Feature - Growth Opportunities In Asia

China’s housing market has developed since the government implemented structural reforms in 1998 which put an end to welfare housing.

The government’s move to encourage commercial banks to extend mortgage lending to private homebuyers at relatively low rates, and rising disposable income make home purchases possible. Over the last few years, demand for quality housing has soared with improved affordability. The flurry in buying activity is not confined to the rich coastal cities like Shanghai and Beijing but has also extended into the inner municipalities.

It is estimated that in China, about 300 million sm of housing needs to be added every year to achieve the government’s target of 25 sm per capita living space in urban areas by 2010. KLL’s One Park Avenue development in Shanghai is part of the Company’s thrust to tap into China’s growing demand for housing.

Housing demand - both new and upgrading demand - will remain strong in the years ahead, bolstered by the following factors :

• Robust economic activity - After chalking up a real GDP growth of 8% in 2002, China is expected to maintain its growth trend over the next few years, spurred by higher exports and domestic consumption.

• Rapid urbanisation - China’s urban population has been growing at about 4% annually. Nearly 40% of the Chinese population now live in the urban areas and the migration trend towards the cities will continue. It is estimated that approximately 300 million sm of housing need to be added every year in order to achieve the government’s target of 25 sm per capita living space in urban areas by 2010.

• Rising affluence – Between 1997 and 2002, China’s GDP per head was estimated to have risen at an average annual rate of 6.8%. Average real wage growth even outpaced GDP growth at 10% a year over the same period. Going forward, China is expected to maintain its per capita GDP growth of 6.8% over the next five years. Real wage growth is poised to remain strong, albeit at a slower rate of 7.2% from now till 2007.

• Expansion of the middle-class and expatriate community in major cities - China is expected to attract an increasing flow of foreign investors and expatriates into the country following its entry into the World Trade Organisation and the hosting of the 2008 Olympics in Beijing and 2010 World Exposition in Shanghai. These will in turn stimulate buying and leasing demand for good quality and well-located residential properties.

China’s mortgage market, which is a key pillar in supporting the development of the housing market, is still in its infancy as compared to other mature markets like Japan, the US and the UK. Home mortgages in China have grown from a low base of RMB46 billion in 1998 to RMB560 billion in 2001, which indicates a 3-year CAGR of 130%. With mortgage loans currently accounting for about 10% of GDP, there is still substantial room for China’s mortgage market to grow to reach the norm of 30%-60% of GDP for mature markets. A low inflationary environment will help to keep mortgage financing within the comfortable reach of homebuyers.

For Keppel Land, China is a land of opportunities. Capitalising on its good business networks and established contacts, the Group has launched itself quickly into the development of quality housing for the middle and upper-middle income markets in major cities such as Shanghai, Beijing and Chengdu.

In Shanghai, Phase One of One Park Avenue comprising 504 units from four blocks was snapped up during its soft-launch in November 2002. Another block of 97 units launched in January 2003 has also been fully sold. As at end-March 2003, about 75% of the total units have been taken up.

Up north, a 7.2-ha site located in Wang Jing Estate in Beijing has been designated for development into a high-rise condominium project. Comprising 1,860 units, the project is scheduled for launch in the fourth quarter of 2003 and will target at the growing middle-class and expatriate markets.

In Chengdu, Keppel Land plans to build a 1,200-unit condominium project on a 4.2-ha site known as Wang Jiang Garden. Its strategic location and scenic surrounding will appeal to the more affluent local buyers including businessmen, senior management in major corporations and academics working in the universities and other educational institutions located nearby. The project is also slated for launch in the fourth quarter of 2003.

Apart from key gateway cities, Keppel Land is also exploring promising cities with strong growth potential such as Tianjin, Nanjing, Chongqing, Ningbo and Kunming for development opportunities. In Kunming, the Group has secured a 380-ha site which will be developed into a residential township. Joint venture partner Yilian Yang Zong Hai will contribute the land as its 20% equity.