"The key success factor of the Group is to develop large-scale and high quality residential projects with a wide range of amenities and public facilities in the fast-growing districts of Guangzhou City."
Operating Environments
Property ownership is a trend that has become solidly entrenched in today's China. Last year, the Chinese Government made clear of its determination to encourage private home ownership and fostered property development as a new area of the nation's economic growth. The long-term goal is to mobilize the massive personal savings within the domestic monetary system and to accelerate the total investment and individual spending on housing.
Guangzhou City is one of the largest and most active property markets in China. According to the statistics of Guangzhou Real Estate Information Centre, in 1998, the pre-sale floor areas and transaction values of commodity and residential properties increased substantially over that of 1997.
Registered Transactions of Pre-sale Commodity and Residential Properties in Guangzhou City in 1997 and 1998
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1998 1997 Growth (%)
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Pre-sale Commodity Property Areas
(Ten thousand sq. m.) 578.31 423.42 +36.58
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Pre-sale Commodity Property Value
(Hundred million RMB) 346.92 279.01 +24.34
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Pre-sale Residential Areas
(Ten thousand sq. m.) 495.53 359.43 +37.87
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Source: Guangzhou Real Estate Information Centre
As from 1998, Guangdong Province has gradually phased in the housing reform scheme. It is expected to be fully implemented across the province on 1st January, 2000 to replace the existing welfare housing policy, which was originally planned to cease from 1st July, 1998. The partial implementation of the housing reform scheme during the year did have a positive impact on the residential property market in Guangzhou City, boosting enterprises to buy units as staff quarters prior to full implementation of the reform scheme.
In addition to the change of housing policy, other factors such as the expansion of mortgage quota, successive reduction of interest rates, local economic growth, higher per-capita income and government's proactive administrative measures have also inspired individual housing demands. It should however be noted that the surging investments and hence in-the-pipeline supply will create considerable competitive pressures amongst property players in the market, particularly in the coming year.
The Group's Sales Performance
In 1998, the Group outperformed the market by selling over 2,640 units with total gross floor area ("GFA") of approximately 285,000 sq. m.. During the year, six projects were available for sale, including Huajing New City Phase 5 and Phases 6A and 6B, Jinan Garden Phase 2, Fairview Garden Phases 1 and 2, Gallopade Park Phases 1 and 2, Grandview Place and Regal Court Phase 1. All these developments were well received in the marketplace.
The Group's performance was in line with its business plan. The substantial increase in sales activities was mainly attributable to the Group's ability to target the right market segments and to capture market opportunities by developing more properties in the fast-growing residential districts and by adopting flexible and effective marketing strategies. Our success in pre-selling properties to local enterprises on block-sale basis also helped in securing early cashflow and hence minimizing financing costs and market risks.
With continuous efforts, the Group has established itself as one of the top-selling developers in Guangzhou City.
Project Development Progress
During the period under review, the Group completed Phase 5B of Huajing New City in March 1998; and Phase 2 of Jinan Garden in September 1998, which was ahead of original schedule. In addition, Phase I of Gallopade Park was completed in February 1999, also ahead of original schedule.
Construction works have been commenced for five other projects, including Huajing New City Phase 6, Fairview Garden, Gallopade Park, Grandview Place and Regal Court. All these projects are progressing satisfactorily. The GFA currently under construction amounts to approximately 950,000 sq. m. , which will be completed in stages by the end of 2000.
Landbank Replenishment
During the year under review, the Group signed up agreements to develop three projects, making the Group's sizeable landbank reserve of approximately 2,500,000 sq. m. attributable GFA, the cost of which is substantially below current market value. Details of the newly acquired projects are set out as below:
Estimated Interest Estimated
Site Area Total GFA Attributable Attributable
Location (sq. m.) (sq. m.) to the Group GFA (sq. m.)
Riverside Haizhu
New City District 654,107 1,969,673 17.5% 344,693
Pleasant Haizhu
View Garden District 106,788 213,576 60.0% 128,146
Hillsview Tianhe
Garden District 12,420 129,664 70.0% 61,587
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Total 534,426
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Currently, the Group has 71% and 26% of its landbank at Tianhe and Haizhu districts respectively. It is worth noting that these two districts jointly accounted for 55% of total residential transaction areas of Guangzhou City in 1998.
Sales of Residential Properties in Guangzhou City
('000 sq.m)
Source: Guangzhou Real Estate Information Centre
Tianhe has long been the most desirable residential district in Guangzhou City. The infrastructure and comprehensive community facilities of the area have been developed maturely, including the recently completed Metro Line 1, and a growing number of local residents prefer to live in Tianhe because of its metropolitan flavour. The Group in fact started its first project, Huajing New City Phase 5 at Tianhe in 1995. Haizhu, with its much improved infrastructure network, has become a rising star in Guangzhou's residential property market. The Group's pioneer project at Haizhu, Fairview Garden, has captured this niche market with a distinguished result since sales commenced in March 1998.
Business Strategy
The key success factor of the Group is to develop large-scale and high quality residential projects with a wide range of amenities and public facilities in the fast-growing districts of Guangzhou City.
As an early entrant into these key areas with excellent development opportunities, the Group has been able to build up a valuable landbank at very low cost. Adding to this advantage, the Group is able to apply its extensive local knowledge and high level of expertise in all aspects of the property development business, including planning and design, construction, project management, marketing and finance management and to put in stringent cost control measures.
1999 will be the year of transition for housing reform. Our projects under development are all progressing satisfactorily and should be favourably positioned to meet with the aspiring demand. Much sought-after middle-priced residential units will be launched to enlarge our market share. Besides, the Group will also continue to identify lucrative investment opportunities to enhance shareholders' value and to replenish its landbank in the desirable and fast-growing residential districts to underpin our ability to generate sustainable growth.
Looking ahead, the Group will strive to reinforce its reputation as a quality residential developer in the exciting yet highly competitive business environments. Its proven track record, recognized expertise, as well as sizeable and low-cost landbank, should put it in an outstanding position to capitalize on the strong demand for quality residential units in Guangzhou City.
Tse Sai Tung, Stones
Managing Director
Hong Kong, 22nd March, 1999
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