While most real estate developers in China are turning cautious about taking on new housing projects in second and third-tier cities, SM Group’s Henry Sy is announcing new residential developments planned for the cities of Chengdu and Yangzhou.
Sy, who is ranked by Forbes as the Philippines’ richest man with a fortune of $12.5 billion is planning the new residential projects to sit alongside the chain of malls that his company is currently developing in China, including a project in Tianjin aimed at being the world’s largest mall.
Speaking to media in the Philippines this week, Jeffrey Lim, executive vice president and chief financial officer of Sy’s SM Prime division provided some details about the company’s plans for Chengdu and Yangzhou.
“In the next year or so, we will probably be able to launch [the residential project],” Lim told reporters.
SM currently has a mall operating in Chengdu, in Sichuan province, and another project which has just been launched in Yangzhou in Jiangsu province. The company also operates malls in Xiamen, Jinjiang, Suzhou and Chongqing, as well as having recently launched a new retail development in Zibo, Shandong province. SM has previously announced plans to list its China mall assets publicly, and has been borrowing money this year to fund those plans.
Optimistic Despite the Slowdown
Despite the recent downturn, which has seen home prices in China slide for the past four months, and growing evidence of developers shying away from launching new projects. SM appears confident in its prospects for moving into residential in China, even in a third-tier city such as Yangzhou.
“There are people saying that seems to be slow down [in the China property market], but depending on the area. We are positive about our development because it is within vicinity of the mall, so it is attractive to buyers,” Lim said.
Chengdu Among China’s Most Challenging Cities in 2014
Linking the housing to the retail development could be a productive strategy provided that the mall succeeds in drawing business to the area. At least in the case of Chengdu, this situation may be complicated by a flood of new retail projects in the city.
A study published earlier this year by real estate services company CBRE found that Chengdu placed first among cities globally in providing more floor area for its populace to shop, with over one million square metres of new malls opening last year in seven new centres. The glut of new space has caused widespread reports of malls devoid of shoppers as the city’s consumer culture continues to lag its new mall space.
The residential situation in Chengdu has also turned challenging, with average home prices declining there 0.6 percent last month according to the National Bureau of Statistics. The gloom over real estate in the capital of Sichuan province has become pronounced enough that three out of four plots of land put up for auction in the city last week received no bids from developers.
For SM’s Yangzhou project the outlook is harder to divine, if only because there is less published information regarding the third-tier city. Average prices fell in Yangzhou 0.3 percent during June compared to May, the second straight month the city had encountered sliding real estate sales according to the National Bureau of Statistics.
Yangzhou sits just across the Yangtze River about 110 kilometres away from the Jiangsu city of Changzhou, where last month local government leaders made the news by taking out media advertisements promoting real estate investment in what the Wall Street Journal calls “one of the country’s best-known ghost towns.”
SM and Sy have been working hard for the last several months to find a way to finance their chain of China malls until they can list the company publicly, and its possible that the planned residential projects are another way to generate cashflow through pre-sales of housing to Chinese individuals fond of property investments.