Date posted: 9/01/2017 3 min read

Why China's property market matters

The scale of China’s property boom is truly breathtaking, and Australian CA Charles WM Chan is right at the centre of it

In brief

  • Famous for its huge mixed-use developments in mainland China, Shui On Land has a solid reputation for innovative and high-quality residential, office, retail, entertainment and cultural precincts
  • An integrated community will have residential, commercial, retail, hotels, schools, entertainment facilities and more
  • You need to have a grand vision from the start and know what you want and then take small steps to make sure your vision is actually workable

Charles WM Chan CA is CFO at Shanghai-based Shui On Land, which is the property development flagship of property tycoon Vincent Lo’s Shui On Group.

Famous for its huge mixed-use developments in mainland China, Shui On Land has a solid reputation for innovative and high-quality residential, office, retail, entertainment and cultural precincts.

By Western standards, many of Shui On Land’s projects — there are eight in the pipeline — are small cities. Take Shanghai’s Knowledge and Information Community (KIC), which has 750,000 sqm gross floor area (GFA), compared to Sydney’s Barangaroo site, which will deliver 563,965 sqm GFA. When it is completed in the next two years, more than 30,000 people will work, live, learn and play at KIC, in the Yangpu District, home to ten major universities and colleges.

Another development is Dalian Tiandi, located in Northeast China. Tiandi extends across a 12.5 kilometre range and features a total planned area of 26.5 square kilometres with a gross floor area of 3.54 million square metres.

Shui On Land sees its role in a project like KIC as not only a real estate developer but as a knowledge community builder, providing an “innovation and entrepreneur ecosystem” for Fortune 500 tech companies and more than 400 start ups. The aim is to foster an environment of innovation similar to Silicon Valley’s.

The developer has a land bank of 12.5 million sqm, including 10.3 million sqm of leasable and saleable GFA. It has set substantial sales targets for 2014 of approximately RMB5 billion (A$863m) for en-bloc commercial properties and approximately RMB8 billion (A$1.4b) for residential and individual commercial properties.

Chan attributes the firm’s success to its unique approach to master planning, which ensures developments are consistent with the country’s directives on economic development and urban planning, and to the company’s “commitment to incorporating local historical and cultural characteristics into its designs and planning”.

He joined Shui On Land in 2004 as CFO after stints with Arthur Young, Barclays Bank, PwC, Citibank, his own internet firm (PPN, or Pacific Professional Network) and Fraser Properties.

“In 2005 the chairman asked me to establish Shui On Land’s business development section, where I was in charge of land banking,” explains Chan. He is now one of four executive directors of the group managing projects, including KIC and Dalian Tiandi.

“The scale of some our projects is absolutely mind boggling. In one day, I could be selling 100 residential units easily when the market is good,” says Chan.

Shui On Land’s chairman, Vincent Lo, a graduate of the University of New South Wales, introduced integrated communities to China in the mid-1990s with the Xintiandi development in the middle of Shanghai. It was a bold concept at the time, as China was still opening up to the rest of the world and there was plenty of uncertainty.

“An integrated community will have residential, commercial, retail, hotels, schools, entertainment facilities and more,” explains Chan.

The scale of some our projects is absolutely mind boggling. In one day, I could be selling 100 residential units easily.

This “total community” concept has given the company a business model that others find hard to imitate.

“The risk and capital involved in delivering an integrated community model makes it an approach that is not easily pursued by other developers,” says Chan. “Most of our projects are a minimum one million sqm floor space, which is just huge.

“The typical challenges we face are costs. You need a lot of perseverance as the project is big, and you need healthy cash flow — and to be patient.”

For example, KIC is taking 11 years to complete. “You need to have a grand vision from the start and know what you want and then take small steps to make sure your vision is actually workable. You don’t have a lot of ‘ten or 11 years’ in your lifetime.”

A period of massive capital growth in Chinese real estate has seen the company’s properties and land grow significantly in value.

“This helps the cash flow,” says Chan. “We got in early and that gives us leverage.”

Shui On Land sold its first batch of residential property in Xintiandi in 2003 at RMB16,000 (A$2,762) per sqm. The price is now RMB160,000 (A$27,627) — “ten times growth in ten years,” says Chan.

While that era of rapid growth is over, Chan is convinced it will be another decade before the development market in China hits maturity.

“Finance is the bloodline of the firm,” according to Chan. “I oversaw financial control when I was first employed by the company and now I’m in execution and ensuring my projects run smoothly and are making money for the Group. It helps being a CA, to see the big picture and how the game is being played.”

Chan finds it rewarding to finalise land deals, now that properties are selling and leasing well.

“To see people enjoying the ambience of our retail strips is always a pleasure. I’m also proud that we have helped Shanghai KIC morph from a pure university town with some manufacturing into a high-tech district that houses IBM, Oracle, EMC, VMware and other tech companies, together with many accounting firms, including Deloitte, to tap the university talent they can find in the district. It’s a very successful and high-profile project.”

This article was first published in the August 2014 issue of Acuity magazine.

Tips for doing business in China according to Charles Chan

  • Understand the market
    You must visit China to study the market in person. You can’t just do your research online or by reading newspapers.
  • Put your best foot forward
     Taking a fly-in, fly-out approach to business won’t work either. Put your best employees and products into this market to be successful.
  • Focus on the region
    China is a big and diverse country. A victory with a product in the south may not translate to success in the north.
  • Keep up with the competition
    It’s a very competitive marketplace. If you don’t have an appetite for competition, forget it.