Bricks and Mortar

Developers in tough luxury segment switching to mass residential

In a battle for survival, many luxury home builders are concentrating on affordable flats

PUBLISHED : Monday, 09 June, 2014, 11:52am
UPDATED : Monday, 09 June, 2014, 11:58pm

To run a successful business on the mainland, developers must learn to dance in step with government policies.

That is why some luxury home builders are now shifting their product mix towards the mass market, which is favoured by the authorities; others have quit, and the remaining ones will bear the brunt of market scepticism about the prospects for the luxury segment.

Aggressive expansion ill-timed with China's constant property market tightening campaigns in the past decade has killed many developers.

The latest example is the Guang Group, a privately held developer in the third-tier city of Huizhou in Guangdong province.

But the biggest recent shock to the industry is a decision last month by Song Weiping, founder of reputable luxury home builder Greentown China, to sell most of his stake in the firm to its close working partner Sunac China.

Aggressive expansion and property market tightening has killed many developers

Song blasted policymakers for distorting the market to an extent that it was no longer suitable for most players. In a news conference, he said the deal was 30 per cent driven by the deteriorating environment.

"Developers need a stronger capability to survive and fight in the distorted market environment, and Greentown has been trying hard," he said.

"But probably a better option is to let super fighters lead the company."

With that, he handed the burden to Sun Hongbin, a man who emerged from the ashes of his first, failed business and is spearheading Sunac towards the first echelon of the tens of thousands of developers on the mainland.

Song and Sun once challenged Wang Shi, chairman of China Vanke, saying their firms would overtake what is now the country's biggest developer by sales revenue.

But Yu Liang, Vanke's chief executive, shrugged off the threat from the merger of two of the firm's challengers.

"We have been leading the industry for a long time. It has been a tough job," Yu said late last month. "We are happy to have someone share the role. Everyone is not having an easy life."

But Vanke will have a much easier time than Greentown and Sunac in the still unfolding market downturn. The reason: more than 90 per cent of Vanke's products are for first-time buyers or moderate upgraders, whose housing demand is supported by the government.

However, the rich households Greentown and Sunac are targeting will suffer from the slowdown in China's economic growth as well as President Xi Jinping's intensifying anti-corruption campaign, in addition to tough restrictions on home purchases.

So the new trend is for a rising number of developers to build more for the mass market, despite the pledge by the country's new leaders that they will interfere less in the property market.

These include China Merchants Property, Longfor Properties, Kaisa and Sino-Ocean Land. But bucking the trend, Greentown and Sunac said they would continue to build luxury dream homes.

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