Indulgent Living
Shama serviced apartments makes its foray into mainland China
| Text : Alex Frew McMillan | Photo : www.thinkstockphotos.com |
One of Hong Kong’s best-known home-grown property brands is adding a new branch.
Shama currently manages 250 serviced apartments in Hong Kong, and has started rolling out similar operations on the mainland. With serviced apartments in Shanghai and Dalian, and its first outside greater China announced in Bangkok this January, it now operates 17 different serviced-apartment.
Now the company is expanding into residential property. In April, the company opened its first branded residences, in the Chinese city of Chengdu.
The move into Sichuan’s capital means the company will start managing residential apartments that can be bought strata title by individual owners, who can then either rent them out or live in them, with the public areas handled by the property manager.
The project is a 140-apartment block called Lidu Garden, in Chengdu’s Lifu neighborhood. Gaw Capital, one of Shama’s backers, is the developer. The apartments will be fitted out by Shama, and owners can then live there or lease them back and have them rented out as serviced apartments.
Shama will be marketing the project in Hong Kong, Shanghai and Singapore, and expects as many as 50 percent of the flats to sell to investors.
Building the apartments will likely run to around 4,000 yuan per square metre, with another 4,000 yuan spent to outfit them – apartments in China are normally sold as bare shells, without even bathroom fixtures or kitchen sinks. Shama will outfit them with everything down to chopsticks.
Shama CEO and co-founder Elaine Young hopes the private residences in Chengdu will appeal to homeowners who like the reassurance of having a brand-name manager attached. Luxury housing projects in China have often been faulted for and a “pump and dump” sales style and poor after-sales service – if there is any at all.
“I think the concept will particularly work well in China, because it’s a young market, and the property market has boomed so fast,” Young says. With a branded residence, “the buyer knows it is going to be meticulously maintained with an international brand looking after the residences with great care and attention.”
Investors get a largely hassle-free play on China’s real estate market. Owner-occupiers may be reassured that the management company will enforce the deed of mutual covenant and see that the property maintains certain standards.
“Many people in China want this, and will pay a premium to have an international operator,” Young says. “If they’re aspirational owners, they want a property that doesn’t have towels hanging over the balcony, half the balconies closed in, bicycles left in the lobby.”
But there will be big challenges. This will be the first time that Shama has dealt with individual owners, instead of big institutional owners. “We are creating a tough job for ourselves,” Young concedes. “It’s much easier to have one institutional owner for an en bloc building of 140 apartments than to have 140 owners, all with different expectations and demands.”
Shama will take a management fee for running the residences and will likely also handle the sales and marketing campaign for the properties, taking an agent’s fee for its work there. That’s traditionally around 3 percent, although discussions are still ongoing.
The company estimates that property prices in Chengdu are roughly one-fifth of prices in Shanghai and Beijing, but that rental returns are half that of those cities. The combination makes for attractive yields.
“Chengdu is surprisingly affluent, and there’s a lot of China money being poured into Sichuan,” Young says, investment efforts that have been given extra impetus by the stimulus spending after the 2008 Sichuan earthquake.
The company, which was founded in 1996, has sold all of its real-estate holdings and now, like many five-star hotel chains, does not own any of the properties that it manages. Instead, it signs long-running management agreements with the owners or developers to lend its name to the property and run the serviced apartments.
Some of its projects are owned by the investment bank Morgan Stanley, via one of its property funds, and family office Gaw Capital, which manages property funds. Both own stakes in Shama. Others are owned by local developers.
Shama is also in talks to roll out branded residences in other Chinese cities, specifically Chongqing and Shanghai. For now, there’s no plan to introduce them in Hong Kong.
That’s because residential property is so much more expensive in this city, meaning it doesn’t make sense to operate serviced apartments in a residential block. Serviced apartments are also not allowed to be owned by strata title in Hong Kong.
Developers favour setting up serviced apartments in Hong Kong in commercial buildings, which have a much lower land premium and therefore acquisition price than residential property, the most expensive kind of real estate in Hong Kong.
“From an operational point of view, it’s great if you can take a commercial building and renovate it,” Young explains. “You’ve got the plot ratio and the price of commercial space, but the income stream of a serviced apartment,” which is more like a hotel or even private-property rental.
Besides moving into private-property management, Shama is also looking to expand its serviced-apartment presence overseas. It aims to have 40 serviced-apartment projects by 2013, and is developing projects in Hangzhou and Guangzhou in China. It also hopes to open one in Bengaluru in India, and is mulling whether a move into Western Europe, perhaps to London or Paris, would help not only with diversification but also with branding.
That should be easy if all goes well in this part of the world. “The tough markets to get into in Asia to really do properly are China and India,” Young notes.
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