Shimao Property plays it cool as bidding heats up

PUBLISHED : Wednesday, 22 August, 2007, 12:00am
UPDATED : Wednesday, 22 August, 2007, 12:00am

Shimao Property Holdings has chosen to stay out of a bidding war with land-hungry Hong Kong and mainland property developers.

The mainland developer is controlled by the country's second-richest man, Hui Wing-mau.

Development sites in key cities such as Beijing and Guangzhou, as well as second and third-tier cities such as Changsha and Chongqing have recently gone to Hong Kong buyers at prices that Mr Hui described as 'astronomic'.

'I won't bid for sites at such astronomic amounts,' Mr Hui told reporters in Hong Kong on Thursday last week after unveiling Shimao's earnings results for the six months to June.

'We are not as aggressive as other developers in land acquisitions,' said Mr Hui, who has accumulated a personal fortune estimated by Forbes at 17.66 billion yuan, chiefly from property investment.

Shimao, in which Mr Hui holds a 58.09 per cent stake, said last week that core profit tripled in the first half of the year, driven by strong home sales in the surging domestic property market.

Underlying profit rose to 1.32 billion yuan from 431 million yuan in the previous period and net profit was up 196 per cent at 2.08 billion yuan.

The group owns a land bank of 20.63 million square metres in 18 cities, which it says is sufficient for developments for the next five to six years. It plans to increase its land bank to a 10-year inventory.

In February, Shimao made a bid for a development site in Chengdu, but Mr Hui said the company withdrew after bids for the site went higher than expected.

The 37,557 sq metre site was finally sold to Chinese Estates Holdings for about 1.07 billion yuan, which Mr Hui considered too high.

'Developers got lucky in recent years. Property prices have jumped 50 per cent each year, which meant they could afford to pay premium prices to buy sites,' he said. 'But now it is unclear whether the growth in property prices will be sustained in coming years. No one can tell.'

The group aims to achieve a gross profit margin of at least 30 per cent for projects based on prevailing property prices, and Mr Hui said he was confident that he could acquire sites at lower prices as many city governments have invited the firm to start their pilot schemes.

'We have developed a brand name that helps us acquire sites at reasonable prices,' he said.

Shimao bought a residential site in Zhaoqing, Guangdong, at an accommodation value of 1,200 to 1,300 yuan per square metre a few years ago.

'We expected prices for the residential project could reach more than 6,000 yuan per square metre,' Mr Hui said. 'But flat prices reached 8,000 to 9,000 per square metre when we pre-sold the project early this month.'

He agreed that the government would likely announce new cooling measures in the second half but did not think interest rates would rise significantly as public enterprise as well as the public would suffer. He also does not anticipate a property tax will be introduced.

Shimao Property land reserves

Total gross floor area million sq m

Land parcels acquired in 2006 6.31

Land band reserve (Dec 31, 2006) 16.64

Land parcels acquired (Jan 1 - Jun 31, 2007) 4.26

Land band reserve (Jun 30, 2007) 20.63

Land premium to be paid* 9,812 million yuan

Unpaid gross floor area of land reserve* 7.09 million sq m

* as of July 31, 2007