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Sun 5 Oct 2008 04:00 AM

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Made in China

Foreign developers are moving to China. Otto Nager, Chairman of Multi Turkmall and Turkmall explains why he is building shopping malls in one of the most complicated countries on the planet. Kim Latham reports.

Made in China
Otto Nager, Chairman of Turkmall and Multi Turkmall.
Made in China
Made in China
Cityscape China held in Shanghai attracted foreigners from over 15 countries.
Made in China
A rendering of a shopping mall to be situated in Nanjing, China.
Made in China
China has a growing population of 3.1 billion people but property sales dropped in July.
Made in China

Foreign developers are moving to China. Otto Nager, Chairman of Multi Turkmall and Turkmall explains why he is building shopping malls in one of the most complicated countries on the planet. Kim Latham reports.

The German Chairman of Multi Turkmall and Turkmall is a busy man. With real estate projects spanning 18 countries it's a surprise to find him so knowledgeable about each and every one but this expertise has ensured a smooth step into the powerhouse that is China.

"We had a reputation for being so good in Europe and this was very well received in China. You have to have a track record for the Chinese officials to want to work with you," says Otto Nager, Chairman of Multi Turkmall and Turkmall.

China is a very dynamic market. The Western world has not yet understood China so far. You have to go there and see it to believe it. - Otto Nager, Chairman of Turkmall and Multi Turkmall.

Turkmall was set up in 1992 with headquarters in Istanbul and was initially the parent company. The company began to buy, develop and lease retail and entertainment destinations with a focus on Turkey and Europe.

Today, it is one of the biggest retail development and investment companies in Europe with Multi Turkmall turnover for 2008 reaching US$1.4bn in Turkey alone.

Turkmall, as well as being a shareholder in Ikea in Turkey, Bulgaria and Romania, enjoys much success with developments in Syria, Tunisia and Libya.

Following this success, Nager later formed another company, Multi Turk.

In 2004, Nager began to look around China with encouragement from investment bankers Morgan Stanley, now a main shareholder. At the time, business didn't take off due to "incompetent people on the Chinese ground."

Later Nager went armed with a Sovereign fund from the Arabian Gulf and a newly-formed joint venture with Fiba Holdings, a Turkish development, investment and banking company.

In the hunt for an apt Chinese local partner, Red Star, a Chinese company with headquarters in Shanghai and with expertise in developing furniture exhibition malls on a scale of 200,000 sq metres a venue was the ideal suitor.

"It's not difficult to do business there if you understand Chinese culture. The prerequisites are you have to know your business and you have to have money," he says.

Under construction

Nager was quickly introduced on an "offical platform" to Beijing, Shanghai, Shenyang, Wuxi and Nanjing among other cities. Ideas were formed along with predevelopment plans.

"Our first project is under construction in Shenyang in Northern China. Our shopping centre and Ikea will be built on the same piece of land, we will share it. We will do this in other cities," he says.

Nager is impressed by China's infrastructure comparing it with Japan which he describes as "unbelievable."

"China is a very dynamic market. The Western world has not yet understood China so far. You have to go there and see it to believe it," he says.

China is one of Dubai's largest trade partners. The nation with a staggering population of some 3.1 billion as of this year is the emirate's 12th biggest export destination. An increase in property investment which saw a 31.4% rise in 2007 saw many a company looking for a way in.

Middle East developers

In 2006, Dubai-based developer Emaar opened offices in China with the aim of developing modern, community-based, residential properties as well as retail malls, fitness centres, schools and hotels in both the financial capital of Shanghai and its cultural counterpart, Beijing.

China, it seems, was the next ambitious step after expansion into India, Pakistan, Indonesia and Singapore.

In April of this year, the developer signed a MoU with Shanghai China-News Enterprise Development Ltd, a Chinese government entity and subsidiary of the People's Daily Shanghai branch to explore infrastructure development projects in key cities.

"Emaar's entry into China completes a strategic leg of our international expansion programme that focused on three booming markets - the Middle East, the India Subcontinent and now China," says Mr Mohamed Ali Alabbar, Chairman of Emaar Properties.

Dubai-based developer Limitless is also targeting the Chinese market although as of yet the company has not launched projects on the mainland.

More and more developers appear keen to capture some of the huge Chinese market as well as to entice the wealthy Chinese to invest in the Middle East.At this year's Cityscape China held at the Shanghai New International Exhibition Centre, over 60 exhibitors from around 15 different countries attended. The Middle East's Meydan, ETA Star and Fortune Group among others were on hand to entice worthy, not to mention wealthy Chinese investors.

