CapitaLand unit wins bids for prime residential sites in Wuhan, Chengdu for 3.5b yuan

Nisha Ramchandani

Published Mon, Apr 4, 2022 · 08:15 AM

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 (about 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.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

China’s "3 red lines" financing policy - aimed at reigning 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-capitalized 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 went on to say. "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 underscores 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 beleagured 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."

READ MORE: