It is hard to miss Jianwai SOHO from anywhere in Beijing. Nestled on a prime 700,000-square-metre site facing the China World Trade Centre, the striking white lattice-designed residential and commercial complex is imposing, even among luxury developments.
Jianwai consists of 18 apartment blocks, ranging from 12 to 31 storeys. Each floor covers 729 sq m (7,847 square feet). There are also two 28-storey office towers and four villas, each providing four units over three floors. All the buildings are connected by 16 winding lanes lined with street-level shops. The price tag is no less imposing, commanding a hefty 15,000 yuan (HK$14,100) psm. With residential units ranging in size from 90 sq m to 300 sq m, even the smallest apartment would cost a respectable 1.35 million yuan.
Yet for Beijing developer SOHO China, which expects to wrap up construction of the third phase of the massive project by next month, demand for Jianwai has been surprisingly strong. Last year, it was the top-selling project in China and accounted for the lion's share of the developer's presales of 3.34 billion yuan. On Saturday, SOHO will simultaneously launch residential sales of 20 units in tower 14 in both Beijing and Hong Kong. Tower 14 is 31 storeys and Centaline Property Agency is handling the Hong Kong sales.
``We are basically trying to build good-quality buildings that reflect the time of today and the buying standard. We are not looking to outperform the market as we need to sell to the market,'' Zhang Xin, who founded SOHO China with her husband, Pan Shiyi, nine years ago, said.
``China is a place that is appropriate for new things because, in the 1950s, 1960s and 1970s, there was hardly any development and it was tremendously suppressed. People now have a strong desire to own something and this outcry of demand has come from people's experiences abroad in the US and Europe.''
This pent-up demand is something that Zhang, 38, understands well. Born in Beijing to parents who operated a confectionary business in Burma before fleeing the riot-torn country to China in the 1950s, Zhang spent much of her childhood at a village in Henan province, oblivious to the Cultural Revolution that had plunged China into turmoil.
Following the divorce of her parents, she and her mother emigrated to Hong Kong in the early 1980s. There, they worked 16-hour shifts in electronics factories and scraped up enough money for the then teenager to attend evening classes in accounting.
This eventually paved the way for her to study in England, first at the University of Sussex and then at Cambridge University, where she graduated in 1992 with a degree in development economics. Wall Street soon beckoned and Zhang found herself ensconced at Goldman Sachs as an investment analyst. But in 1994, on a trip to China for Goldman, she met, and subsequently married, Pan.
``I met my husband on a trip from New York to Beijing as I was looking for investment opportunities and a friend introduced me to Pan Shiyi,'' she said.
Pan, a former oil ministry official, was an established developer in his own right, having made a name for himself during the construction boom in Hainan in the early 1990s. At their first meeting, Pan was seeking funding for a real estate project, which Zhang rejected, but the pair hit it off.
This union led Pan and Zhang to set up their property development business in Beijing in 1995 under the guise of Beijing Redstone Industrie. In March 2002, the company was incorporated as SOHO China, a name Zhang said better reflects the company given its focus on the ``small office, home office'' market.
``At that time, we thought that I would do the fundraising and he would do the negotiations for the land and buildings, since he is a much more natural businessman. He can smell opportunities and knows when to raise prices. It was a miracle that I ended up doing design as this was not planned,'' she said.
``Working with your husband is hard when both people want to do the same thing, like fundraising in the early days of 1996 and 1997. I guess we were lucky in that the Beijing government gave the green light for banks to offer home mortgages at the end of 1997 so there was no need to go to the capital markets for funding.''
Today, the developer derives some 20 per cent of its project funding from customer down payments. Bank loans make up the remaining 80 per cent. This strategy of pre-selling residential units is true for most mainland developers and has worked surprisingly well for SOHO China.
Its debut residential project, SOHO New Town, was completed in 2001 and generated sales of well over 500 million yuan in its first three months and over 4 billion yuan to date. Although its per square metre price of about 10,000 yuan is cheaper than that of nearby Jianwai, the price makes owning a unit out of reach for most Beijingers.
``From our own experience, we know that a good property should pre-sell before construction. There is market appetite for pre-sales,'' she said.
The strong performance of SOHO's projects has not gone unnoticed by other developers, who may be looking to offload their poorer selling sites. In China, the government seizes land from companies that has not been developed in two years and puts it up for auction.
According to Zhang, SOHO is finalising preparations to acquire two projects from other developers.
One project covers less than 300,000 sq m and already includes an office tower. The other site sits on roughly 600,000 sq m of land and no building work has taken place. Both sites are located within Beijing's central business district, an area SOHO China is keen to boost its presence in because of rising property prices.
``Housing prices have gone up but only in the central business district. As the government controls the supply, which is capped, prices naturally go up. But in general, Beijing housing prices have been flat in real terms for the past five years,'' she said. Beijing's zoned central business district occupies about 3.
99 square kilometres in Chaoyang District in the eastern part of the city. It is bordered by Dongdaqiao Road in the east, Tonghui River in the south and Chaoyang Road in the north. Planning for the construction of the central business district was initiated by the city government in the early 1990s and received State Council approval in 1993.
Work commenced in October 2000. Planning costs alone have amounted to roughly 10 million yuan. Currently, about two-thirds of foreign-funded companies and around half the number of major international hotels are located in this district.
``The government has a target of developing 9 million sq m of housing and commercial space in the central business district. There is no timeframe but I suppose this is the amount of space the government expects will be needed,'' she said.
About 1 million sq m will be taken up by SOHO's latest and biggest project, SOHO City, which is 25 per cent larger than Jianwai. Although the asking prices for SOHO City will be lower than those for Jianwai given its less prime location along the Fourth Ring Road, Zhang expects both projects to bring in total sales of about 9 billion yuan each.
Her unabashedly confident forecast comes despite increasing government scrutiny of the real estate sector amid fears of a housing bubble. According to national statistics, the average cost of housing in China in the first three quarters of 2003 rose 4 per cent to 2,460 yuan per sq m compared to a year earlier. Similarly, construction of property during the nine-month period reached 15.3 million sq m, up 34.9 per cent year on year.
Zhang argues that there is no evidence yet of a housing bubble as much of the demand is coming from local home buyers rather than from overseas institutional investors.
``China is different. There is a high savings rate. China only has a problem if funds from London and New York start flooding the property market. But, so far, the demand is not from institutional investors,'' she said.
``I think institutional funds are waiting for stronger demand from locals. They see real estate as complicated. Until there is a more clear process of land auctions, their investment is to buy buildings and rent them out to companies like Goldman Sachs or BMW, which will occupy half the building. I don't think they want to deal with so many retail renters in China.''
