In Soho China.s short track record, the Beijing-based company has succeeded in creating a brand name and erecting signature buildings-all in an urban environment notorious for its communist uniformity. Among many who now vie to define Beijing s fast-changing skyline, Soho is arguably the ultimate success story, with two well-identified developments in Beijing s Central Business District (CBD).
Last year Soho China pocketed more than Rmb3.3bn (US$399m) from sales of its latest mixed development, Jianwai Soho. When completed in 2005, Jianwai Soho will consist of 24 glass towers and 300 retail shops totalling over 700,000 sq metres- one of the largest high-end development projects in the CBD area. Soho China is a commercial success story, says one Hong Kong banker based in Beijing. They operate on a pre-sale principle-one of the riskiest schemes for mainland property buyers, yet there is no other Beijing developer that generates more consumer confidence.
The power couple behind the company-joint chief executives Zhang Xin and Pan Shiyi-do have their detractors. Ever since the brightly coloured, Lego-toy type towers of Soho New Town sprung up in the east of the city, critics have alleged that cheap quality work was being sold under the trappings of innovative design.
Others question whether Soho China will be able to sustain its earnings consistency in the volatile market, especially now that the central government is cracking down on the illegal use of land and forcible relocation. (This may partly explain why Soho has postponed much-anticipated overseas listings in Hong Kong and New York.
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That said, Ms Zhang and her husband, Mr Pan, deserve credit for having the business sense to make it work so far. Fashioning themselves as patrons of avant-garde architecture rather than real-estate developers, the couple has championed sleek skyscrapers and minimalist, modern designs as their vision for Beijing s urban development.
By packaging each property project as a lifestyle in itself, Soho managed to generate much market excitement and make a risky pre-sale scheme work. All their projects in downtown Beijing were sold before the buildings had been completed, providing the developers the necessary cash flow.
This has helped the company overcome a major financing hurdle that strains private developers in China: state banks aversion to extending loans to private start-ups with little or no political backing. Ms Zhang claims Soho China never relied on state bank loans to bankroll its projects. When Redstone Industries, Soho China s predecessor entity, was established in 1995, initial capital came from a string of property deals pulled off by Mr Pan in the early 1990s property boom on Hainan island (before that boom went bust in the mid-1990s).
Beijing s new towns
Thanks to savvy marketing, units at Soho New Town sold within three months of the project s debut in 1999. Each unit went for an average price of about US$300,000-over ten times the city average. Indeed, Soho New Town s arrival on the mainland property market was nothing less than revolutionary. For the first time in China, where socialist dwellings were handed over to residents as concrete-shells, property developers offered ready-to- move-in flats with fitted kitchens, painted walls and bathroom fixtures.
To market the project, developers of Soho New Town pioneered the concept of small office, home office -modern and flexible apartments where broadband connection helped combine home and work life, and retractable sliding doors made the space adaptable to owners needs. With sales riding on a wave of private home ownership (and growing Internet use), Soho New Town generated revenues of more than Rmb4bn (US$483m) and catapulted the company to number one in the city in terms of sales revenue in 1999 and 2000.
Soho s winning streak continued with the unveiling of its second project in downtown Beijing, Jianwai Soho. The marketing vehicle behind the development is a concept Soho calls contemporary neighbourhood . Luminous glass high-rises are connected with narrow winding lanes modeled on Beijing .s traditional alleyways and grass-lined walkways link the buildings mid-level.
The project defies the traditional north-south axis of house orientation in the capital by positioning all buildings 30 degrees eastward for better light. And located just across the road from one of Beijing s most profitable shopping malls, the China World Trade Centre, Jianwai Soho will offer street-level shopping with hundreds of small shops.
Ms Zhang insists that winning in the Beijing property market is a marketing game rather than a question of land acquisition or assets base. Ms Zhang and her husband have been prudent enough to secure lucrative land slots in Beijing s prime CBD area. Their strategy was to jump early on to the bandwagon of the Beijing government s plans to relocate over 700 industrial factories outside the city ahead of the 2008 Olympic Games.
Jianwai Soho has sprung up from the former site of Beijing No. 1 Machine-Tool Factory- one of the capital s largest state-owned enterprises and a showcase of workers power until it went bankrupt. As early as 1996 and before the CBD became a hotly contested spot for investors, Soho China paid the factory managers a relocation fee and negotiated a lease of the land from the city government. Similarly, Soho New Town resides on the site of former state brewery that produced famous Chinese spirit Erguotou.
But Ms Zhang is dismissive of the importance of land acquisition in the capital. There is plenty of land for grabs in Beijing, she asserts. The thing is what you do with it. There are some 3,000 property developers in Beijing but none has our brand name and building style recognition .
Over-extending?
While its downtown developments that target urban yuppies have done extremely well, Soho China s other projects suggest the company may be getting overly ambitious. The company is putting up two luxury second-home developments, neither of which appears to be generating significant appeal despite Soho s best marketing efforts.
The first phase of an experimental collection of holiday homes near the Great Wall is still testing the newly rich Chinese s penchant to spend weekends at rustic retreats. For the project, the Commune by the Great Wall, the developers have chosen an impressive combination of ultramodern design and Zen-style blending with surrounding nature-a definite catch for trend-conscious property buyers.
But parched and short of bucolic sentiment, the Chinese countryside may still prove too much for the taste of wealthy urbanities each of whom is being asked to spend at least US$500,000 on a rural retreat.
A second holiday homes project, developed by Soho China in Boao in Hainan, is also proving less commercially hot than anticipated. Boao Canal Village, consisting of 151 villas and designed for weekend and holiday use, came on the market in time to lodge high-ranking guests of the First Boao Forum for Asia. Apart from hosting the forum guests, however, the villas have attracted few visitors.
More like Soho China s more successful urban developments, its forthcoming project may fare better than its holiday homes. Yet it is risky-by far Soho China s most daring development in terms of scale and investment. The 1m sq-metre development, Soho City, will require an investment of Rmb6m (US$724m) and will be funded entirely by the developers, according to Mr Pan.
Designed by the avantgarde British architect Zaha Hadid, Soho City would be developed on the site of Beijing Logistics Centre in the south-eastern suburb of Shibalidian. The first phase is scheduled for completion by the end of 2005 and all four phases by 2010.
Although the new concept marketing platform for Soho City is still evolving, the project has already generated a first wave of media buzz. Soho City would be the first residential development in Beijing designed by a world-famous architect (and the first one with only curved walls). As Soho China s first residential development outside of the CBD area, however, it faces not a small challenge to convince its white-collar target group to shop for ultra-modern flats in the city s outskirts.
