Downturn spells opportunities for Worldunion

Ten years after founding property consultancy Worldunion in Shenzhen, Chen Jinsong's firm is expanding into financial services and elderly care, with plans to expand overseas as well

PUBLISHED : Tuesday, 20 May, 2014, 2:48pm
UPDATED : Wednesday, 21 May, 2014, 6:41am

A market downturn often means an opportunity to Chen Jinsong.

Chen co-founded property consultancy Worldunion with his wife in Shenzhen in 1993, when China’s then still fledgling property market had its first correction.

He picked the worst-selling new property project in Shenzhen to build up the company’s reputation for an ability to make the sale.

This year, an increasing number of developers have come to him, hit with stagnant sales as the once frothy real estate market again heads south.

But Chen is now looking beyond the traditional brokerage business. He is considering aggressive expansion into financial services, elderly care and even across the border.

Q: You are just back from a trip to the United States. Do you have any timetable for an expansion there? How will you help Chinese developers sell their overseas projects back home?

A: More and more Chinese companies and people are going abroad. We are in an outward movement like that seen in the 1990s in Japan. However, China has foreign exchange restrictions, so it is not easy right now to channel money across the border. But we need to actively prepare for that.

We will formally launch our overseas business this year. For example, we can help our clients, including China Vanke, to sell their overseas projects to domestic buyers. We can also help foreign developers communicate better with their Chinese clients and establish a trading process that Chinese buyers are more comfortable with.

Q: Worldunion signed a strategic partnership agreement with Taiwan’s Hangan Nursing last year. What is your strategy in the elderly-care business?

A: Elderly care is a hotly talked-about concept now, but real services have not started yet. The biggest issue in China is not the hardware but the software – the services.

We are still in talks with Hangan Nursing on how to establish a joint entity. However, we are not in a hurry, as the industry will take a long time to form its full shape.

Chinese developers are very enthusiastic about the elderly-care business. As a first step, they need to give local governments their plans for approval, and in the past 12 months, we have done more than 90 consulting projects for them.

We will get involved in services but not in medical help or equipment. I’m very optimistic about the outlook, as I think sectors including medical care and financial services must open themselves wider to the private sector.

Q: Worldunion has unveiled an aggressive plan to expand in property financial services. Are you worried about possible risks as the business grows bigger? Do you have a strong team?

A: China’s banking sector is monopolised by a few lenders, but their services to micro firms and individuals are not sufficient.

We deal directly with families who have a strong demand for housing but are anxious about high prices. Our clients often face a shortfall of 100,000 yuan for the down payment for a home. And they are too shy to borrow from their parents or relatives, or they have already done so.

When the new homes are delivered, they will need a further 50,000 yuan to finish the decoration. That’s the new service line we are opening. We can even help these new homeowners to bargain with suppliers for group purchases of home appliances and furniture.

We completed a deal to acquire a micro-loan company last year, with more than 100 financial professionals. Now the team is bigger.

Chinese families have very low leverage. That’s why I’m not very pessimistic about the property market.

Through such services, we will be able to establish a sticky relationship with clients. Chinese homebuyers are the most creditworthy clients. As banks have already checked their credit history when granting mortgage loans, we are not taking very big risks. So far, we haven’t seen any bad loans.

Of course, when the business grows big, we will worry about risks, not so much from homebuyers but from developers. Some developers disappear and leave projects unfinished. That’s the risk.

If the developer is China Vanke, we will not worry. So we need to pick a good project by a reputable developer in a promising city.

Q: Do you expect this to be a difficult year? Do you think property transactions will recover in the second half? Will Worldunion make some acquisitions during the downturn?

A: This year may not be good for developers, but it is a good year for property agents. More and more developers will need to rely on our sales teams and brand names to sell their projects.

The deals we were involved in last year totalled 310 billion yuan (HK$389 billion), and that should increase this year.

I think in the future agencies will do 60-80 per cent of total property transactions in China, up from 40-50 per cent now. And the leading agencies will see their market share increase.

Quite a few agencies have come to ask us to acquire them. We will consider it … but will stay cautious this year.

Sometimes, their team collapses and its core members will jump onto our boat, making an acquisition unnecessary.

There is no doubt about falling home prices in China in the second quarter. Policies will change, as the authorities are allowing cities to set their own housing policies.

I think China should scrap home purchase restrictions in second-tier cities. This year would be a good time to free up China’s hukou [home residency] registration restrictions in small cities.

[The property market downturn] provides a cheap environment for urbanisation.

The slowdown is inevitable after the launch of high-yielding money market funds such as Yu E Bao [which drive up interest rates]. Interest rates are a major factor in China’s property market.

We are at a tipping point now, but I don’t think the market will collapse. The property market was not good in the first quarter, but it was still the second-best first quarter in five years. Last year’s performance is not sustainable.