Hopson Development Holdings Ltd.

views updated

Hopson Development Holdings Ltd.

MAINLAND PROPERTY PIONEER IN 1992

Prior to the 1990s, the property development market in mainland China did not exist. Strict controls by the Chinese government over housing and other developments, as well as the government’s policy of maintaining ownership of all land in the country, meant that, with the loosening of economic policy in the early 1990s, the stage was set for a real estate boom that transformed China into one of the world’s most vibrant property markets.

The explosive growth of the country’s industrial sector in the late 1980s and especially into the 1990s not only drew an increasing proportion of the population into the country’s urban areas, it also helped create a new and fast-growing middle class. The appearance and rapid development of this class, accompanied by the rise of a wealthy class, in turn inspired new demands for higher-end residential properties than those built under the authority of the Communist government. In response, the government began reforming its real estate policies to allow for private development. While the land itself remained the property of the Chinese government, prospective developers were now able to acquire the right to build on the properties, generally accompanied by long-term leases in the range of 70 years or more. These reforms created new opportunities for the country’s would-be property developers.

Among them was Chu Mang-Yee, who had established his career within the Chinese government bureaucracy. While serving the government, Chu gained experience working within the construction and property development area. This experience enabled Chu to become one of the early entrants into the newly emerging private sector property development market, and in 1992 Chu became one of the founders of a new company, Hopson Development Holdings.

Hopson initially focused on the Guangzhou region. The main city of Guangdong Province, Guangzhou (once more commonly known as Canton) became one of the first areas in the country to enjoy free trade zone status, placing the city at the center of China’s industrial boom in the late 1980s and 1990s. The city’s proximity to Hong Kong also made it a highly prized location. Led by Chu, Hopson began acquiring a significant land-bank in Guangzhou, rapidly becoming one of the market’s leaders.

Hopson’s strategy was to focus on acquiring less centrally located properties. By adding holdings in less developed areas outside of the city’s central areas, and along its outskirts, the company was able to build a strong landbank at a reduced cost. Nonetheless, Hopson chose its acquisitions carefully, picking up sites in highly strategic locations, particularly those with access to the city’s highway and other transport infrastructure.

The company clearly targeted the rising middle-and upper-middle class markets with the construction of a number of large-scale residential complexes. Hopson focused especially on two of Guangzhou’s fastest-growing sections, Tianhe and Haizhu. The Tianhe sector alone counted for more than 70 percent of the company’s total landbank into the late 1990s.

The Gallopade Park complex provided an example of Hopson’s project development work during this period. Launched in the early 1990s, the completed Tianhe District project encompassed a total of 68 mid-rise residential towers, accompanied by a two-tower research center, three office blocks, and a two-tower training center. The company’s Huajing New City development, built during the same period near the Kowloon-Canton train terminal, and in proximity to the Huanan Expressway, initially consisted of four high-rise residential buildings, as well as 23 mid-rise buildings and office and retail complexes. In later phases, that site was expanded through the construction of an additional 22 high-rise residential towers, as well as a four-story retail and leisure center. Other projects launched and/or completed during the 1990s including Jinan Garden, Fairview Garden, Regal Court, Grandview Place, Riverside New City, and Parkview Villa. The company also launched a development in Yuexiu District, where it built the Zhujiang International Building, combining service apartments with retail and parking spaces.

The company’s brisk expansion allowed it to claim some 7 percent of the Guangzhou residential development market by the late 1990s. The company had also seen strong revenue growth, with its turnover rising from just HKD 120 million in 1995 to more than HKD 1.3 billion by 1998.

COMPANY PERSPECTIVES

In pursuit of its business concept of “realising the impeccable quality of living,” Hopson has dedicated itself to becoming the creator of a perfect lifestyle. As a modern enterprise originated in Hong Kong, Hopson aggregates the advantages of China and Hong Kong in order to bring examples of world-class living to China, making the dreams come true for PRC residents and achieving an ideal lifestyle for their property owners.

In order to fuel its further expansion, and to continually replenish its landbank, Hopson Development listed its shares on the Hong Kong Stock Exchange, and moved its headquarters to that city in 1998. Following the listing, Hopson began acquiring new landholdings, a process which also included acquiring majority, if not full, control of most of its major development projects. At the same time, Hopson focused on expanding a number of its existing sites. As an example, the company acquired the neighboring properties to its Pleasant View Garden site, in order to more than triple the total surface area of that development.

EXPANDING BEYOND GUANGZHOU

As its properties reached completion and the first residents took possession of their homes and offices, Hopson responded by establishing its own property management subsidiary, Guangdong Esteem Property Services Limited, in 2000. The new subsidiary also helped boost the company’s effort to attract new residents following the institution of new housing reforms by the Chinese government, which were enacted to encourage the market’s transition from one based on large-scale institutional purchases of residential properties to an individual-based housing market. Hopson itself successfully made this transition, and into the early 2000s, more than 85 of its property sales came from the individual market.

