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Monday, July 25, 2011

Developers be warned, China's a tough market

KUALA LUMPUR: More developers are venturing into China's property market but their investments may be at risk because of red tape and fears of overheating, analysts say.

A MIDF Research analyst said the China market is a tough one to conquer without good connections with local authorities and partners who can deal with changing rules.

He said this could be the reason why the big boys such as Sunrise Bhd, TA Enterprise Bhd, SP Setia Bhd, Berjaya Land Bhd, Selangor Dredging Bhd, Ireka Corp Bhd and PJ Development Holdings Bhd are investing in Canada, Australia, the UK, Singapore and Japan as risk is less.

LBS Bina Group Bhd recently said it aims to launch its maiden property project in Zhuhai, worth RM7.5 billion, in 2012.

The project was mooted more than five years ago and according to a property industry observer, LBS is still having issues with the government.

"Bureaucracy in China is extremely complex, while expansion in the Chinese market represents a significant investment as foreign developers are required to put a 50 per cent deposit on the value of their project with the government.

"And since developers cannot sell their houses until upon completion, they have to fork out money to settle the high interest rates and for keeping stock in the event of unsold properties," said an analyst at OSK Research who is not authorised to speak to the media.

Developers such as Golden Plus Holding Bhd (GPlus) have lost money in China. GPlus' 3 billion yuan housing project in Shanghai, The Royal Garden, had incurred cost and time overruns in the last few years.

The project, which was slated for completion much earlier, now requires two to three more years.

Some other developers who have yet to launch projects planned few years ago include IJM Land Bhd and Sunway Group.

IJM Land has been in talks with various parties for mixed property developments in China's second-tier cities in the last four to five years.

In 2008, IJM Land managing director Datuk Soam Heng Choon said it was planning a RM500 million mixed property project in Changchun.

When contacted recently, Soam told Business Times that IJM Land is aiming to launch the project in 2012, pending approvals.

As for Sunway, it signed in April 2010 a collaboration agreement with Sino-Singapore Tianjin Eco-City Investment and Development Co Ltd to develop a RM5 billion mixed development in Tianjin. The project has not started.

By Business Times

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