Lucio C. Tan, the richest Chinese in the Philippines has remained silent in China for a decade. Till 2005, after Eton Place·Shanghai was completed, Eton unfolded its overall layout in Chinese real estate sector again.
I believe every developer will take a second look at Eton if he knows Lucio C. Tan goes to work by a helicopter and has controlled Philippine Airlines. As a matter of facts, Lucio C. Tan is a famous "tobacco tycoon" and "bank tycoon" in Southeast Asia. The investments of Lucio C. Tan in Mainland China cover many fields, such as: real estate, banking and brewery. When Eton invests in Chinese real estate sector, usually it does not apply for loans to banks. Instead it directly injects capital, so we can see its strength.
Eton built residential buildings in Beijing in early 1990s, but after 2004, it hasn't developed any residential buildings and instead it mainly undertakes urban complexes and landmark buildings.
Today, Eton begins to show its strength in Shanghai, Xiamen, Shenyang, Dalian and other cities. This month, Guandian Real Estate (GRE) held a dialogue with Mr. Patrick Wong, Executive Vice President of Eton Properties Group:
GRE: How long has Eton been in China?
Patrick Wong: Eton entered Hong Kong in 1987 and Mainland China in 1993 and 1994.
GRE: Eton entered China and bought land in early 1990s, but it didn't develop the land, did it?
Patrick Wong: Yes, we did, but the progress was slow mainly because the group thought the market was not mature and acted cautiously. In addition, we were not mature, either and not familiar with China. Now we have ten years'experience. Our team becomes familiar with China. We bought land in 1993, 1994 and 1995. In 1997, we started construction of a few projects, mainly including The Sun Crest in Beijing and Bank Center in Xiamen.
GRE: How much land has Eton reserved?
Patrick Wong: The total area of the reserved land is about 2.7 million m2.
GRE: Is the land mainly for commercial real estate?
Patrick Wong: We mainly develop urban complexes in downtown, like the project of Oriental Plaza. We adopt this in both Dalian and Shanghai. We also have tried residential buildings, more accurately, apartments. The Sun Crest is a typical apartment. We also have developed office buildings, like Bank Center. However, in the end, we still think we are more suitable to develop urban complexes and landmark buildings. Our advantage, and mature experience and concept all lie here. We are familiar with urban complexes, regardless of size.
GRE: What is the difference of the requirements of such buildings in different cities?
Patrick Wong: It depends on the bearing capacity of a city. The complex may be larger in Shenyang, but will be smaller in Dalian, even smaller in smaller cities. The building area of a complex may be 800,000~900,000m2 in Dalian, 200,000~30,0000m2 in a smaller city and 1,000,000m2 in Shanghai. It is difficult to develop complexes in Shanghai and Beijing.
GRE: What are the difficulties?
Patrick Wong: In Shanghai and Beijing, it can't find a land to do such project. In tier-1 cities, it is impossible to develop the large projects like Oriental Plaza and Huamao. Now we want to do the projects in mature tier-2 cities. Now there are still a few mature tier-2 cities, but they will disappear some time later. By then we have to go to tier-3 cities. Besides, the financial environment does not allow you to do so. You are held back by bank loans and financing channels. Overseas financing is easier. It is very difficult for a domestic developer to undertake complexes. If you develop a complex, you must do it good. You should compare it with the complexes in Tokyo and New York and must not compare it with domestic complexes.
GRE: The model Eton adopts in China is strange, somehow relevant with the routes of Philippine Airlines.
Patrick Wong: We make more efforts in the cities on the routes of Philippine Airlines except Guangzhou. Shenyang and Dalian are also not on the routes. I predict the routes to these cities will be opened soon. Mr. Lucio C. Tan has established large business in Mainland China. It has a bank with its headquarters in Xiamen and a branch in Chongqing.
GRE: How do you comment on Chinese real estate market?
Patrick Wong: I think it has a large space of appreciation. The appreciation of commercial real estate relies on operation. Domestic commercial real estate market offers many opportunities. Today, in some Chinese cities, the residential buildings are more expensive than office buildings in downtown. It is abnormal. Chinese financial environment still does not encourage trading, business liquidity is not high and domestic financing channels are not many. Why do mainly the companies from Hong Kong and Taiwan undertake the trading of office buildings? It is because the financial environment in Mainland China is not good. If the policy still does not encourage trading and the problem of business liquidity is not solved, the underestimation of commercial value will last. For example, if now we want to sell an office building, we are unable to sell it out quickly. The tax rate is high. Few buyers can raise so much money. Therefore, the trading of office buildings and hotels is mainly undertaken by foreign investors, but the trade is not active. If the trade is inactive, commercial value can be hardly reflected.
Commercial real estate developers must have financial strength and rich experience and need perseverance. Oriental Plaza has persisted a fairly long time before it shows today's commercial value. Of course, this persistence needs the backup of financial strength.
GRE: Mainland China is in shortage of commercial real estate operators. Where do you get the operators?
Patrick Wong: We may undertake operation by ourselves and may train teams for ourselves. In addition, we also have some brands, hotels and shopping malls for example. We may cooperate with others, but not often. We have a 5-star hotel - Eton Hotel, but we don't have any 6-star hotel. If we have a 6-star hotel, likely we will cooperate with others. We have much experience in the development of shopping malls and office buildings. I have done these things many years in Shanghai and Xiamen. Our team is a "United Nations": consisting of the members from different countries and regions, including France, Hong Kong, Britain and Singapore. We also look for talents in Mainland China. Real estate industry is a highly regional industry, so local talents are valuable. Anyway, hotel management needs international experience. We hope the hotels are operated by the people with international experience. As for shopping malls, foreign experience is better, too. We are practical.
Commercial real estate requires every link must be done best. For example, we appointed the best architect from America to do architectural design for us, the infrastructure is up to international level and the materials are the best. In Mainland China, construction quality was very good, but design was awful in the past. Now design is improved, but material and quality are terrible. They may think materials are not important and people's life is not important. We require materials, architectural design and construction all shall be good. Only in this way, the products will be good.
Besides, we must adopt international operation. In our circles, all the people are foreigners because they have experience. Another point is persistence. Taking Oriental Plaza for example, it didn't run well in the beginning, but now the condition is good. Some of our projects are managing to stay on, too.
GRE: Currently, China restricts foreign capital. Does the policy have any impact to investment?
Patrick Wong: The financial environment is worsened. It is difficult to get loans from banks. Now we adopt the way of capital injection. Few domestic enterprises have registered capital of billions of ~ tens of billion yuan, but we have.
(This article is the republication of the July 2007 Special of Guandian Real Estate)