"China is the most talked about economy in the world. As one of the fastest growing property developers in the Middle East and South Asia, it is only natural that we expand to new territories including China," said Abid Junaid, Executive Director of ETA Star Properties.

However, Nager doesn't appear too concerned about rising competition and doesn't foresee an increase in the number of foreign developers entering China.

It’s not difficult to do business if you understand Chinese culture. The prerequisites are you have to know your business and you have to have money.

"The Chinese don't need them any more. They will copy our shopping malls and other developments. The Chinese don't need money, they have money. Sooner or later they will take everything back off us anyway," he insists.

Nager sees competition coming from local Chinese companies although he says they don't yet have the understanding to compete well.

More than just shopping

Unlike Turkmall who aims to develop a whole new concept of shopping mall by making it a "pleasant experience" he claims some Chinese developers are only eager to build one shop after another in the hope of maximizing rent from tenants. This he says is the old-fashioned way and as a result many malls just four years after being built, are empty.

The shopping malls he intends to build in China will not reflect those found in most of Europe. Nager states that British and German shopping centers are like "boxes with car parking spaces."

"In a city of 200,000 people, I can guarantee you that across the city you'll have around 3,000 shops. In a shopping mall you'll have only 100 shops - it's just a concentration of shops. If you make people happy and save people precious time you can go to a shopping mall with the intention of having pleasure and being entertained...then you will shop," he stresses.

China market

Nager admits that his knowledge on China before he entered the complicated market was extremely limited. His saving grace, perhaps, is that one of his favourite past times is history. He says any nation that can build a 5,000 km wall in the mountains to protect its city and culture must be a "great society."

"I liked the idea to look into this country, the people are very open, the people are looking for new things, it's a question of whether you like them or you don't like them," he says.

But make no mistake about it. Nager loves his job and has a serious passion for China and the Chinese people.

"In China, it's the eagerness to make money. They (the Chinese) are crazy to make money. In Europe, we don't want to work anymore. We're not ready to work 40 hours a week and as long as people don't want to they have to face their competition in the world market," he says.

Just two months ago Beijing was in full carnival spirit during the course of the Olympic Games. Sales of properties dropped in July according to DLA Piper Shanghai, which resulted in developers offering substantial discounts to buyers.

Furthermore, China has tightened its laws on foreign investors by banning them from borrowing funds offshore in a bid to calm property prices and cool the economy.

"Some foreign investors may eventually quit China for other markets if an inability to employ leverage reduces their internal rate of return," says Andrew McGinty, Partner at Shanghai law firm Lovells in a China Daily newspaper report.

Nager is aware that once the Chinese have learnt how to develop modern shopping malls - his own China days will be numbered. His motto for now? "Don't give what they ask for, give them what they want."

Foreign Property Developers - Moving in or out?By Ming Zu, Senior Consultant, DLA Piper, Shanghai

In August, house prices across 70 major Chinese cities showed a 5.3% increase over the same period last year, but a 0.01% decrease from July, the first drop in three years, according to a survey published by the National Development and Reform Commission and the National Bureau of Statistics of China (NBSC) in September. The NBSC also reported that the capital source index of August was 97.26, 2.02 and 5.65 points lower than July and the same period of the previous year.

Does this mean that foreign developers are lacking confidence and withdrawing from China's property market? The answer may come from tightened approval requirements and financial limitations for foreign property investors, implemented by the Chinese Government from mid-2006, among which the most significant ones are known as Circular 171, Circular 47, Circular 50 and Circular 130.

With Circular 171 in July 2006, the Chinese Government took heavy-handed measures to restrain finance leverage in the property market. From then on, offshore special purpose vehicles could no longer directly hold real properties in China, and restrictions were imposed on financing leverage from overseas. Circular 171, together with subsequent circulars, raised the bar by introducing more complicated procedures for approval of a property project, requiring foreign investors to contribute higher amounts of registered capital and make full payment of land grant premiums, and at the same time prohibiting overseas loans to any newly established property projects or property acquisitions in China. Foreign property investors have been encountering the most regulated environment ever since China's market opening and reform.

However, despite the restrictions, foreign investment remains active in the property market and there are signs that the Chinese Government is trying to adjust its policy towards foreign property investors. On July 1, 2008 the Ministry of Commerce issued a new Circular to simplify the approval procedures for foreign-invested property projects; two months later the State Administration of Foreign Exchange issued an extensive regulation, aimed at strengthening foreign exchange control in every industrial sector but with less rigid supervision over the property market. It remains to be seen whether there will be any further relaxation of the rigid two-year, cooling-down measures imposed on China's property market.

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