Swire Properties has taken another step toward fulfilling a HK$50 billion ($6.4 billion) mainland China investment plan by partnering with state-owned China Tourism Group Duty Free Corporation Limited (CTG Duty Free) to develop a resort-style retail complex in Hainan province.
A Swire joint venture with a subsidiary of the world’s largest duty-free operator successfully acquired a site in the resort city via a government land sale for RMB 1.31 billion, Swire announced on Monday, with plans to open a shopping destination.
“Thanks to its tropical climate and abundant natural resources, and accelerated by the Hainan Free Trade Port policy, Sanya has fast become one of the most popular travel and leisure destinations in China,” Tim Blackburn, chief executive of Swire Properties, said in the company’s statement. “This site presents an exciting opportunity to develop a high-quality retail complex to satisfy the growing demand for a premium retail experience in the region.”
Swire and CTG Duty Free have agreed to each invest RMB 1.25 billion for a 50 percent interest in the project, and neither party will be a controlling shareholder, according to a filing by the Chinese duty-free operator to Shanghai stock exchange.
After having taken on seven large-scale commercial projects in mainland China, Swire is headed to the islands.
“This will be our first ever resort-style retail complex. The design will embrace Sanya’s tropical coastline and unique ecological landscape, whilst taking inspiration from the traditional fishing settlements of the indigenous Dan community,” said Han Zhi, a director with the retail team at Swire Properties.
Its latest undertaking is located about one kilometer from the Haitang Bay Beach and about a one-hour drive from Sanya Phoenix International Airport.
“With the 22 kilometres of coastline along Haitang Bay as a backdrop, we intend to curate a unique experience featuring premium retail with arts and cultural elements to create a major luxury travel destination in Hainan,” Han added.
The project, which is to be completed in phases from 2024, will cover a total site area of 207,488 square meters (2.2 million square feet) and the joint venture has land-use rights for 40 years, according to CTG Duty Free’s statement.
Forming the third segment of CTG Duty Free’s Sanya International Duty-Free Complex, the new project will connect to the earlier phases, which were opened in 2014 and 2020, through a network of bridges, according to Swire.
Nearly the size of Taiwan, Hainan is China’s largest special economic zone. Beijing plans to turn the island into the world’s largest free-trade port by 2035 with tax cuts to attract investors and businesses and looser visa requirements to lure foreign tourists and talent.
“The duty-free sector has picked up significant momentum since 2020 when international travel became more challenging,”James Mcdonald, head of research for Savills in China, told Mingtiandi.
He stressed, however, that, “There are however still a number of unknowns when it comes to the long-term prospects, not least competition from online duty-free sales and other city’s duty-free ambitions as well as whether or not the long-term vision of creating Hainan as a duty-free island can come to fruition and what the impact would be on duty-free malls,”
Speaking of the prospects for Swire’s project in Hainan, Mcdonald considers the developer “one of the best retail developers and operators in the country”.
“The vision of not just creating a duty-free mall but a retail destination for duty-free, taxed goods, leisure entertainment and eateries should give the project better long term prospects,” he said.
CTG Duty Free, which established its secondary listing in Hong Kong in August, enjoys a near monopoly of the duty-free retail market in Hainan, which has suffered this year as outbreaks of the more infectious Omicron variant hit Chinese cities.
Covid lockdowns caused the duty-free operator’s revenue for the first half to decline by 22.2 percent and its net profit to plunge by 26.5 percent from a year earlier, although data for the month of June improved, according to CTG Duty Free’s interim results.
The daily average sales of top duty-free malls in Hainan during the week-long National Day holiday in the beginning of this month were down about 45 percent from last year, according to official statistics, showing the lingering effect of Covid on the sector.
“This new development will have positive synergy with Phases I and II of the Sanya International Duty Free Complex, and provide a premium retail experience alongside duty-free shopping in the area. We believe this combined experience will enrich Sanya’s travel and leisure offerings, further attracting overseas visitors and putting Haitang Bay on the map as a tourist and shopping destination.” said Peng Hui, chairman of CTG Duty Free.
More Mainland Moves
The project will mark Swire’s first foray into Hainan after earlier projects in Shanghai, Beijing, Guangzhou, Shenzhen, Chengdu and Xi’an. In March the developer announced a plan to invest HK$50 billion in mainland China, with an aim to double its attributable gross floor area in the country.
In March, a Swire joint venture spent RMB 2.57 billion to acquire a site in Xi’an for a high-end retail project in the capital of Shaanxi province. The joint venture expects to invest RMB 10 billion to develop Taikoo Li Xi’an, which would become the fourth Taikoo Li commercial project on the mainland.
Then in August, Swire announced plans to open a luxury hotel in Shenzhen under The House Collective brand.
Last month, Swire broke ground for its Julong Bay commercial project in Guangzhou’s Liwan district as Swire chief executive Blackburn made a stop to the city during his mainland trip.
Also during Blackburn’s trip last month, Swire signed a letter of intent with state-owned Lujiazui Group to develop a 600,000 square metre (6.5 million square foot) mixed-use project just across the street from their Taikoo Li Qiantan mall in Shanghai.
The developer also has shopping mall joint ventures in Beijing and Chengdu with Sino-Ocean Group.