Keppel JV Buys Stake in Gemdale Shanghai Residential Project for $49M

Singaporean conglomerate Keppel Corp has teamed up with a mainland investor to acquire a 20 percent stake in a residential site in Shanghai’s suburban Jiading district from local developer Gemdale for RMB 344 million ($48.7 million).

The acquisition is made through Keppel’s China Urban Development Investment Programme, and Keppel and a co-investor are each contributing 50 percent of the capital for a joint venture company which is developing a 93,871 square metre (1 million square foot) residential project, according to a Keppel statement to the Singapore Exchange Monday. 

“Shanghai is one of Keppel Land China’s focus cities. We are positive on its long-term outlook and continue to look out for investment opportunities there,” a Keppel Land China spokesperson told Mingtiandi. “Having worked together on successful projects such as China Chic in Nanjing and Upview in Shanghai, we are confident of building in our partnership with Gemdale to create and capture value through the latest acquisition.” 

The spokesperson referred to the project around six kilometres (3.7 miles) east of Shanghai’s Formula One raceway as a good opportunity for Keppel to jointly invest with Gemdale in a well-located, mid-sized residential site at “an attractive land price”.

While Keppel did not disclose the name of its co-investor in the joint venture company named Taicang Jihui Real Estate Consulting Co Ltd, shareholding information on the Qichacha business information platform shows the other shareholder to be Guangzhou Runshi Investment LLP, an affiliate of mainland private equity firm High Fund. 

Loan-to-Equity Conversion

The deal comes less than four months after Gemdale teamed with Shanghai Forest Manor Enterprise Management Consulting to outbid rivals Poly Developments and Holdings Group and Yuexiu Property in acquiring the 24,908 square metre site in northwest Shanghai for RMB 1.6 billion in a land auction, according to government records. 

At the stated consideration, the investment by the Keppel joint venture now values the project at RMB 1.72 billion, or RMB 18,323 per square metre of gross floor area.

Keppel said its JV has provided loans totaling RMB 344 million to Gemdale for its acquisition and development of the site, and the loans are intended to be converted into a 28.6 percent stake in Taicang Xintao Real Estate Consulting Co Ltd, a Gemdale subsidiary that owns 70 percent of the project company. 

The conversion, which will give Keppel and its partner the equivalent of a 20 percent stake in the project, is expected to take place by December. The transaction is subject to approval by regulatory authorities, said Keppel.

Located about 10 to 15 minutes’ walk from the Malu station on subway line 11, the site will be developed into a residential complex spanning eight condominium buildings of 18 storeys each and a 16-storey affordable housing tower, according to a project plan published on the Jiading district government website.

The buildings are planned to yield 576 condominium units and 48 affordable housing units. 

Current home prices in the area average roughly RMB 40,000 per square metre, according to Savills. Public records of the land sale show the suggested retail price for homes in the project is RMB 49,800 per square metre.

Asian Brothers

“Singaporean and Hong Kong investors are more active making real estate investments in China compared with their western peers. They tend to have a more extensive on-the-ground presence, long-term commitments and stronger developer and asset management backgrounds,” James Macdonald, head of Savills Research China, told Mingtiandi.

Keppel entered the China market in the 1980s and has developed projects in nearly 30 Chinese cities, according to a report by China News Service. 

The Temasek Holdings-backed developer is familiar both with Jiading district, and with the immediate neighbourhood of Gemdale’s project, having acquired a shopping center project above the Malu metro station in 2016.  

It has also worked with Gemdale to co-develop a residential project near the Malu site under the mainland company’s high-end Upview residential brand. Keppel is currently on track to complete its Park Avenue Central commercial project in Shanghai’s Jing’an district during 2024.

Keppel is also a lead investor in both Suzhou Industrial Park and Sino-Singapore Tianjin Eco-city, with both joint ventures supported by the Chinese and Singaporean governments.

Gemdale, ranking seventh among mainland developers by contracted sales, is one of the industry’s more financially stable firms, but has also suffered from weak demand for its homes amid the current property crisis. The company’s contracted sales for the first ten months of this year were down 30 percent from the same period of last year.

In September, Moody’s affirmed its corporate family rating for Gemdale at Ba2, which is non-investment grade, and changed the outlook of all Gemdale entities to negative from stable, citing weaker-than-expected contracted sales and weakening access to capital markets. The credit rating agency also revised down its contracted sales forecast for the developer in 2022 to RMB 220 billion from RMB 230 billion, and for 2023 is estimating RMB 200 billion after earlier projecting RMB 245 billion.

Note: This story has been updated to clarify that Keppel had acquired its Malu shopping centre project in 2016, and not 2021. The story also has been updated to show that the Park Avenue Central project will be completed in 2024, and not 2023, as stated in the earlier version. Mingtiandi regrets the errors.