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Ayala Land unwinding China investment

/ 07:54 AM February 22, 2016

PROPERTY giant Ayala Land Inc. is unwinding its property investment in mainland China and instead focusing its overseas investing activities closer to home in Southeast Asia.

ALI chief finance officer Jaime Ysmael said in a press briefing on Friday that ALI was just trying to sell the remaining residential units and would afterwards liquidate its interest in the special purpose vehicle created to hold the investment in Tianjin Eco-City – 150 kilometers from Beijing – a 3,000-hectare collaboration between the Chinese and Singaporean governments to showcase advanced urban planning and sustainable development.

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“We already gave up on another site that was allocated to us,” Ysmael said. “It’s very difficult in the current market.”

Ysmael said ALI would likely end up with a break-even position from its investment in Tianjin, which was made in 2010 when the company teamed up with Sino-Singapore Tianjin Eco-City Investment and Development Co. Ltd. (SSTEC) to develop a 19-tower residential complex. SSTEC is a joint venture between a Chinese consortium led by Tianjin TEDA Investment Holding Co. Ltd and the Singapore consortium led by the Keppel group.

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“It was definitely a learning experience,” Ysmael said, when asked about ALI’s inaugural foray into China. “It opened our eyes on how they actually operate: they really build very massive, and right away, and (have) access to the supply chain. We were able to gain access to some of those.”

One key difference with the Philippine residential market is that pre-selling of residential units ahead of a certain level of completion was not allowed in China so a developer like ALI would need to finance the project in the interim.

ALI’s decision to unwind its investment in China also comes in the aftermath of massive chemical warehouse explosion in another part of Tianjin in August 2015 that killed over a hundred people. This has been described as China’s worst industrial disaster in years.

China’s rapid growth in previous decades had brought on many challenges, including high inequality, rapid urbanization, challenges to environmental sustainability and external imbalances alongside demographic pressures. Following the global recession triggered by the US-epicentered global financial crunch of 2008-2009, China thus strategized to rebalance the economy from an investment- and export-oriented model to a more consumption-oriented economy, to better focus on sustainability and improving quality of life for its 1.3-billion population instead of being obsessed with the pace of growth. As growth eased, there were intermittent fears of China going into a hard landing.

Asked whether ALI is considering to invest in other locations in China, Ysmael said the group was focusing more on ASEAN (Association of Southeast Asian Nations).

For instance, ALI last year invested $92 million to raise its interest in Malaysian property and construction firm MCT Bhd to 32.95 percent from 9.16 percent. MCT delivers residential projects at lower costs by using the modular construction technique and by being an integrated builder.

“It’s a small but rapidly growing company. It’s meeting our expectations in terms of the growth. As you all know, that market has its share of challenges in the country but the company serves affordable segment in the market, so it’s quite resilient these past few months,” said Meean Dy, ALI’s group head for strategic landbank management. “We’re quite happy with how the partnership (with local investors who founded the company) is shaping up.”

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“Affordable” housing in Malaysia approximates the P5 to P6 million price points between ALI’s mid-income Avida and Alveo brands.

“For this price range, lending rules are still lenient because it’s targeted for first time home-buyers instead of people who are investing,” Dy said.

On the other hand, Dy said the high-end residential market in Malaysia was challenging partly due to the government’s cooling down measures. “Also, a lot in that segment cater to Chinese buyers and as you know that segment of the market is also facing some challenges,” she said. “So we’re actually quite happy with the segment that we’re in.”

In 2014, ALI also entered Myanmar (Burma)’s booming property market in partnership with City Mart Holdings, the leading local retailer there. The group is also considering mixed-use projects in Vietnam but has yet to firm up any deal.

Dy said that as far as ALI’s offshore expansion was concerned, it’s all about “finding the right opportunity and right partner.”

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