By 2001, Hopson’s landbank stood at more than 4.2 million square meters. The company’s growth was aided by the strong growth in the Guangzhou market in general, among the most vibrant in China, and in the world. Indeed, by the early 2000s, China’s GDP topped 7 percent, ranking the country among the world’s top performers. Yet the Guangzhou market was responsible for a significant part of that growth, as its own GDP nearly doubled the national average, nearing 14 percent.

Concerns that China’s construction market was overheating, which prompted a new series of reforms by the Chinese government, caused a dip in market prices at the beginning of the 2000s. Hopson took advantage of the softened prices to make massive new additions to its landbank, placing the company in a strong position as the property development market—buoyed by China’s entry into the World Trade Organization and its upcoming hosting of the 2008 Olympic Games—continued its steady expansion.

Hopson itself became determined to expand beyond its core Guangzhou market in the early 2000s, and a significant part of its new land acquisitions came as part of a strategy to increase its geographic scope. For that effort, the company became determined to build a presence in a number of other major mainland markets, including Beijing, Shanghai, Tianjin, and Huizhou.

Hopson quickly made good on its expansion plans. In 2002, the company invested nearly HKD 937 million in a joint venture with Guangdong Zhujiang Investment, already a partner with Hopson in a number of its Guangzhou developments. The joint venture quickly bought five properties, including three in Beijing’s Chaoyang District totaling more than 1.3 million square meters for a total investment of nearly HKD 700 million. At the same the company added its first property development in Tianjin, a 2.5-million-square-meter tourist and resort development. The company also boosted its Guangzhou presence with the launch of a 74,000-square-meter development there.

Hopson soon added properties in other major Chinese urban markets, including its first entry into Shanghai toward the middle of the decade. In 2005, the company further enhanced its position in the Beijing market, acquiring two adjoining sites in the centrally located Chaoyang district. The company announced plans to build a combined residential and retail complex with a total area of nearly 170,000 square meters, at a cost of more than HKD 1 billion. By then, the company’s total landbank was nearly 13 million square meters.

The move into Beijing, as well as further expansion into Shanghai and Tianjin, helped raise Hopson into the top ranks of the mainland’s fast-growing property development groups. By the end of 2005, Hopson could already claim the number three position. In 1995 the company added a new chief executive officer, Wu Jiesi, formerly with Guangdong Investment and a former mayor of Shenzhen, who announced plans to take the market’s lead by as early as 2007. As part of this effort, the company brought in two new strategic investors, Aranda, part of Singapore’s Temasek Holdings, and the U.S.-based investment group Tiger Fund. The share sale enabled the company to raise nearly $1 billion in new funding.

KEY DATES

1992:: Hopson Development Holdings is founded by Chu Mang-Yee and others to develop new residential and commercial properties for the Guangzhou region.
1998:: Hopson goes public, listing shares on the Hong Kong Stock Exchange.
2002:: Company launches drive to diversify geographic focus, adding first properties in Beijing and Tianjin markets, before expanding into Shanghai and Huizhou areas.
2006:: Company raises HKD 1 billion through sale of 60 million shares in order to acquire new properties.

Continued concerns for what many considered to be an overheated housing market led the Chinese government to enact new restrictions on property development. With its large landbank, Hopson was able to profit from the new measures, which by limiting future property developments, helped raise prices in the company’s existing markets. The company also shifted its efforts to acquiring stakes in existing developments, such as the May 2006 purchase of a nearly 61 percent stake in Beijing Dongfangwehhue, then in the process of developing a 15,834-square-meter site in the Dongcheng District, one of the most active areas of Beijing. The remaining shares of that company were held in large part by Chu Mang-Yee’s brother and brother-in-law.

Hopson also took steps to restructure its portfolio in order to take advantage of continuing gains by the real estate market. In July 2006, for example, the company sold off its 50 percent holding in a major commercial development in Shanghai, the Hopson International Tower, raising $150 million. Yet acquisitions of new properties remained a company priority, as the company continued a spending spree of more than HKD 2.5 billion through 2006. At the end of that year, the company took steps to boost its treasury for a new round of acquisitions. In November 2006, the company raised nearly HKD 1 billion through the placement of 60 million shares on the market. The company followed this offering with a convertible bond sale, adding an additional $235 million to its treasury. With a landbank topping 14 million square meters into the beginning of 2007, Hopson Development Holdings had developed into a leading player in the booming Chinese real estate market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Guangdong Esteem Property Services Limited.

PRINCIPAL COMPETITORS

China Poly Group Corp.; Shanghai Alison Group Company Ltd.; China Vanke Company Ltd.; Baoye Group Company Ltd.; North China Pharmaceutical Company Ltd.; China Enterprise Company Ltd.; Nanjing Xingang High-Tech Company Ltd.; Shenzhen Changcheng Investment Holding Company Ltd.; Shanghai Industrial Development Company Ltd.; Shui On Land Ltd.; Beijing Vantone Pioneer Real Estate Company Ltd.