SOHO to up investments, warns on home prices

BOAO, China: Commercial property developer SOHO China said it plans to increase its investments in 2010, but will be cautious in the face of domestic housing prices it believes are rocketing at unsustainable rates.

A shortage of land and ample of liquidity have helped China's property prices climb steadily in the last year, even as prices in other markets fell or stagnated during the global economic downturn.

"The kind of growth rate in February and March is unusual and unsustainable," SOHO chairman Pan Shiyi told Reuters Insider in an interview on Saturday (April 10) on the sidelines of the Boao Forum on south China's tropical Hainan island.

"We will be cautious in selecting new projects. We are looking for defensive ones that will be focused on major cities such as Beijing and Shanghai," he added.

Beijing-based SOHO invested 10.6 billion yuan (RM5 billion) in property projects last year, up 65% from 2008 when the global financial crisis battered property markets all over the world.

Established 15 years ago by Pan and his wife Zhang Xin, SOHO builds contemporary developments in China, mostly in Beijing. Construction of the first phase of Sanlitun SOHO, designed by Japanese architect Kengo Kuma, has just been completed, while Pritzker prize winner Zaha Hadid's Galaxy SOHO is slated for completion in 2012.

Residential property accounted for a very small portion of the company's sales last year, Pan said.

Beijing is trying to prevent the market from overheating and has tightened credit for property since the beginning of this year. It is also asking some state companies whose core business is not property to exit the sector.

However, the country's property market is still sizzling, with urban real estate prices up 10.7% in February, the fastest pace in almost two years.

China, the world's third-largest economy, is expected to see GDP growth accelerate to 11.5% in 1Q, the fastest year-on-year rate since the third quarter of 2007, thanks to pro-growth policies and an improving global environment, according to a poll by Reuters.

Its real estate market boom helped SOHO post a 2009 net profit of 3.3 billion yuan, more than eightfold what it earned in 2008 during a market downturn.

Pan said he expected SOHO's profit to continue to grow at a substantial rate. "We pre-sold about 18 billion yuan worth of property last year that can be realised in 2010," he said.

The company, which also owns the Boao Kempinski Hotel on the tropical island of Hainan, also has about 45 billion yuan worth of property available to sell in the next three years.

With a fast churning commercial property model and strong financials, SOHO is expected to outperform in any slowdown or policy tightening, UBS said in a recent research report.

Hong Kong-listed shares of SOHO have risen nearly 14% this year, beating the broader Hang Seng Index, which is up 1.5% for the same period. -- Reuters