Gemdale Proprieties & Investment marching towards industrial real estate, and Shanghai will soon usher in a park opening tide
Source: Jiemian News
Gemdale Proprieties & Investment believes that diversified financial instruments are favorable for the development of industrial real estate at present, because sales of houses or other methods is not longer always necessary.
Picture source: Visual China Group
As profitability of traditional residence business has been further squeezed and real estate enterprises are transforming to "operator" from "developer", numerous real estate enterprises have entered the field of industrial real estate in recent years. As platform listed in Hong Kong that is owned by Gemdale Group (600383.SH), Gemdale Proprieties & Investment (00535. HK) started establishing presence in industrial real estate two years ago, and this year will usher in an industrial park opening boom. Director and Senior Vice President of Gemdale Group and Chief Executive Officer of Gemdale Proprieties & Investment, Xu Jiajun indicated in the exclusive interview by the journalist with Jiemian News that Gemdale Proprieties & Investment will launch 4 industrial parks at the same time, which are respectively located in Jiading, Minhang, Songjiang and Baoshan, all covering an area of more than 100,000 square meters. In 2012, Gemdale Group acquired Frasers Property, a company listed on Hong Kong Stock Exchange, and officially changed the name into Gemdale Proprieties & Investment in 2013. It is used as overseas listed platforms, including main urban complex, office building, industrial park and hotel. Over 5 years of development, Gemdale Proprieties & Investment has grown into a fledging real estate enterprise, and its sales volume witnessed 113% year-on-year growth in the past 11 months this year, reaching RMB40.2 billion. Behind this is the great support from Gemdale Group; in the same period, sales volume of Gemdale Group reached RMB121.18 billion, ranking the 12th among all Chinese real estate enterprises. The layout of Gemdale Proprieties & Investment in industrial real estate can be traced several years ago. As for capital operation, Gemdale Proprieties & Investment established a specialized Gemdale Viseen Industrial Real Estate Company. In January 2016, Gemdale Proprieties & Investment purchased Shanghai Kicers Group through equity merger and acquisition, and the latter has certain experiences in workshop upgrading and reconstruction. When it came to why they choose industrial real estate, Xu Jiajun expressed: "The largest advantage of industrial real estate business lies in the government starting to pay attention to it. 5 years ago, local governments in first-tier and strong second-tier cities did not pay such attention to high-end manufacturing. Everyone wanted to enter service industry and financial industry, CBD or financial city. However, they did not find out the industrial hollowing and being unable to retain talents till now. Even cities like Shanghai need manufacturing industry, which needs manufacturing industry with more added value and higher innovation ability." Another reason is the diversification of financial instruments. "There was only bank loan in your mind 5 years ago. However, there are various financial supporting means in today's market, including bond, ABS and ABN, which has provided tools to develop industrial real estate", said Xu Jiajun. Site selection is the first problem in industrial real estate development. At city level, Gemdale Proprieties & Investment still focuses on first and second-tier cities, especially first-tier metropolis cities like Shanghai. In Xu's opinion, this is a trade-off. "Cities like Shanghai are lack of industrial development space due to the insufficient land increment, and many industries have no space that they require; however, enterprises may not be willing to choose third or fourth-tier cities where there is sufficient development space, due to the limitations of capital, traffic and others. With all taken into consideration, Shanghai, definitely, is a hot land for industrial development." Choosing to develop in Shanghai means that it is necessary to overcome the land limitation. Little new industrial land as there is, some old industries still have land stock, which becomes the expansion point of Gemdale Proprieties & Investment. "Many industrial lands in Shanghai were transferred out twenty to thirty years ago, and they were of lower industrial scale and were poorly operated. Some of them were involved in environmental protection issues. As the city develops, areas around them have been turned into residential areas or business areas, and polluted enterprises surely will be squeezed out. At this moment, we can cooperate with the original landlords, introducing in some emerging enterprises to replace those old enterprises with bad management issues or environment protection problems." Xu Jiajun pointed out that the emerging enterprises introduced into industrial park by Gemdale Proprieties & Investment will focus on electronic information, new energy automobile, and artificial intelligence, biopharmaceuticals, Internet and other industries. In terms of space allocation, every of the 4 industrial park of Gemdale Proprieties & Investment has its own core theme. For example the industry park in Shanghai Jiading, it is based on the industry of new energy car and supporting facilities, and is reserved with some space for other promising industries, such as artificial intelligence and other industries which requires a long cultivation period but less space in the current stage. Managing Director and Director of Research Department of BOCOM International, Hong Hao expressed that, different from operation of ordinary real estate development, operation of industrial real estate focuses more on "industry" rather than "real estate" and on whether it is able to introduce and build a good industrial chain and form reasonable industrial strategy. About industrial strategy, General Manager of Gemdale Proprieties & Investment Viseen Industrial Development Co., Ltd., told the journalist with Jiemian News that Gemdale Proprieties & Investment has started cooperation with fund companies, and that they are more familiar with these fields since they are specialized in investing an emerging industry. Industrial real estate has gone through three stages, namely enterprise self-built park, specific industry real estate, and industrial real estate in China. Numerous real estate enterprises have been flocking into industrial real estate development in recent two years. One reason for this is favorable policy and another important reason lies in low-cost land. And this great development heat may also lead to development inundation of "pseudo industrial real estate". Researcher of Development Research Center of the State Council and Deputy Director of Enterprise Research Institute, Zhang Wenkui expressed that many people hope to get the land in name of industrial real estate or new economy, but some industrial real estate may not end up well. He took LeTV as an example: "How much industrial land has LeTV taken? It's not real estate developer, but took twenty thousand mu all over the country, which makes even big developers jealous. But how is it now? It cannot develop the industry well." That's true. Industrial real estate requires longer investment period, but recovers capital in a longer term. It also has longer investment attraction period and higher requirements, and complex operation services. For this, Xu Jiajun believed that: "So far, manufacturing industry in China really needs to be upgraded, so we believe that there will surely be a great development space in the future of industrial real estate. In the past, some developers could balance cash flow only by selling residence or other industry mode. However, in the future, there will appear some financial means including withdrawal or financing to solve this problem. Generally speaking, we hope to balance capital through industrial real estate + finance, rather than feeding back industrial real estate through other industry modes." In the recent two years, a large batch of large-scaled real estate enterprises including SeaZen specialized in design industry, China Fortune Land Development developing rapidly in scale, Vanke, Country Garden, China Merchants Property Development and Greenland. According to reminding of insiders, real estate enterprises do not need to get land for quick success, but shall make prospective planning on industrial development to prevent excessive supply of industrial real estate.