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SINGAPORE-Another Chinese property developer is looking at developing homes in Malaysia's Iskandar, unfazed by recent negative publicity surrounding some Chinese projects there and a potential avalanche of residential supply in the special economic zone in Johor Bahru.

Iskandar is likely the first overseas stop for Henan-based Weiye Holdings, followed by Singapore, in the next six months - on top of the group's expansion plans within China, according to Zhang Wei, group chairman of the Singapore-listed company.

"We are entering talks for potential cooperation in projects in Malaysia and Singapore," the Mandarin-speaking Mr Zhang said in a recent interview. "Our next steps would be to look at emerging markets in Asia where there is healthy growth in the property market such as Myanmar."

Weiye builds residential and commercial projects in Henan province and Hainan island. As at end-March, it has completed 13 projects with a total net saleable floor area (NSFA) of about 955,688 square metres. It has another six properties under development with a combined NSFA of about 627,038 sqm.

"We have existing customers who may be keen to invest in Malaysian homes because of its international residency scheme," Mr Zhang said, referring to Malaysia's "My Second Home" programme that allows foreigners to live in Malaysia on a multiple-entry social visit pass that is initially for 10 years and is renewable.

"The demand we are seeing now from mainland Chinese to buy homes in Malaysia is just the tip of the iceberg," he said.

Though home prices in Iskandar are on the rise, investment yields are still expected to be positive, Mr Zhang projected. But if prices surge further, the local government may consider measures to curb the rise, he reckoned.

Mr Zhang noted that Iskandar's attractiveness is underpinned by its proximity to Singapore. He is betting, along with other Chinese counterparts, on Iskandar benefiting from that proximity in the same way that Shenzhen - which was designated as a special economic zone in China during Deng Xiaoping's experiments with capitalism in the 1980s - benefited from its proximity to Hong Kong.

When asked to comment on the Singapore government's concerns over the impact of massive reclamation works being undertaken by two Chinese developers - Country Garden and Guangzhou's R&F - for their waterfront projects in Iskandar, Mr Zhang downplayed it as a situation that is "very common in real estate development" and "something that can easily be resolved by both sides through communication".

Singapore has become another overseas market of interest for Weiye because of the recent consolidation in the property market. Mr Zhang said that he expects the consolidation to persist into the next year, providing a window for the group to enter the market and, perhaps, for Mr Zhang himself to snap up his first personal private property here.

In China, the group is looking to expand into first and second-tier cities over the next five years, including Shanghai and Shenzhen. According to Mr Zhang, the group has been in talks about land-banking in these cities since last year.

"Our strategy is to secure land cheaply," he said. "When we enter these cities, Shenzhen for example, we want to work with local companies in Shenzhen as they already have a lot of land resources. This will ensure a quicker entry for us and lower costs."

Indeed, buying land on the cheap has been Weiye's strategy in its core Henan market. Its involvement in a resettlement programme in Zhengzhou, capital city of Henan, put the group in good stead with the local government to acquire land for projects on favourable terms.

Construction of those resettlement houses contributed 92.7 million yuan (S$18.8 million) in the first half of this year, accounting for 22 per cent of group revenue and is the key reason behind the 25 per cent jump in group revenue to 417.2 million yuan. As at June 30, the construction of phase one of the resettlement houses was 85 per cent completed. Gross margin for this segment was higher than the agreed construction cost mark-up of 12 per cent due mainly to savings from actual costs incurred.

But Weiye's net profit slumped 70 per cent to 30.6 million yuan for the first six months on the absence of last year's significant one-off gains on disposal of a subsidiary and negative goodwill from an acquisition.

Mr Zhang noted that venturing beyond Henan will enable the group to tap the larger demand in major cities. It will also reduce the effect of earnings lumpiness from Hainan projects due to its demand seasonality as a tourist destination.

The current net gearing of 27 per cent offers much headroom for Weiye to raise its borrowings, Mr Zhang said, estimating some 5 billion yuan of capital expenditure required for new projects. The group will seek bank loans and internal resources first before issuing bonds and equity.

"There is strong fundamental demand in the first and second-tier cities because of the large number of graduates. Most of them will remain in these cities to work because of the better job opportunities, wages and amenities," he said.

"China's urbanisation drive will also bolster residential demand in the first and second-tier cities. Under the country's plan to raise the proportion of urban residents to 60 per cent by 2020 from the current 53.7 per cent, first and second-tier cities are still the preferred options among the Chinese."
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