Developers gamble on China's growth

Housing project billboards in China's big cities often proclaim: "Built by a Singapore developer", generally regarded as a sign of quality. Picture / Reuters

Billboards at housing projects in China's main cities often proclaim: "Built by a Singapore developer" - a sign of how the city-state's reputation for rigorous urban planning gives its developers an edge.

Now those billboards are also sprouting up in China's second-tier cities as Singapore's property firms bet on rising affluence and wider home ownership in the world's most populous nation.

"Singapore is a very good brand name in China and people can expect better quality," says Lim Ming Yan, China chief executive at CapitaLand, Southeast Asia's biggest property developer.

Singapore developers, flush with cash and facing a saturated home market, are expanding beyond Beijing and Shanghai to where markets are less developed.

China brings in a third of their profits and they see scope for this to grow as more Chinese enter a market liberalised only 15 years ago to allow private home ownership.

But analysts say the shift beyond the biggest cities is not without risk and there could be a repeat of the bursting of Shanghai's property bubble.

Margins are thinner in China's hinterland as there are fewer foreign buyers for luxury apartments and developers can get embroiled in legal disputes given that private negotiations are still the norm.

But even as property prices in Shanghai cool after years of spectacular growth, CapitaLand and KepLand see strong demand for homes, shopping malls and offices in China's fast-growing secondary cities.

More people are moving from the country to the city amid an economic boom, putting pressure on housing.

"Demand for quality housing has soared with affluence," says William Ong, general manager in Shanghai for KepLand, Singapore's third-ranked property developer.

Chinese mortgage loans reached 1.67 trillion yuan ($304 billion), exploding from next to nothing since 1998 when Beijing stopped providing urban workers with free housing.

Ong says that about half the new property sales in Chengdu - China's fourth city, with 10 million people - are to people from outside the city, such as retired chemist Hu Jun Ming and her husband, Shen Ye. The China-born couple, who have lived in New York for the past 20 years, bought a new two-bedroom flat in Chengdu for 690,000 yuan ($125,450) so they had somewhere to stay on their annual trips from the US.

"We thought it might get cheaper but it hasn't - now the yuan is going up and the US dollar down," says 64-year-old Hu as she studies the apartment plans in KepLand's swanky showroom, replete with bamboo and ponds full of koi carp.

Like foreign investors such as Morgan Stanley Real Estate Funds and ING Real Estate - both in residential joint ventures with Hong Kong-listed Shanghai Forte - Singapore's biggest property firms have tended to focus on China's financial centre of Shanghai and capital of Beijing.

In office properties, Singapore firms such as KepLand and CapitaLand compete against Hong Kong's Cheung Kong (Holdings) and Hang Lung Properties. US mall developers Taubman Centers and Simon Property Group are rivals in building shopping centres.

Shanghai accounts for more than half CapitaLand's China sales, says Lim, but he predicts the firm's China revenues will soon be split evenly between Beijing, Shanghai and Guangzhou.

CapitaLand has China assets of S$2.2 billion ($1.94 billion), 13 per cent of its total assets.

It is building 25 malls and has office and residential projects in coastal cities such as Guangzhou.

Rival KepLand is building high-density, high-rise homes in the western province of Sichuan, and in Jiangsu in the east.

KepLand, with investments of S$320 million ($282 million) in China, has raised its stake in Singapore-listed Chinese property developer Dragon Land to 52 per cent and says the unit will develop housing in cities such as Qingdao, where annual incomes average about US$6000 ($8815).

Singapore developers face fewer international rivals outside China's leading cities, competing instead against local developers such as Overseas Chinese Land, Vanke and Shanghai Forte.

Analysts say Singapore firms, with strong cash balances and a reputation for quality, are better placed to take on their Chinese rivals, many of whom face financing pressure because of tight bank lending policies and a property slump in Shanghai, where some properties have fallen 45 per cent in value since May when the Government imposed sales taxes to curb speculation.

Developers seek rates of return of at least 25 per cent in China and some of the more lucky ones gleaned as much as 40 per cent from Shanghai projects during its boom days.

Although the open-tender system is being adopted nationwide, private negotiations are still the norm in smaller markets and some developers have found themselves embroiled in legal disputes.

Liew Mun Leong, head of CapitaLand, describes China's immature market as a minefield. "When you buy a piece of land in China, you have to be very sure that your title deeds are clean and clear, that your resettlements are all resolved."

- REUTERS