Vantone Chairman Feng Lun
One of China’s pioneer private real estate developers has some advice on how his friends and competitors can survive the current downturn in the sector, and it starts with innovation.
Speaking at a real estate finance event in Beijing last week, Feng Lun, chairman of Shanghai-listed developer Beijing Vantone Real Estate said that after twenty years of rapid growth, China’s market is now “totally saturated,” and the key to achieving good returns going forward will be for developers to distinguish their products and to branch out into financings and cooperative business models.
Vantone’s Place in the China Real Estate Club
Although Vantone is not currently ranked among China’s largest developers, its history as a training ground for a number of industry tycoons, gives Feng a special place in China’s real estate club. Among Feng’s co-founders when he started the company in 1993 were SOHO China’s Pan Shiyi and Yi Xiaodi, the chairman of listed developer Sunshine 100.
And with an estimated $2 billion in assets, Vantone seems to be doing just fine. Feng expects, however, that maintaining and growing those assets, will mean going beyond just building and selling houses.
Specialised Developers for Higher Value Added Projects
In his presentation at the event Feng said that one of the most important strategies for selling into China’s current market is to develop specialised products that can achieve higher returns.
The tycoon cited Vanke’s shift from being a house builder to being a “comprehensive urban services provider” as a good example of necessary innovation. The Shenzhen-based developer has also been branching out from its residential roots this year to venture into logistics real estate development, and other new sectors.
Feng also praised Dalian Wanda’s ability to adapt from first being a residential developer, then into commercial developments, and now venturing into higher value resort and cultural projects. Wanda is currently planning a chain of cultural resorts in China, and its boss, Wang Jianlin, made international headlines in 2012 when he acquired US theatre chain AMC.
Finance and Services Seen as Key
Another potential area for improved returns for developers will be providing services, such as financing, and property management, according to Feng.
Already in the past year, China Vanke took a $442 million cornerstone position in the IPO of Huishang Bank and competitor Guangzhou Evergrande followed suit early this year by spending more than $500 million to grab a five percent stake in Huaxia Bank. By providing home financing and other banking services, developers see the potential for getting an edge on their competitors and making it easier for potential homeowners to acquire new housing.
Working with Funds
Feng also pointed to opportunities for developers to profit by building projects together with investment funds.
Vantone’s chairman pointed to his own group’s cooperation with US hotel chain Sheraton, and fund investors as an effective way for developers to remain competitive in the new environment.
Vantone has cooperated with Sheraton on a number of hotel projects in Hohhot, Beijing, Tianjin and other locations. In these hotel projects Vantone has managed the development, while Sheraton operates the hotel, and financing came at least in part through private equity funds.
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