Weiye_CollageMalaysia's well developed tourism industry has caught the eye of holiday home developer, Weiye. Above: Weiye's property project in PRC tourism hotspot Hainan.

WEIYE EXECUTIVE CHAIRMAN Zhang Wei is one entrepreneur who thinks of when to bite the bullet: He wants to foray into Shenzhen and Shanghai at a market trough.
 
Well established in Henan and in Hainan, Weiye Holdings has already completed 13 real estate development projects with over 950,000 square meters of saleable space since company inception.

That works out to net saleable floor area (NSFA) of about 4 to 5 times the office space in Suntec City.

During 1QFY2014, Weiye posted property sales of Rmb 108 million, up 127.4% year-on-year.

The surge in property sales recognition arose from a 344.0% increase in total net saleable floor area (NSFA) handed over to customers to 24,182.7 square meters.

It has another six real estate development projects with a combined NSFA of about 408,000 square meters in these two provinces.

The company plans to increase its land bank in Henan and Hainan, and is also on the lookout for opportunity for projects in first tier cities like Shenzhen and Shanghai.

It plans to acummulate land in these cities through joint ventures with existing players or by acquiring a small property developer there.

Ripe time for foray into Shenzhen and Shanghai

2Zhang_Wei_7.14Executive chairman Zhang Wei.
Photo by Ngo Yit Sung
Mr Zhang believes the time is now ripe for land banking.

He reasons that the land banking market is now near a cyclical low as there is less interest in land bank accumulation due to market talk that the age of skyrocketing home prices is over.

During the first 6 months of this year, land area purchased by real estate developers was down 5.8% year-on-year, at 148.07 million square meters (National Bureau of Statistics data, 18 July).

China’s sustained campaign to clamp down on speculative investment and easy credit gained has led to new-home prices falling in a record number of cities since 2011.

As developers cut prices to boost sales volume, June home prices fell month-on-month in 55 of 70 major PRC cities.

Prices in Shanghai and Guangzhou both fell 0.6% from May, the biggest drop since January 2011, while they declined 0.4% in Shenzhen.

Prices fell 1.7% in Hangzhou, the largest monthly decline among all the cities.

“Within the next 10 years, the risk of investing in projects in first tier cities is relatively low compared to other cities. Returns will also be higher,” said Mr Zhang.

Demand for housing in first tier cities will be held up by rural-urban migration.

Last year, there were about 7 million graduates from institutes of higher learning in China.

Mr Zhang pointed out that half of these people graduates will migrate from their hometowns in sub-urban or rural areas to the 1st and 2nd tier cities in search for jobs that are compatible with higher education.

Weiye_table_7.14Bloomberg dataThere is huge housing demand from these young migrants, whose families provide financial support for home purchases in the cities.

Secondly, the government is targeting to shift about 100 million people to cities over the next few years.

The State Council has a target urbanization rate of about 60% of its 1.3 billion people by the year 2020, up from 52.6% at the end of 2012.

Overseas foray

Weiye is also exploring joint venture opportunities for overseas real estate projects, such as in Iskandar or other locations near Singapore.

Mr Zhang explained: “People from northern China aspire for homes with a warmer climate during winter."

"As foreign buyers of homes in Malaysia are granted residency permits, the concept of a home in Iskandar will appeal the same affluent group from the PRC who purchased our Hainan holiday homes,” he said.

 

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