Chinachem treads new path after legal saga

HONG KONG: Chinachem Group, once counted among Hong Kong's leading property developers, is bidding to recapture its former glory days, now that the legal tussle over the estate of its late chairman, Nina Wang Kung Yu-sum, has been settled in its favour.

With the long-running legal battle finally out of the way, the group's executive director Dr Kung Yan-sum and his sisters are embarking on fresh managerial directions for the group, although analysts question their lack of experience in property development.

In a departure from group practice, its managerial team appointed a public relations agency to organise a press conference for the recent launch of its project, The Lily, and invited dozens of reporters from Hong Kong, Beijing, Shanghai and Guangzhou to attend. Such a step is unremarkable in the industry, but for Chinachem it was a first.

"They used to think they could attract buyers simply by selling the flats cheaper," an agent said. "They would not spend a lot on advertising previously."

In another departure, Chinachem will now turn to professional advertising specialists to design advertisements and plan its advertising campaigns.

"Previously, estate agencies were required to help them plan a marketing strategy with advice about what kind of gifts to offer like travel tickets or furniture and how to manage press conferences. The in-house art department of the agency was also required to design an advertisement for the project," a property agent said.

The changed strategy of Chinachem's management has become the talk of the property sector, particularly since none of the Kung family members have experience in the property market. Kung Yan-sum and his sister Molly Gong Chung-sum are doctors, while the youngest sister Kung Yan-sum is a housewife.

Accountancy firm Deloitte, the administrator of Wang's estate, appointed David Hui Yip-wing as the group general manager and director of Chinachem last year. Hui previously served as managing director of mainland developer Tian An China Investment and has experience in the manufacturing sector, as well as fashion and finance.

The first challenge facing Chinachem's new management will be to change the perception that the company built poor-quality projects, according to agents.

In the late 1990s, when other developers offered commissions of 1.5% to 2% to property agents for selling their projects, Chinachem had to offer commissions of 2.5%.

"It was difficult to persuade people to buy flats built by Chinachem as their projects had been infamous for poor quality for many years. The company had to offer higher commissions to encourage property agents to promote the units," a director in a property agency said.

How bad were the projects? Typical of Chinachem's developments was Hong Kong Garden in Sham Tseng. The efficiency rate of the flats (a measure of net usable space per flat) is just 70%, compared with more than 80% at the nearby Rhine Garden and Lido Garden which were developed at the same time — about 24 years ago.

"Chinachem began inflating the saleable areas of their units 20 years ago, while other developers only began to inflate the saleable areas in their units in the past 10 years or so," a property agent said.

Poor workmanship and low-end building materials added to the challenge of selling the flats, with the result that their selling prices lagged behind those of other housing estates.

"They used simple building materials such as mosaic tiles and teak wood flooring. But the other developers were using marble and crystal lights and equipping their flats with luxury-branded electrical appliances," the agent said.

Chinachem sales manager Ng Shung-mo said the criticisms were unfair. "The market misunderstood our company. Land costs in Hong Kong are high. If the quality of the project built on the land is not good enough, how could the flats be sold to recover the capital costs?" he asked.

The Lily in Repulse Bay is the first residential project launched in the market after the Kung family won the legal battle over Wang's estate. It has adopted the practice of rival projects and equipped units with luxury-brand appliances such as Gaggenau and Le Creuset — previously unknown in Chinachem projects.

"The interior design of the units and the show flats have improved a lot. They look trendy," a property agent said.

Its new stylish hotel, L'hotel Island South in Wong Chuk Hang, also shows that the company has put more effort and resources into the design and packaging, agents say.

At the soft opening of the hotel in May, Kung Yan-sum said improvement was necessary. "It is just like your clothes," he said, pointing to a South China Morning Post reporter, to explain the change in strategy. "Thirty years ago, there were no clothes of this style. Everything has to be improved."

In recent months, Kung has also embarked on a campaign to focus on developments for sale rather than lease. Chinachem owns more than 100 commercial and residential projects for lease in Hong Kong. With substantial rental income, it has no pressure on cash flow and is willing to bide its time before releasing a project.

But earlier this year, the company began to offload small rental properties in non-core districts such as Sai Kung and Wong Tai Sin.

At the same time, Kung was active in land auctions, joining the bidding for residential sites in Tseung Kwan O and Fanling this year.

He was also the only competitor to Henderson Land Development chairman Lee Shau-kee in bidding for luxury residential sites at 35 Barker Road on The Peak in May. Kung, however, was a cautious bidder, and all three sites were sold to Sun Hung Kai Properties, Hong Kong Ferry (Holdings) and Lee respectively.

A person familiar with Kung's strategy for Chinachem said he had two plans for the group. "One is having more development projects for sale. Another target is the mainland property market." — South China Morning Post