CAPITALAND Development (CLD) is investing in 2 prime residential sites in China as it banks on a recovery amid headwinds in China' s real estate sector.

 

In a statement released on Monday (Apr 4), CapitaLand Group' s development arm said it has landed 1 site each in Wuhan and Chengdu for a total of 3.49 billion yuan (S$748 million). The developer is looking to construct 1,581 quality homes on the two sites, targeting first-time home buyers and upgraders, lifting its residential pipeline under development to 19,139 units.

 

Sealed for 2.31 billion yuan, the 45,709 sq m site in Wuhan' s central business district has a gross floor area (GFA) of 146,000 sq m and will yield 1,058 residential units. Meanwhile, the Chengdu site, bagged for 1.18 billion yuan, is located in the Chenghua District and covers an area of 29,382 sq m, with a GFA of 73,453 sq m. Construction for the 2 projects is slated to begin this year.

 

Jason Leow, chief executive officer of CLD, said: " China is 1 of 3 core markets for CLD, and we hold a long-term view of our business in the country. CLD stands ready to capitalise on attractive opportunities that have emerged."

 

He also highlighted that CLD is optimistic that the measures undertaken by the Chinese authorities to curb speculation will promote a sustainable housing market in the long run, while the government' s recent pledge to ease policy should spell a gradual recovery for the real estate sector.

 

Home-buyer sentiment has started to pick up in both cities, with transaction volumes in Wuhan rising 50 per cent month-on-month in March on the back of policy easing.

 

China' s " 3 red lines" financing policy - aimed at reining in debt build-up among Chinese developers - has left over-leveraged developers reeling. Still, analysts said that the shake-up has thrown up prime assets at palatable prices in a boon for well-capitalised players.

 

Vijay Natarajan, real estate analyst at RHB Singapore, pointed out that developers with stronger balance sheets are well-positioned to seize good opportunities, especially amid more cautious bidding from other developers. With debt-laden developers eschewing state auctions, average land prices in February slumped to their lowest since 2019, said a media report citing research provider China Real Estate Information.

 

He said: " CLD is trying to time the market. They are in a better position to take a long-term view of the market and replenish their landbank."

 

At the same time, the Chinese authorities have signalled an easing in their policy stance, making " this an opportunistic move to acquire good quality sites in the market" , Natarajan added. " Other developers comfortable with their balance sheets could also make opportunistic bids, such as Ho Bee Land, Yanlord Land Group, Hongkong Land and GuocoLand."

 

Greg Hyland, CBRE' s head of capital markets (Asia-Pacific), said: " With some of the developers being sidelined with regard to financing issues, I suspect supply is going to remain relatively muted. The timing to commence such a development, in my view, down the track would be quite favourable."

 

Even with China' s residential sector facing a slump, there are still other bright spots in the real estate market, Hyland pointed out, adding that China' s size and population base also underscore its importance, despite near-term pressure over leverage.

 

According to Hyland, investors have gravitated towards major Tier 1 or Tier 1.5 cities with a large urban population. Meanwhile, CBRE has also seen interest in logistics and industrial properties, as well as select residential assets and - in the right locations - business parks catering to new economy or high-tech tenants.

 

However, the resurgence in Covid-19 cases in China is a risk factor as the nation clings to its zero-Covid policy even as other countries relax restrictions.

 

CLD has had a presence in China for nearly 3 decades, with Wuhan and Chengdu among its 5 core city clusters. The developer, which has constructed and operated business parks, integrated developments as well as residential, retail, office and lodging properties, said that it will continue to scout for investment opportunities in China across real estate asset classes.

 

A recent Bloomberg report highlighted that Hong Kong' s property players, such as New World Development and Swire Properties, are also on the hunt for high-quality projects in the mainland as beleaguered Chinese developers put assets up for sale.

 

And while it is hard to pinpoint if the worst is over for China' s residential property market, Natarajan reckoned there are signs that the market is bottoming out.

 

" Most of the developers who have been struggling have gone out of business or are trying to actively deleverage - and this has been mostly priced in in the form of cautious bids. Policy support is key," he said. " As long as policy support is there, China can engineer itself out of this crash."

 

Hyland shared a similar sentiment, noting: " (With) some of the central policies recently enacted - increased liquidity towards the sector from the banks, interest rates have been cut - we' re starting to see a policy shift towards supporting the sector, which we believe should position to put a floor in the marketplace more broadly, and then for expansionary policies going into the second half of this year, and through into 2023."

CapitaLand Investment' s wholly owned lodging business unit The Ascott Limited has acquired two properties for a total of $190 million through Ascott Serviced Residence Global Fund (ASRGF), its private equity fund with Qatar Investment Authority.

 

This will bring The Ascott' s total funds under management to $9 billion, it said in a statement on Wednesday (March 23). .

