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Have Chinese developers created new dynamics in the Singapore property market?
channelnewsasia.com  |  August 12, 2017

Juwon Park Singapore

When a residential site at Stirling Road in Queenstown was awarded for development following a record bid of S$1 billion in May, the spotlight fell on the winning consortium - Nanshan Group from China and Hong Kong-based Logan Property.

 

Their successful bid continues a trend of Chinese interest in recent land tenders in Singapore.

 

For instance, five of the nine bidders for a development site at Tampines Ave 10 were Chinese. And out of five top foreign bidders from the last 12 months, three were from mainland China and Hong Kong.

 

With the property market in Singapore lacking the buoyancy of previous years as cooling measures continue to hold sway, some observers have questioned why Chinese developers are so keen to acquire development sites and willing to pay top dollar to do so.

 

CHINESE MONEY

 

Chinese company Qingjian Realty came to Singapore in 2008. Headquartered in Qingdao, it has more than 10 developments in Singapore.

 

Deputy general manager Yen Chong said the company decided to venture into Singapore because of the stability of the market and the commitment of the government to its people.

 

For an incumbent player such as GuocoLand, meanwhile, the interest of Chinese entities in the local market comes as no surprise.

 

“For any major regional investor, Singapore is almost like an asset class. It’s very often part of the diversification of assets &hellip so it is actually extremely competitive whether it is residential, mixed-development or commercial,” said Mr Cheng Hsing Yao, GuocoLand's group managing director.

 

But establishing a foothold in Singapore comes at a price. A case in point is the number of reports about Chinese developers bidding aggressively for residential plots, a move seen squeezing the profit margin of local developers while also pushing up overall costs.

 

According to a recent Cushman & Wakefield report, developers paid an average of 29 per cent more for residential sites in the first quarter of 2017 compared to 13 per cent in the second half of 2016.

 

However, Ms Christine Li, head of research at Cushman & Wakefield, said the higher premium this year stems from the optimism in the market rather than unrealistic bids.

 

“Over the past three years, if you look at the developers’ balance sheets, they are overall healthy because they’ve cleared off the most of their unsold units - the figure is at a historic low,” she said.

 

The recovery in the market has prompted developers &ndash from all countries - to bid higher, she addded.

 

“They are going in with the mindset that they will be selling within 12-18 months. That’s why they are bidding ahead of market fundamentals.”

 

Ms Chong of Qingjian Realty said she does not think that Chinese developers are bidding aggressively. “For us, what we have is a long-term vision,” she said. “We don’t just come here to hit and run for just one project.”

 

CHINESE STRATEGY

 

Some analysts believe that the experience of Chinese developers in their home market has shaped their strategies overseas.

 

Since 2001, property prices in first-tier cities such as Beijing, Shanghai and Shenzhen have steadily risen, despite various government initiatives to cool the market.

 

Mr Alan Cheong, senior director of research and consultancy at Savills, said going through the various stages of housing bubbles in China could have influenced Chinese developers’ strategy of making bullish bids for development sites - both at home and overseas.

 

“It’s rubbed off from their experiences in China,” he said.

 

“They may bid at zero margins but by the time they launch it, they make a handsome profit out of it. So they translate that to Hong Kong, they translate that into Singapore (and) that’s why we have aggressive pricing here in Singapore. It’s the mindset.”

 

Another characteristic of Chinese developers is the swiftness of their decision-making process, according to Mr Desmond Sim, head of Research, Singapore and SEA, at CBRE. He said this allows them to be more successful at land bidding.

 

“Most of the time, they (Chinese developers) would have a single approval person and it is faster than, for example, the Japanese or some other (companies).”

 

DEVELOPERS FROM MANY COUNTRIES

 

While the spotlight has fallen on Chinese developers, a closer examination of the market shows there is an even spread of developers from various countries making bids for development sites.

 

Out of 13 bidders for the Stirling Road land parcel, there were seven foreign developers - excluding a consortium of Singapore and Japanese companies. However, only two out of the seven were from mainland China.

 

The land parcel at Woodleigh Lane also showed bidders that are not from mainland China, according to the official document, which showed bidders from Thailand and Malaysia. Incidentally, the top two contenders were from Singapore.

 

This raises the question of why more attention is being paid to Chinese developers.

 

Mr Cheong of Savills said there is an element of “China-phobia” in the market. “It gets exaggerated &hellip when in reality, it’s just a few Chinese developers in the market.”

 

Still, some industry watchers have pointed to the situation in Malaysia as a possible cause for concern in Singapore. From 2014 to 2016, Chinese companies, mainly developers, poured an estimated S$2.6 billion into Malaysia’s real estate market, according to Cushman & Wakefield.

 

Bloomberg has reported that the profits of local developers such as UEM Sunrise Bhd, Sunway Bhd and SP Setia Bhd have taken a hit after the influx of Chinese money into Malaysia. For instance, the operating profit of UEM has more than halved since 2013. The construction revenue of Sunway’s property-related arms has also suffered.

 

In Hong Kong, too, there has been concern about the influence of mainland Chinese developers on residential and office property prices.

 

However, Mr Sim said this scenario is not likely to happen in Singapore anytime soon: “Singapore might be on the radar but &hellip bringing capital into Singapore might have ... more barriers. We’ve seen Chinese equity and insurance houses going in to buy the buildings in Hong Kong. We’ve yet to see that in a very big way in Singapore.”

 

However, this could change, he said. “We’ve already seen Hong Kong money moving into Singapore buying up 50 per cent of the office building in Singapore.”

 

STATUS QUO

 

Despite the heated competition, Qingjian's Ms Chong said their focus is not so much on their potential rivals. She said “there is nothing to worry about” because Qingjian works closely with local developers, sharing ideas and concepts. She “welcomes (local developers) to come and see my show room”.

 

Mr Cheng of GuocoLand told Channel NewsAsia: “I do not think we should be protectionist about the real estate market in Singapore.” He thinks the new players bring in lots of capital, ideas and innovation to the market and forces the incumbents to work harder.

 

However, fiercer competition could be looming on the horizon as developers chase profits. “For Singapore’s land ... is a very small pie,” said Mr Sim of CBRE.

 

But as the country prides itself as having a very open economy, competition among property developers from anywhere is unlikely to disappear.

 

“If a foreign developer ... can meet the requirements of being a developer &hellip they can just come in.”

 

Source: CNA/ad