Hang Lung, CapitaMalls Plan Chinese Shopping Centers to Tap Luxury Market

Hang Lung Properties Ltd. (101) and CapitaMalls Asia Ltd. (CMA) have announced plans to build new shopping malls in China, underscoring their confidence in the country’s growing luxury consumer market.

Hang Lung, the Hong Kong developer that’s building high-end shopping centers in other parts of China, and its parent bought two sites in Kunming in the southwest for 3.5 billion yuan ($547 million), it said in a stock exchange filing yesterday. Singapore-based CapitaMalls said today it plans to trade its shares in Hong Kong, a day after announcing a venture to invest 6.7 billion yuan in a mall and office development in Suzhou, a city west of Shanghai.

Luxury-products makers such as Prada SpA and LVMH Moe Hennessy Louis Vuitton SA are expanding in China, where the number of millionaire households jumped 31 percent to 1.11 million in 2010 from a year earlier, according to a Boston Consulting Group survey. Demand for retail space helped drive a 42 percent surge in commercial real estate investments in the country last year, according to Cushman & Wakefield Inc.

“There are a lot of opportunities in retail property in China,” said Sherman Yeung, Beijing-based director of retail services for North China at Colliers International. “The population is big and the country needs domestic consumption to boost the economy.”

Hang Lung fell 1.4 percent to HK$24.05 as of 10:25 a.m. in Hong Kong trading, while its parent Hang Lung Group gained 1.8 percent to HK$40.10. CapitaMalls climbed 1.7 percent to S$1.22 in Singapore, the first advance in three days.

Biggest Luxury Spenders

Chinese consumers will be the world’s largest luxury spenders by next year, according to an HSBC Holdings Plc report last month. The nation’s retail sales climbed 17 percent in August from a year earlier, after increasing 17.2 percent the previous month, the statistics bureau said earlier this month.

Foreign developers may have an advantage in acquiring commercial projects over local rivals, who are “short of capital,” Yeung said.

Chinese developers are facing an “increasingly severe” credit outlook that may force them to cut prices and borrow on higher interest rates, Standard & Poor’s said in a Sept. 27 report. Fewer than half of the 70 cities monitored by the government in August posted month-on-month gains in home prices for the first time, according to Samsung Securities Co.

Mall Investment

Hang Lung, Hong Kong’s third-largest builder by value, is investing as much as HK$50 billion ($6.4 billion) building shopping malls in cities including Shenyang, Wuxi, Tianjin and Dalian that are scheduled for completion over the next four years. Chairman Ronnie Chan said in August the company is “financially capable” of doubling that investment to tap the country’s growing luxury spending.

The builder won the bid for the Kunming land, which has a maximum floor area of 401,383 square meters (4.3 million square feet) and will be used for “commercial and financial development,” the company said. They are the first sites Hang Lung has bought in the nation since May 2009.

“If you have to be exposed to the market at this point, Hang Lung would still make a good choice,” said Kevin Gin, a Hong Kong-based analyst at Yuanta Securities Co. “They have one of the best, if not the best, property management team in North Asia with a strong track record.”

The developer, which had about HK$27 billion in cash at the end of June, hasn’t bought any land in Hong Kong in at least 10 years. The company in August opened a 3.5 billion yuan shopping mall in the eastern Chinese city of Jinan, its fourth outside of Hong Kong.

Overtaking Hong Kong

Hang Lung’s rental income from China will “almost certainly” overtake that of Hong Kong next year, Chan said in August. The company is targeting Chinese cities with per-capita income of about 40,000 yuan for future projects, he said. Kunming is the capital and largest city of Yunnan province.

CapitaMalls, a unit of CapitaLand Ltd. (CAPL), Southeast Asia’s biggest developer, will include a retail mall and two office towers in its Suzhou project, which will be jointly owned by Suzhou Industrial Park Jinji Lake Urban Development, the master developer of the city’s business district.

CapitaMalls also said in a statement to the Hong Kong exchange today it plans to start trading its shares in the city on Oct. 18 after applying for a secondary listing. The stock started trading in Singapore two years ago.

China makes up 44 percent of CapitaMalls’ S$6.19 billion ($4.8 billion) of assets, its biggest market.

The company said it picked Suzhou for its prospects as China’s fifth-largest city by gross domestic product and proximity to Shanghai via a 30-minute train ride. CapitaMalls, which developed ION Orchard in Singapore, has 55 shopping retail properties in China, including the Raffles City developments in Beijing and Shanghai.

--Kelvin Wong, Bonnie Cao. Editors: Linus Chua, Andreea Papuc

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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