CapitaLand bullish on its prospects in China

A slowdown in Chinese economic growth does not faze property developer CapitaLand, which is expecting record home sales for its projects in the country this year.

Its malls in China have also been generating improved tenant sales of about 9 per cent year on year.

"We are still confident about China... The key thing underpinning our optimism in China is urbanisation trends and its large (population). Even at about 6 to 7 per cent (annual) economic growth, China has good prospects for real estate over the next 10 to 20 years," CapitaLand China chief executive officer Lucas Loh said on Monday (Nov 16).

He was speaking at a presentation for analysts and media during a trip to some of its properties there.

The company's business in the country is focused on Tier 1 and Tier 2 cities in five clusters - Beijing and Tianjin; Shanghai, Ningbo, Hangzhou and Suzhou; Guangdong and Shenzhen; Wuhan; and Chengdu and Chongqing.

CapitaLand may tap on some trends there, including recent liberalisation in its capital markets, said Mr Loh. For example, it is considering issuing onshore corporate bonds. Other major Chinese developers have been doing so with attractive interest rates of mostly about 4.25 to 4.5 per cent per annum, he noted.

Other ways it seeks to drive return on equity (ROE) includes enhancing project execution, such as managing costs and making some designs modular.

"The golden era of real estate in China has passed... residential pricing growth rate has slowed down, so (we are focusing) on project execution to maintain project margins we have set for ourselves," said Mr Loh.

Replenishing land bank is also key. CapitaLand will focus on Tier 1 and major Tier 2 cities for residential sites, and Tier 1 cities for integrated development sites like its Raffles City projects.

The company aims to acquire land via mergers and acquisitions and joint ventures, such as its Hanzhonglu joint venture project in Shanghai with the Shanghai Metro.

Urban renewal sites are also possible, such as its Datansha Urban Redevelopment project in Guangzhou. "As transport networks improve in cities, there is a need to improve development around these hubs and that's where we see opportunities," said Mr Loh.

The company has a residential pipeline in China of 37 projects in 15 cities, or about 7 million sq m of gross floor area. Its land bank is currently concentrated in the south and south-west, less so in the north and east.

Mr Loh said it could hit about 8,000 home sales for the whole of this year with about 14 billion yuan in value - a record for the company.

It has several more Raffles City projects lined up from now till 2018 as well, with the phased openings of two such developments in Hangzhou and Changning, Shanghai, scheduled for next year.

On the malls front, it has opened about 54 in China and is set to open 10 more. Its China malls will stay competitive by engaging shoppers online, using WeChat and its CapitaStar rewards programme.

CapitaLand's serviced residence arm Ascott has been scaling up in China as well. It owns and manages 80 properties with over 14,300 serviced residences in the country, and is on track to achieve its target of 20,000 units by 2020 there, said Ascott North Asia managing director Kevin Goh.

Strategic alliances, such as its investment in and joint venture with online apartment-sharing platform Tujia.com earlier this year will help its growth. Ever since listing its Chinese properties on the site in September, Ascott's revenue from the site is doubling monthly, Mr Goh added.

The joint venture is also looking to set up a mass market brand early next year.

'We are still seeing high growth happening in China. China is going through a major transformation and moving towards a service-oriented economy... Tier 1 and upper Tier 2 cities will continue to benefit from urbanisation trends which will create demand for real estate," said CapitaLand chief executive officer Lim Ming Yan.

"CapitaLand is in a unique position given our presence here, our understanding and team of people on the ground... It puts us in a strong position to ride the growth."

wrennie@sph.com.sg