of that money was diverted into the property market through off-balance-sheet manoeuvres, leading to the record land bids and soaring property prices.

That belief is adding to concerns that some of China’s biggest state-owned banks may be sitting on enormous unreported debt.

Beijing is now struggling to rein in credit without slowing the nation’s roaring economy. And regulators are trying to stop state banks from using clever manoeuvres to secretly lend money to overly aggressive state-owned developers.

Beijing also wants to restrain state companies that have little or no expertise in real estate. Last March, the State Assets Supervision and Administration Commission – one of the national government’s most powerful bodies – ordered 78 state-owned companies to shed their real estate divisions.

But analysts say the government will have difficulty stopping hundreds of state-owned companies and their various subsidiaries from participating in what has become one of the country’s hottest industries.

Experts say that more than 90 of the 125 state-owned companies directly under Beijing’s control still have property divisions. And local and provincial governments control many additional developers.

The national government is grappling with a complex set of incentives that drive state-run companies to speculate in the property market with the aid of local governments. – NYT

Source: Business Times, 3 Aug 2010

(SHANGHAI) The city’s Peace Hotel, which once accommodated Charlie Chaplin and other celebrities, opened to guests yesterday after three years of restoration, the managers said in a statement.

Fairmont Peace Hotel will be managed by Chinese hotelier Shanghai Jin Jiang International Hotels (Group) Co and Fairmont Hotels & Resorts Inc, which runs the Savoy hotel in London.

Jin Jiang, which operates more than 600 hotels in China, spent HK$500 million (S$88 million) to restore the building.

Some of the main features of the hotel have been kept, including the lobby with an Octagon ceiling, the hoteliers said.

Rates start from 2,300 yuan (S$464) and go as high as more than 7,000 yuan for a night, the hotel’s general manager, Kamal Naamani said at a press conference.

The hotel has 270 rooms including the so-called Nine Nations Suites.

The building, located on the Bund promenade overlooking the Huangpu River, has six restaurants and lounges, including the Jazz Bar patronised by former US Presidents Jimmy Carter and Ronald Reagan.

The Indian, English, Chinese and American suites have been preserved, while the French, Italian, Spanish, Japanese and German rooms were redesigned.

The hotel was previously called the Cathay Hotel and was built by British businessman Victor Sassoon, opening in 1929. The art deco property reopened as the Peace Hotel in 1956.

Jin Jiang also has an agreement with Swatch Group AG to develop the south wing of the old Peace Hotel, called Swatch Art Peace Hotel, part of which will serve as an arts centre. — Bloomberg

Source: Business Times, 29 Jul 2010

SHOPPERS in China kept up their pace of spending and helped CapitaRetail China Trust (CRCT) deliver robust results in the second quarter.

The property trust saw net property income rise 8.8 per cent year-on-year to 97.2 million yuan (S$19.7 million) as revenue increased at its busy malls and property expenses decreased.

Distribution per unit was up 6.7 per cent at 2.07 cents from 1.94 cents a year ago, while distributable income rose 7.3 per cent to $12.9 million. Payouts will be distributed on Sept 24.

Gross revenue rose 3.7 per cent to 145.1 million yuan year-on-year, but fell 2.8 per cent in Singapore dollars because of the local currency’s rise against the yuan in the three months to June 30 compared with a year ago.

Mr Victor Liew, chairman of CapitaRetail China Trust Management, said resilient domestic consumption is still driving growth in China, whose economy is expected to grow 10.5 per cent this year.

‘We continue to benefit from the Chinese government’s stimulus measures to boost domestic consumption and maintain stable and sustainable economic growth,’ he said.

CRCT said tenant sales grew 28.8 per cent while shopper traffic was up 14.4 per cent over levels last year. Occupancy rates are at 96.1 per cent.

The trust’s portfolio consisted of eight retail mall properties in five cities worth 5.8 billion yuan as of June 30.

Net asset value per unit as of June 30 was $1.13. CRCT’s units closed up one cent at $1.26 yesterday.

Separately, Ascott Residence Trust reported a 4 per cent rise in distribution per unit to 1.87 cents in the second quarter from 1.79 cents a year ago.

Distributable income was up 5 per cent at $11.6 million while revenue rose 3 per cent to $44.4 million. Payouts will be made on Aug 27.

Ascott Residence Trust Management’s chief executive, Mr Chong Kee Hiong, said the rise in revenue was led mainly by a better performance in China and Singapore arising from higher occupancies and rental rates.

‘The level of business activities in Singapore has increased in line with the strong economic growth, resulting in higher demand for serviced residences,’ he said.

Ascott Reit’s portfolio has a total asset value of $1.59 billion, comprising 38 properties with 3,644 units in 11 cities across seven countries.

Net asset value per unit as of June 30 was $1.38. Ascott Reit’s units closed down one cent at $1.23 yesterday.

Source: Straits Times, 24 Jul 2010

(BEIJING) A typical Beijing flat costs about 22 times average incomes in the city, state media said yesterday, highlighting the challenge China faces providing affordable housing amid a property boom.

A 90-square-metre apartment in Beijing cost 1.6 million yuan (S$325,331) last year, the China Daily said, citing an independent report. That compared to an average household disposable income of around 71,000 yuan in 2009, according to city figures. The report was completed by the Beijing University of Technology and the Social Science Academic Press.

It said the building of low-cost, government-subsidised housing had failed to meet demand and called on policy-makers to increase the supply of land for such projects.

Authorities in China have issued a slew of measures in recent months aimed at preventing the property market overheating and causing a bubble that could derail the world’s third-largest economy. Chinese property prices in June fell 0.1 per cent from the previous month, their first monthly fall since the first quarter of 2009, according to official data. — AFP

Source: Business Times, 20 Jul 2010