Feeling blue

Greentown property tycoon has a new vision


No retirement plans: Song

If viewers thought they were seeing the last of Barbara Walters on her US talk show The View, they were mistaken. The 84 year-old retired as one of the programme’s four hosts in mid-May. It was a teary affair that saw high-profile guests like Hillary Clinton join Walters for a farewell extravaganza. But just six weeks after her supposed departure, she was back on the show as a ‘guest host’. This prompted Fox news to quip: “How’s retirement going for Barbara Walters? Not very well.”

And like Walters, China’s Song Weiping isn’t quite ready for retirement, despite selling his stake in property developer Greentown to Sunac last month. “I will not quit Greentown, nor can I completely quit Greentown. The bond with the company I founded 20 years ago is inseparable,” the former chairman of the Hangzhou-based company told the Chinese media in May (see WiC238).

Now Song is revealing what he will do next, with plans to expand Greentown Property Construction Management, a subsidiary of the developer. The division – in which Song still owns a 34.6% stake – operates an “asset-light” business model that separates ownership and management of property projects. Unlike most developers, who build up their own land banks, Greentown Construction signs deals with third-party landowners with little experience in property development but want to leverage Greentown’s brand and expertise, says Time Weekly.

Or as Song puts it, the arrangement allows Greentown to “use other people’s money to build our own projects” – an attractive proposition when many real estate firms are having difficulty getting loans to fund more land purchases.

Instead Greentown Construction makes its money through management contracts, overseeing the construction phase of new projects and taking a percentage – generally up to 7% (sometimes more for luxury developments) – from the project’s final sales. Management contracts can also deliver bonuses if projects are completed ahead of schedule or if they sell out quickly once they have been completed.

Pan Yongtang, a researcher at the Real Estate Institute, says that outsourcing to companies like Greentown Construction makes sense because they are respected names with pre-existing relationships with suppliers and contractors.

“Most of the projects constructed by Greentown Construction Management have a better quality compared to the neighbouring developments. With the Greentown brand name, their sales performance is also generally better than the competition,” agrees Xue Jianxiong, research director at CRIC, another real estate advisor.

Greentown has been offering construction management services since 2005. In one of its first projects it partnered with the local authorities in Jianggan, a district in Hangzhou which had no previous experience in property development, to build affordable housing. Since then it has signed up with other local governments for affordable housing projects, which have become a policy priority for the central government in recent years.

As of the end of last year, Greentown Construction had managed over 180 projects around China, the majority in its home province of Zhejiang, says National Business Daily. In some cities, the number of these projects exceeded its own developments.

Last year it recorded revenues of Rmb350 million ($56.19 million), an increase of 37% from a year before, according to the company’s financial statements. But insiders say Greentown Construction will be increasing the number of projects that it manages through the construction phase. As many as Rmb130 billion of new apartments could be sold as a result. This would see Greentown’s contract fees rising sharply to as much as Rmb10 billion, Time Weekly reports.

That looks a little optimistic. (For reference, Greentown made Rmb27.4 billion from the sales of its own property development last year.) But Song is confident about the prospects for his new enterprise, saying that he plans to rebrand it as Bluetown (his favourite colour).

“In the future Bluetown will cultivate its own brand and also show its own strength and high performance. It could even be bigger than Greentown one day,” says Song.

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