Developers target second-tier cities
Government tax incentives and the prospect of better margins provide lure
An improved property market outlook in second-tier cities in northeast China has prompted New World China Land to pay more than $400 million for additional stakes in two Dalian ventures set up about 10 years ago.
Analysts said the firm was among foreign-funded developers which had been lured by government incentives such as tax reductions, and the prospect of better profit margins, to diversify into less-developed mainland cities.
The company said yesterday that a wholly owned subsidiary, New World Development (China) (NWDC), would acquire a 70 per cent interest to give it 100 per cent of development venture Dalian Bond Tak International Finance Centre (Dalian IFC).
New World Development also would take a 65 per cent stake in Dalian Bond Tak New World Hotel (Dalian NWH), from partner Beijing Bank, for a total of $415.09 million.
Dalian IFC's sole asset is ownership and development of 215,166 square metres of a residential and commercial complex in Zhongshan District, Dalian, due for completion in 2008-09.
NWDC will have a 95 per cent interest in Dalian NWH, which holds a licence to operate a hotel in the complex.
According to the announcement, the remaining 5 per cent interest in the hotel venture is held by an independent company.
'We would like to take advantage of an improved prospect of the coastal city, therefore we are acquiring the controlling stake of the ventures,' a company source said.
The source said the firm was now eyeing less-developed cities, expected to provide better margins, after already acquiring a substantial land bank in prime cities such as Shanghai.
The mainland property arm of New World Development, which had an inventory of 595,743 square metres at the end of the financial year to June, is among some locally listed developers, such as Cheung Kong (Holdings), and Hang Lung Properties, which are diversifying their mainland real estate investments to second-tier cities in view of intense competition in Shanghai and Beijing.