Guocoland bets Chinese property prices will stay high

GuocoLand China, the Chinese property arm of Malaysian tycoon Quek Leng Chan, continues to be bullish on China despite the various curbs imposed by the authorities in their attempts to cool the property market there.

In fact, it is so confident that prices will continue to remain high, that it recently bid for a piece of land in Shanghai’s Putuo District at a price even above those it obtained when it launched residences across the road in its Guoson Centre Shanghai Changfeng.

The wholly-owned subsidiary of Singapore-listed GuocoLand won the tender, paying about 3 billion yuan ($585 million) for the 47,675 sq m purely residential site, or nearly 25,000 yuan per sq m per plot ratio.

By contrast, it obtained just 18,000 yuan per sq m for its properties in Guoson Centre Shanghai Changfeng when they were launched a couple of years ago. Now, those properties are fetching about 35,000 yuan per sq m.

Although it has a land bank of about 2 million sq ft in China, GuocoLand China continues to be on the lookout for development sites in the country, focusing on the key cities of Beijing, Shanghai, Tianjin and Nanjing.

“We are also looking at Chengdu in Sichuan province, but with so much going on in these places, we don’t have the resources or the interest in the secondary cities,” says GuocoLand China head Violet Lee, a former Miss Singapore who has been living in China for the last 15 years.

“Despite the curbs and talk of a property bubble, prices have held up in the key cities,” she adds, noting that the Chinese home buyers borrow comparatively little for their purchases.

Asian Development Bank figures show that property loans last year comprised less than 18.5 per cent of total bank loans in China, compared with over 51 per cent in Singapore, 38 per cent in Malaysia and 41.5 per cent in Taiwan.

“Many Chinese continue to come in with cash to pay for their properties. And income among China’s 1.3 billion population continues to rise,” Ms Lee says.

According to Fortune Magazine, only 40 per cent of China’s property purchases are financed with mortgages, the rest being bought for cash.

Ms Lee’s confidence in China comes despite GuocoLand’s legal dispute over the Dongzhimen project in Beijing with its former vendor.

The project, Guoson Centre Beijing Dongzhimen, has a gross floor area of 600,000 sq m comprising a 160,000 sq m mall, a five-star hotel owned and run by the group, twin office towers and a residential block which may be converted to serviced apartments.

But because of the legal dispute, it cannot sell any of the properties, although it currently derives some rental income.

GuocoLand China is also looking to extract value from its Chinese operations. “One option is to inject our integrated projects in Beijing and Shanghai into a Reit (real estate investment trust), the other is to list the company separately in either Hong Kong or in one of the Chinese exchanges,” says Ms Lee.

Guoson Centre Shanghai Changfeng is an integrated development which has a gross floor area of almost 500,000 sq m on a 143,845 sq m site. It comprises a 130,000 sq m mall which was opened just last month, the five-star British style Guoman Hotel, two SOHO (small office/home office) towers, three premier office towers and a block of serviced apartments.

If the Reit does not come about, GuocoLand may sell its office blocks in both Beijing and Shanghai to other buyers.

“Everything depends on where we can obtain best value,” says Ms Lee.

Source : Today – 7 Jan 2011

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