Why top PHL developers are expanding in China
EVEN its dismal economic numbers, China continues to attract top Philippine property developers who are searching for growth outside its borders in an effort to diversify their revenue streams.
Gokongwei- owned Robinsons Land Corp. on Tuesday said it acquired land use rights to an 8.5- hectare ( ha) property in Chengdu, becoming the third major local property developer to venture into China’s real estate market after SM Prime Holdings, Inc. and Ayala Land, Inc.
Robinsons Land is spending $200 million to secure the land and may spend “a few hundred million dollars” to build a residential project on the property catering to the upper- middle market, company President Frederick D. Go told reporters on the sidelines of the 17th Asia Pacific Retailers Convention and Exhibit in Pasay City yesterday.
“It’s a good regional expansion strategy to help grow the base of Robinsons Land... We are very confident in our ability to execute this project very well,” Mr. Go said.
Robinsons Land will be selective in its overseas expansion, as it continues to scout for opportunities not only in China, but in other markets in Southeast Asia as well, JG Summit Holdings, Inc. Senior Vice-President and Chief Strategist Bach Johann M. Sebastian said in a phone interview.
JG Summit controls Robinsons Land.
“We have been looking around the region, but the opportunity that came up first was in China,” Mr. Sebastian said.
The Gokongwei family has long been a player in the Chinese real estate market, with private investments in Chengdu, Xiamen, Tianxi and Shanghai, Mr. Sebastian said.
Robinsons Land’s foray into China — the first overseas venture for the property developer — came at a time when the world’s primary growth engine has been losing steam. Third- quarter growth stood at 6.9%, the weakest pace since the global financial crisis, forcing its central bank to further loosen its monetary policy so it can hit its 2015 growth target of 7%, the slowest pace in more than two decades.
“When China is slowing down, it’s growing from 7% to 6%, but it’s a trillion- dollar economy. Too much has been said about the slowdown, but it’s still very impressive growth,” Mr. Sebastian said.
KEY TO CHINA EXPANSION
The key to expanding in China is to find pockets of growth, Mr. Sebastian said. Robinsons Land plans to build residential projects with a commercial component in Chengdu, where SM Prime is also developing its first residential project beside its existing shopping mall.
Chengdu is “quite a good place to invest in,” Mr. Sebastian said, citing its well- developed infrastructure and vibrant commercial center.
Despite the lower- thanexpected economic growth figures, the medium-to-long-term prospects of the Chinese property market have recently improved, Claro dG. Cordero, Jr., head of research and valuation at real estate advisory firm Jones Lang LaSalle, said in a mobile phone message.
“Chinese investors will also look at options in the emerging second tier cities (Chengdu is one of them) as part of the diversification strategy in a reaction to the softer growth of the Chinese economy in the near- to mediumterm,” Mr. Cordero said.
SM Prime President Hans T. Sy said last month land prices have dropped recently because of the turmoil in China, but remained committed to expand in the world’s second-biggest economy.
“Our existing China mall businesses remain profitable despite the marked slowdown of its economy. Our malls are located in cities that are still enjoying relative higher growth compared to the main cities that are experiencing over capacity,” SM Prime executive Vice-President Jeffrey C. Lim said in a mobile phone message.
Apart from Chengdu, the Henry Sy-led firm has shopping centers in the cities of Xiamen, Jinjiang, Suzhou, Chongqing and Zibo.
In August 2010, Ayala Land entered the Chinese market after wholly- owned subsidiary Regent Wise Investments Limited signed an equity joint venture agreement with Sino- Singapore Tianjin Eco-City Investment and Development Co. Ltd. (SSTEC) for a $ 220- million residential project on a nearly 10- ha lot within Tianjin Eco-City.
However, ALI’s project in China suffered sluggish sales, feeling the pinch of a move to cool an overheated property market, its Chief Finance Officer Jaime E. Ysmael had said.
Property behemoths expanding outside their home turf shows the strength of the local developers, which have benefited from a real estate boom in recent years.
“Managing risks means you don’t put all your eggs in one basket. You take a look at the geography and see where you can operate,” Mr. Sebastian said.
“The big fish are going into bigger ponds so to speak,” Julius Guevara, head of advisory services at Colliers Philippines, said in a mobile phone message.