Tuesday, May 11, 2004
Property a youngster's game in booming China
Reuters Shanghai, May 4
China's property industry is barely a decade old and its movers and shakers are not a great deal older.
But the "thirty something" tycoons are quickly earning the trust of foreign investors eager for exposure to an explosive property boom, because of their enthusiasm and business nous.
At 34, Fan Wei, is a rising star in the first generation of private property developers in half a century. In the last six months, he has struck funding deals for apartment projects with Morgan Stanley and ING's real estate arm. Fan says his company, Shanghai Forte Land Co Ltd, was in the right place at the right time.
"The timing was very important and we were lucky to be in the fastest period of growth in China, which provided opportunities for everyone," Fan said of Shanghai Forte's rise from obscurity in 1992 to a listing on the Hong Kong Stock Exchange in February that raised $221 million.
An engineering graduate in 1991, Fan worked for a year as a chemicals salesman before a university friend, Guo Guangchang, lured him back to Shanghai to start up an agency to match landlords and tenants.
When the government realised struggling state firms could no longer afford to house their workers, it gave the green light to private developers in the early 1990s and mortgages in 1997.
Shanghai Forte stepped up. It has built 10,000 flats in the last decade, tapping frantic demand from a growing middle class clamouring to leave Shanghai's quaint but crumbling brick terrace houses, often with no direct water supply or sewage system.
"The company we started was a property agency but in one year we had our first development project -- just 500 low-end units," Fan said. In the last three years, net profit at Shanghai Forte rocketed 15-fold.
BUILDING FORTUNES
Guo, 36, now owns about 60 per cent of Shanghai Forte's parent firm, Fosun High Technology Group Co Ltd. Last year Forbes ranked him China's ninth-richest person, worth about $374 million thanks to the group's steel, pharmaceuticals and property interests.
China's "New Fortune" magazine slots Fan in at 356 on its rich list, with assets of $30 million, but he refuses to talk about how much he is worth. At his office across the Huangpu river from the sparkling skyscrapers of Pudong, Shanghai's decade-old business district, Fan says Shanghai Forte will develop four million square metre over five years in Shanghai, Beijing and Nanjing.
His competitors in the thirty-something brigade of property tycoons include Pan Shiyi, chairman of Soho China Ltd, which is considering listing in Hong Kong this year, and Ding Changfeng, Shanghai executive of China Vanke Ltd. Investors appear undaunted by their youth.
"The days of putting money with local developers and it goes missing are over," said Richard David, chief executive of First China Property Group, a developer set up by Australia's Macquarie Bank and fund manager Schroder Asia Property.
"These young businessmen understand the need for repeat investment," he said. "They're aggressive, ambitious, know the market and understand the mechanics of foreign financing and adapt their businesses to suit."
China's new rich also understand the political leadership and its obsession with social stability at a time of brisk economic change that is widening the gap between rich and poor.
Shanghai Forte's two dozen black Audi cars are tucked away at the side of its office, out of sight of bicycle-pedalling Shanghainese on the riverside road to the gothic buildings foreign banks and traders inhabited before the 1949 revolution.
Fan praises the government for avoiding "gangster capitalism" that some associate with Russia's shift to a market economy.
"UNFAIR" REPUTATION
Fearing rampant speculation, the government has ordered banks to curb lending for property investment. Authorities also introduced an open land tender system last year to improve market transparency, replacing often opaque land sales.
They were stung into action by a scandal at a local property firm headed by tycoon Zhou Zhengyi, a former noodle shop owner once ranked China's 11th richest man by Forbes magazine, who is now under house arrest for questionable land deals and fraud.
"The typical model was a guy working for the government got a bit of land through connections and developed something not very sophisticated," said David Pitcher, executive director at consultants CB Richard Ellis in Shanghai.
"He then would leave the government and miraculously end up with a site -- before the auction days," he said.
Pitcher said Guo and Fan probably got to know officials because their university department had close ties with city planning authorities.
"But they're young and energetic, the market moved in their favour, and they've done well," he said.
Fan bristles at suggestions Shanghai developers are a corrupt lot.
"The reputation is unfair because a few companies are not representative of Shanghai developers," he said.
"The problem with foreign investors is they only know about Shanghai through the media. If you want to know about Shanghai you have to go to Shanghai."
© Hindustan Times Ltd. 2004.