Shui On Land Wins Pair of Shanghai Sites for Combined RMB 5.74B

Hong Kong-listed Shui On Land agreed to pay a combined RMB 5.74 billion ($820 million) for a pair of Shanghai development sites last week, picking up one each on Thursday and on Friday.

The two new sites include a 15,258 square metre (164,236 square foot) commercial plot in Putuo district which Shui On says it will turn into a new office and retail complex modeled after its Xintiandi project, and a 90,059 square metre set of residential parcels in Qingpu district.

The purchase of the sites adds over 239,000 square metres (2.57 million square feet) of new projects to the developer’s pipeline just over 10 months after Shui On formed a joint venture with insurers China Life and Manulife as it fights its way back from years of financial struggles.

Putuo Project Adopts Xintiandi Formula

Shui On announced in a filing to the Hong Kong Stock Exchange on November 1 that a subsidiary of the company had agreed at a government auction to purchase the commercial site along Changshou Road in Putuo district for RMB 1.86 billion. The plot, which lies to the south of the east-west thoroughfare is bounded to the east by Xikang Road and extends south to Xinhui Road.

“Urban regeneration will continue to be a major development opportunity for city core transformation in first-tier cities like Shanghai,” said Stephanie Lo, Executive Director of Shui On Land. “Given limited land resources in particular in city center areas, urban regeneration provides sustainable approach to the best use of land. In addition, there is also increasing governmental and public awareness in balancing development needs with the need to preserve historic and cultural elements.”

The project is approved for development of 63,021 square metres of above ground space, including 49,617 square metres of offices and 13,404 square metres of retail, plus another 20,000 square metres of underground area. At the price commanded for the land, Shui On, which says both projects will be financed by its internal resources, is paying the equivalent of RMB 29,514 per square metre for the Putuo project.

The developer says that is plans to develop the site, which is located about 300 metres from the Changshou Lu metro station on lines 7 and 13, and about 3.5 kilometers northwest of the Nanjing West Road business district, into a Grade A office building and a “Tiandi” Style retail complex which it expects to complete during the second half of 2023.

The new project will bring the total commercial space owned or managed in Shanghai by Shui On to 1.71 million square metres, with a total asset value of RMB 75 billion, according to the company.

Leveraging Improved Access in Qingpu

Shui On’s Friday announcement of the Putuo project came just one day after the developer announced to the stock exchange that it had purchased a residential site in western Shanghai’s Qingpu district for RMB 3.88 billion.

The site, which consists of four separate parcels adjacent to the Panlong road metro station along the city’s line 17, is approved for development of up to a total gross floor area of 176,251 square metres. At the agreed land premium, Shui On is paying the equivalent of RMB 22,014 per square metre of gross floor area.

The project, which is part of a master plan for the Greater Hongqiao central business district is just one metro stop away from the National Exhibition Centre in Qingpu, which serves as the venue for the the annual China International Import Expo (CIIE).

Previously considered a far-flung suburban area, the Shanghai government has been encouraging the development of Qingpu district and the opening of metro line 17 two years ago has improved access and property values in the area. The Greater Hongqiao Business Area, an 86 square kilometre community being built around the Hongqiao transportation hub, which encompasses the airport and the neighboring high speed rail station, is seen driving demand for housing in the district,

Shui On Bounces Back

The two Shanghai acquisitions follow just over one year after Shui On led the RMB 13.6 billion purchase of a commercial site near Shanghai’s Xintiandi last July in a come back after the firm and its affiliates had sold off some RMB 45 billion ($6.5 billion) of assets in a multi-year drive to reduce debt.

Shui On, which partnered with state-owned China Life Insurance and Canadian multinational Manulife Financial earlier this year to invest in commercial real estate ventures in China, has been pursuing an “asset light” strategy since at least 2015.

The developer’s interim results showed a marked increase in recurrent income with rental and related income growing by 17 percent year on year in the first half of 2019.

Shui On’s gross profit margin also increased by 18 percentage points to 45 percent in the first half of 2019, compared to 27 percent during the same period last year, while profit attributable to shareholders rose 8 percent year on year to RMB 1.3 billion.

According to the company’s September property sales update, accumulated contracted property sales reached RMB 4.3 billion for the first eight months of 2019, comprising residential property sales of RMB 4.06 billion and commercial property sales of RMB 236 million respectively.