CapLand patiently commits billions to China
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Cai Haoxiang
The Business Times
Friday, Nov 09, 2012
The Business Times
Friday, Nov 09, 2012
SINGAPORE - Even as China's growth slows and property prices surge, CapitaLand continues to pump billions into the country.
The property giant, with $13 billion or 38 per cent of its assets in China at the end of September, believes demand factors are in its favour.
For one thing, China's gross domestic product is expected to grow at 8.1 per cent next year, up from a projected 7.7 per cent this year.
Sales growth levels might have slowed this year but are still expected to hit double-digit levels.
Shopper traffic and property yield indicators, too, are looking up.
Managers on the ground are confident of demand for residential and office properties, and for shoppers to flock to malls that are being built.
CapitaLand's strategy is to target the masses and the upper-middle class market through three main components.
It has a range of shopping malls offering various experiences, apartments for sale, and landmark Raffles City mixed-use developments for office, mall and residential use.
But it faces some challenges.
A tight labour market makes it difficult to retain local talent.
Opportunities abound for mall management deals but high residential prices are making offer prices unrealistic.
The group has $5.4 billion in cash.
But it is in no hurry to do deals, management said as it took about 15 journalists and analysts on a five-day tour of some old and newly opened properties in Chengdu, Chongqing and Beijing last week.
Said CapitaMalls Asia (CMA) chief executive Lim Beng Chee: "We don't have to rush to buy. (Properties) need not be in the city centre, can be in a suburban location as long as there's catchment, transportation, then we can value-add. . .
"A lot of Chinese developers like to put in high-end (retailers). But for us, I like the mass market."
He added that CMA takes at least one to two years to close a deal.
"I never set a target for our investment people. We sometimes observe for a long period of time. If a deal doesn't smell right, we don't do it."
He said a slowdown might be good for a heated labour market.
Said Mr Lim: "Young people tend to be restless. When they are working in this job, they are looking at the outside to see who pays them higher. . . They will just jump and jump. A slowdown will give uncertainty as jumping to a job might not be better as you may lose it the next day."
The focus of the trip was China's fast-growing west, where disposable income and retail sales growth can be higher than China's average. Reporters and analysts were shown 21 areas: five residential and serviced apartments, six malls, two mixed-use developments, six other shopping areas, and two sites under construction.
CapitaLand's strategy in West China is to focus on both Chongqing and Chengdu, do well in its residential portfolio and build the Raffles City brand, said Hoon Teck Ming, CapitaLand regional general manager for Southwest China.
At densely built Chongqing, a bustling megalopolis of 30 million people in Southwest China, a $4.1 billion Raffles City development is being planned for a 92,000-sq-m site with a gross floor area of 817,000 sq m.
The development is located by Chaotianmen, a historic location at the confluence of the Yangtze and Jialing rivers. Many tourists were seen at the large square in front of the site, in part because various cruise-ship terminals were nearby.
The project was announced last November. Now, old buildings on the site are being cleared away and construction will begin early next year.
Zhang Kai, CMA investment and asset manager for West China, said: "We will continue to invest in Chongqing. We only have three projects here. More malls will give us a greater advantage in negotiations with retailers."
In Chengdu, a less densely populated city with a laidback environment, a mall that initially performed poorly has been turned around. Opened in 2006, CapitaMall Jinniu had a net property income yield on cost of 2.4 per cent in 2007. Yields have since risen to 8.7 per cent last year.
A combination of retail mix changes, asset enhancements to increase shopper traffic and tenant sales, and higher rentals did the trick.
An extension to the mall with more entertainment and sit-down food & beverage options is being built to attract more shoppers. It will be completed by the end of next year.
Meanwhile, another mall in Chengdu under construction, CapitaMall Tianfu, will have an ice-skating rink and a garden-like dining area at the top.
Said Chan Kong Leong, CMA senior vice-president of regional investment and asset management: "We are catering to aspirations. People want to be seen sipping coffee at Starbucks and taking their family to the malls. It's a sign that you have arrived."
For Raffles City Chengdu, which just opened in September, mall shopper traffic is now 25,000 to 30,000 people a day, said Mr Hoon. He does not anticipate any problems to fully lease out its office space by the end of next year. For the residential market, monetary easing and pent-up demand will stabilise prices after home purchase restrictions introduced earlier in the year caused prices to dip. They have since risen in the last three months.
At the Beaufort, a high-end 1,027-unit residential development on the 4th ring road of Beijing, Phase III units were 61 per cent sold when launched in May. They are now 86 per cent sold.
Around 50 to 60 per cent of Phase III customers are first-time buyers in Beijing. The average selling price is 45,000 yuan (S$8,825) per sq m, up slightly from the previous phase.
At the showflat, a Chinese couple in their early 30s were signing the purchase agreement. "This is our second property and we looked for six months," said the man. They paid about seven million yuan for a 160-sq-m apartment.
The man said the property's location was not ideal for them as it was in-between two subway stations and it takes him 30 minutes to drive to work from there. "But nearby, there is a property selling for 70,000 yuan per sq m. We feel that the quality for this place is good and prices will rise."
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