 

The first property, in Ningbo, China, was acquired on a turnkey basis and comprises two residential towers that are due to open as the 206-unit serviced residence Somerset Hangzhou Bay Ningbo in 2025. It will offer a mix of two and three-bedroom apartments as well as facilities including a gymnasium, meeting rooms, a children' s area and a residents' lounge.

 

Located in Ningbo' s Hangzhou Bay New Town, the property is also adjacent to the district' s advanced manufacturing industrial zone, which The Ascott sees as a driver of corporate demand.

 

The Ascott currently has 800 units across four other properties in Ningbo, including Ascott Huaishu Road Ningbo and Citadines OCT Harbour Ningbo.

 

It sees the addition of Somerset Hangzhou Bay Ningbo as an expansion of its footprint in China, where the company has more than 37,000 units in 180 properties across more than 40 cities.

 

Another property is a freehold asset located in Amsterdam, the Netherlands. It is due to be refurbished and relaunched as a 93-unit serviced residence known as Citadines Canal Amsterdam in 2023.

 

The Ascott highlighted this property' s strategic location within the city' s Canal District as well as proximity to several regional offices of multinational corporations. Given limited upcoming supply in the immediate vicinity, it expects the serviced residence to perform well.

 

The completed development will be green-certified and offer 93 studios and one-bedroom apartments, along with facilities including a bar, a breakfast room and parking. It also marks The Ascott' s second property in the Netherlands after Citadines Sloterdijk Station Amsterdam.

 

With the latest acquisitions, The Ascott said there will now be a total of 10 properties, with close to 2,000 units, held under ASRGF.

 

Another property is a freehold asset located in Amsterdam, the Netherlands, known as Citadines Canal Amsterdam. PHOTO: THE ASCOTT LIMITED

The fund currently has five operational properties: Ascott Sudirman Jakarta, La Clef Champs-Elysees Paris, Citadines Islington London, lyf Funan Singapore and Quest NewQuay Docklands Melbourne.

 

According to Mak Hoe Kit, The Ascott' s managing director for lodging funds and head of business development & investment asset management, these properties have remained resilient amid Covid-19, supported by their " excellent location and robust base of long-stay corporate guests and a strong domestic leisure travel market" .

 

Two properties under ASRGF' s portfolio - lyf Gambetta Paris and Somerset Metropolitan West Hanoi - are currently under development and are expected to open in 2024.

 

Another property, Citadines Walker North Sydney, is slated to launch in December 2022.

 

" As we near the full deployment of ASRGF, we are exploring new opportunities to establish more lodging funds. Leveraging Ascott' s global presence and experience across different types of lodging assets, we are focused on creating the right fund to meet the needs of our wide network of partners," said Mak.

 

CapitaLand Investment (CLI) and Frasers Hospitality don' t expect major impact to their businesses in Shenzhen after a spike in Covid-19 cases prompted the Chinese government to implement a lockdown of China' s tech hub.

 

CLI operates integrated development Raffles City Shenzhen - which features retail, office and hospitality components - as well as another office property and 2 lodging properties in the Chinese city. All in, there are 3 serviced apartments currently operating under the Ascott and Somerset brands. Four more serviced apartments are in the pipeline to open this year.

 

A spokesperson from CLI told The Business Times: " As CLI' s presence in China is diversified across cities and asset classes, the impact of Shenzhen' s temporary lockdown to our overall business is expected to be minimal. We are closely monitoring the situation, and looking after the health and safety of our tenants, guests and staff remains our top priority."

 

With the lockdown in place, food & beverage outlets at Raffles City Shenzhen are doing takeaways and delivery at present, while the lodging properties are still operating.

 

The spokesperson added: " Our offices are currently operating under the local authorities' advisory for Shenzhen' s workforce to work from home, except for those in the essential sectors."

 

According to a Reuters report, an official from the city' s municipal government said on Thursday (Mar 17) that it will allow companies to resume work " in an orderly manner" , though no timeline was given for the resumption. This comes after non-essential economic activity was suspended for a week until March 20. Meanwhile, its 17.5 million residents are undergoing three rounds of testing from March 14 to 17.

 

At Fraser Suites Shenzhen, which houses 211 luxury serviced residences, occupancy currently stands at more than 80 per cent, said Frasers Hospitality chief operating officer Mark Chan.

 

Given the property' s location in the bustling business district of Futian and its proximity to multinational corporations and international enterprises, " we have many senior executives who make up the strong base of long-stay guests" , Chan noted. " These guests have continued to stay with us throughout the pandemic, given the level of safety and security that our property provides."

 

In Shenzhen' s current citywide lockdown, the company - a member of Frasers Property - has worked with the local authorities to set up a testing site on the property to make it convenient for guests and staff to get tested daily.

 

Some staff have also been asked to stay at Fraser Suites Shenzhen, to keep them safe. " This helps minimise their travel time and exposure to others, while also ensuring that operations at the property remain undisrupted," Chan said.