Shimao shifts strategy to build mini malls serving its nearby housing projects

Shimao Property - the mainland's No9 developer by sales last year - is changing its strategy by building more "mini" shopping malls and hotels instead of large projects, so as to speed up the turnover of assets and free up capital for future expansion.

The firm - chaired by Hui Wing-mau - unveiled the new development model last week for its commercial property projects.

But Shui On Land, which owns the Xintiandi entertainment district in Shanghai, said it would not follow suit as small malls would not be able to compete with the fast-growing online shopping sector.

Tammy Tam, an executive in corporate finance and investor relations at Shimao, said: "The new strategy is in response to a change in market demand."

She said the preliminary plans for some of the firm's shopping malls, covering about 30,000 to 40,000 square metres each, would be downsized to serve only residents living within the neighbourhood.

Vice-chairman Jason Hui Sai-tan last week said the "mini malls" would be about 10,000 square metres each, providing food and beverage outlets and entertainment to communities in Shimao's housing projects.

"A large-scale shopping mall would involve a capital investment of about 800 million yuan [HK$1.02 billion] to one billion yuan - but [in the case of] a mini mall, only tens of millions of yuan, so it would have little impact on our cash flow," Hui said.

He said the firm also planned to build "mini hotels", which it would offer for sale after they were up and running.

"The mini concept will also apply to selected serviced apartment, office and hotel projects. If we sell just eight or 10 such small properties, it would not be difficult for us to pull in about 10 billion yuan in sales," Hui said.

The firm has land reserves covering 37.18 million square metres in 36 cities across the country.

Lee Wee Liat, BNP Paribas' Hong Kong-based head of Asia property research, said Shimao had changed its strategy for its commercial property developments because of a glut of office and retail space in some second- and third-tier cities.

"Building large investment properties would not only require a long payback period but also higher construction costs," Lee said.

Shimao used to build large commercial projects like Fuzhou Shimao Skyscrapers in Fujian province, with a total gross floor area of 350,000 square metres.

"But mainland developers lack expertise in managing high-end shopping malls, and it is hard to compete with Hong Kong and overseas developers," Lee said.

"It makes sense for the firm to focus on developing residential projects, while the retail properties just serve the neighbourhood. And it will also increase buying interest if a housing project comes with a small shopping centre."

Even if the firm sells its commercial projects, Lee said, that would hardly compare with its fast-growing residential sales.

Vincent Lo Hong-sui, chairman of Shui On Land, said the firm's commercial property strategy targeted the high-end sector. He said it will be "increasingly difficult" for low-end malls to compete with e-commerce.