SINGAPORE -- Resilient real estate markets in China's biggest cities fueled higher earnings at Singaporean property developers in 2015.
The Chinese economy may not be the growth juggernaut it once was, but the property companies have concentrated their projects in so-called first-tier cities -- Beijing, Shanghai and a few others. These metropolises are achieving higher growth rates than other parts of the country.
CapitaLand posted a revenue increase of 21.3% on the year, to 4.76 billion Singapore dollars ($3.41 billion). Strong residential sales in China were a key factor. Despite concerns about the economic slowdown, mainland sales doubled to 15.4 billion yuan ($2.36 billion), compared with the previous year.
"Residential sales volumes across 20 major cities in China shot up by 28% in 2015," said Joe Zhou, China head of research at JLL. "Prices in Tier 1.5 and 2 cities also are gaining momentum," though he noted that third- and fourth-tier cities still face excess supply.
Chinese cities are broken down into tiers based on population, gross domestic product and other variables.
David Ji, director and head of research and consultancy for Greater China at Knight Frank, said people are buying Chinese properties as a form of investment despite the economic downtrend. "There are limited investment channels in China, either in the stock market or brick-and-mortar," he explained. "People are investing in first-tier cities as the quality of the properties is better than the other tier cities."
City Developments, one of Singapore's top real estate developers, benefited from this, too. Its subsidiary, CDL China, has made "very strong progress in its four China projects," the company said in a recent news release. "There have been signs of improvement, with increased buying activity in certain cities such as Shanghai and Suzhou after the government lifted several cooling measures and relaxed loan restrictions in 2015."
In the fiscal year through December, the company sold almost 700 units in Suzhou and 13 villas in Shanghai with a total sales value of 1.6 billion yuan. CDL's net profit grew 0.5% on the year to S$773.3 million.
While the Chinese residential market is doing well, things are not as rosy in the hospitality sector. Singaporean developer UOL suffered from weaker hotel performance in China. It incurred an impairment charge of S$3.2 million on a mixed-use development, Pan Pacific Tianjin. Pan Pacific Tianjin had performed poorly from lower occupancy due to oversupply of hotels in China's hospitality market.
UOL logged a net profit of S$391.3 million, down 43% on the year.
The city-state's own property market has been sluggish. "2016 will continue to see downward pressure on these developers' new project prices from increased competition in both the primary and secondary market," according to Jeremy Lee, chief technology officer of SRX Property. "Already, a number of developers are finding it increasingly difficult to sell their existing projects in the market and will face financial penalties for not selling them within a stipulated time frame."