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Developers must build up design and finance skills
Last Updated(Beijing Time):2007-01-23 15:09

Property developers should stop relying on bank loans to fund their business and diversify their finances to maintain sustainable growth, industry officials and players agreed during a recent forum.

"Real estate companies' own ability to develop high value-added projects will play a more important role in attracting investment and assuring smooth operations," Liew Mun Leong, president & CEO of CapitaLand Ltd, said at the Chinese-Singapore Real Estate Financing Forum last week in Beijing.

"Introduction of new architectural designs together with better project management might be seriously considered while developing new real estate projects."

Bank loans have been a regular source of finance for many property firms, not only in China but also in other Asian countries.

But after the Asian financial crisis of 1997, many central banks started to restrict loans to developers. Most Asian governments now require their commercial banks to offer no more than 15 percent to 20 percent of their total loans to property developers to enhance banks' overall risk management.

Raise quality

Feng Lun, chairman of Beijing Vantone Real Estate Co Ltd, also expressed a similar opinion.

"Instead of focusing solely on how to get cheap land, the country's real estate companies should increase their brand value by raising the general quality of their products," Feng told the forum, jointly held by Singapore-based Channel NewsAsia and China Real Estate Chamber of Commerce (CRECC). Government officials and key industry players attended from both countries.

"High standards of corporate management and a long-term commitment to providing customers with high value-added products could help developers attract more money from investors," he said.

Feng emphasized that real estate companies with a good reputation for integrity will be more likely to raise money directly from the capital market, for example through initial public offerings.

Better design

And continuous efforts to develop high-quality real estate products will also pay off in the long run for players aiming for sustainable growth, he said.

That may include better architecture and more people-friendly designs, as well as environmentally-friendly and power-saving schemes.

According to statistics from CRECC, only 61 firms, out of more than 20,000 real estate companies across China, have launched IPOs since 2002, raising a total of about eight billion yuan (US$1.025 billion) from the stock market.

Domestic real estate companies have almost stopped issuing corporate bonds since 2000. And real estate investment trusts have not yet exceeded 30 billion yuan nationally.

"Increasing the proportion of money raised directly from the capital market instead of from bank loans is crucial to the further development of the country's real estate industry, which is highly capital-intensive," said Nie Meisheng, chairwoman of CRECC. She said that less than two percent of money raised by domestic real estate companies now comes from direct financing.

Healthy growth

"The central government should introduce policies to widen the direct financing path for real estate companies to ensure healthy and sustainable growth for the whole industry."

The forum's conclusion was that property companies should put more effort into design and corporate management, reflecting a global trend.

Developers in many Western countries are highly professional firms focusing solely on project development and construction.

Other professional firms could take on the responsibility for project financing, sales and property management, industry experts said.

Source:Shanghai Daily 
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