Hong Kong developers are heading deeper into China to lure shoppers, investing at least $1.3 billion to build malls in Chengdu, the city vying with Chongqing as the economic hub of the country’s west.
Swire Properties Ltd. will open a 6.4 billion yuan ($1 billion) retail and office project in downtown Chengdu in early 2014. Sun Hung Kai Properties Ltd., the world’s second-biggest property company, Henderson Land Development Co. and Wharf Holdings Ltd. also plan malls in the city of 11 million people.
The builders are betting on the western region even after the national government imposed property curbs that contributed to the slowest economic growth in almost three years. The region, home to a quarter of the country’s population, remained undeveloped until the government 12 years ago adopted the “Go West” policy, designed to help it catch up with wealthier coastal areas such as Shanghai, about 2,000 kilometers (1,243 miles) to the east, and Guangdong province in the south.
“It’s still very hard to find good shopping malls in Chengdu,” said Eddie Ng, managing director for the city at property broker Jones Lang LaSalle Inc. “Luxury brands couldn’t find proper space here. The projects coming onboard in the next few years will change the retail landscape.”
The central government’s investment in Chengdu’s projects accelerated after the 2008 earthquake killed almost 87,000 people in Sichuan province. More than 4,000 died in the area around Chengdu, the provincial capital about 80 kilometers from the quake’s epicenter, as buildings were damaged.
Chengdu’s economy grew 15.2 percent in 2011, compared with the 11.9 percent average among cities run independently from provincial governments that include Guangzhou and Shenzhen in the south, and Dalian in the north.
“The earthquake and the global financial crisis created huge disruption to Chengdu’s economy,” said Philip Wu, managing director for Western China at broker CBRE Group Inc. “The central government made reviving Chengdu a priority.”
Chongqing, two hours by train southeast of Chengdu, has the fastest growth rate among the country’s four municipalities, or cities that are under direct central government control, and is western China’s biggest manufacturing hub, according to Chicago-based Jones Lang. Chongqing has been engulfed in a political crisis sparked by the ouster of its former party chief, Bo Xilai.
Before his ouster, Bo had sought to balance growth with more measures to help lift the city’s rural migrants out of poverty. China’s government on April 10 suspended Bo from the ruling Politburo, saying he was “suspected of being involved in serious discipline violations,” China’s official Xinhua News Agency reported. His wife and household helper were being held as suspects in the murder of a 41-year-old British associate and family friend, Neil Heywood, following a business dispute, according to Xinhua.
“Even with Bo’s ouster, it doesn’t mean the central government will reduce its funding for Chongqing,” Wu said. “Go West is a national policy. It won’t change because of one person.”
Hong Kong builders are seeking opportunities away from their home market as an almost 80 percent surge in housing prices since the start of 2009 led to government curbs to damp price increases. Hong Kong is the world’s most expensive place to buy a home and to rent an office, according to property brokers including London-based Savills Plc and Los Angeles-based CBRE.
Chengdu was at the center of ancient Chinese civilization as far back as the Shang dynasty more than 3,000 years ago. Today, the city is one of the nation’s biggest technology and logistics centers, and the downtown Chunxi Road area is filled with department stores, restaurants and retail brand billboards.
“The pie in Chengdu is huge,” Alan Lee, general manager for Swire Properties in the city, said in an interview. “Except for Beijing and Shanghai, where else in the country can you find such a big cluster of Hong Kong developers?”
Swire’s project in the Chunxi Road area is built around the Daci Temple, a historical monument near two subway lines under construction, and will include almost 1.2 million square feet (111,484 square meters) of mostly street-level shopping space.
Across the road, Wharf, which operates Hong Kong’s Times Square and Harbour City shopping malls, is scheduled to complete the Chengdu IFC, a high-end residential and commercial complex of 4.7 million square feet in mid-2013, according to Agnes Hui, a company spokeswoman.
“It’s almost like they’re creating a Causeway Bay here,” said Backy Fung, managing director for western China at Savills, referring to the Hong Kong shopping district that has the world’s second-most expensive retail strip, after New York’s Fifth Avenue.
Swire Properties’ shares rose 0.2 percent to HK$20.80 as of 9:48 a.m. in Hong Kong, bringing the gain since they first traded on Jan. 18 to 21 percent, compared with the 4.7 percent advance in the benchmark Hang Seng Index in the period. Wharf advanced 0.2 percent to HK$44.15 and is up 26 percent this year.
Wharf in 2007 paid 7.24 billion yuan for the site, a record for a Chengdu government land sale. Wharf is building six other projects in the city, according to its website.
Retail sales in Chengdu rose 18 percent in 2011 to 286 billion yuan, the eighth highest among Chinese cities. That accounted for about 42 percent of the city’s economy, according to government data. Retail space in Chengdu will more than double to 6.6 million square meters by 2014, Savills forecasts.
Chengdu has the highest number of luxury retailers, including brands such as Gucci and Burberry among Chinese cities outside of Beijing, Shanghai and Guangzhou, according to data compiled by Jones Lang.
Chengdu’s largely flat terrain, in contrast with Chongqing’s hills and mountains, also makes it a more attractive place for developers outside the region.
“The flat surface means you can build more varieties of properties, such as low-rise villas,” said Thomas Lam, the Greater China head of research at Knight Frank LLP, a property broker. “In Chongqing, the strategy is more restricted. Most developers would just get a site along the two rivers and build tall apartments and offices.”
Luxury home prices in Chengdu fell 2.9 percent from a year earlier to 12,779 yuan per square meter in the first quarter, according to Jones Lang, the world’s second-biggest commercial real estate firm. That compares to 39,216 yuan in Beijing, 54,600 yuan in Shanghai and 10,706 yuan in Chongqing.
“We have received invitations to bid for projects in Chongqing,” said Lee at Swire Properties. “I’ve studied them, but couldn’t figure out what kind of people our projects can draw, given its geographical location.”
Swire Properties’ project, a joint development with Sino-Ocean Land Holdings Ltd., will have about 2.8 million square feet of shopping space, offices, service apartments and a hotel. The owner of Pacific Place and Island East complexes in Hong Kong also has works in Beijing, Shanghai and Guangzhou.
The mainland projects, when completed, will account for about a third of its total assets, Lee said. Swire Properties is also seeking projects in other western Chinese cities including Chongqing and Xian, he said.
“For the project size we are looking for, it could be hard for us to find opportunities in cities such as Beijing and Shanghai,” said Lee. “My radar screen is on China’s west.”