Glut of shopping malls in China could create realty bubble

Glut of shopping malls in China could create realty bubble

Staff Reporter


Compared with the residential market, the commercial real estate market is more likely to face bubbles, a vice chairman of a Hong Kong-listed realty firm has told Shanghai’s First Financial Daily. According to real estate services company DTZ, the total floor area for new shopping malls slated to open in Shanghai during the second half of this year will reach 2.49 million square meters. In comparison, the total floor area of retail property transactions from the year 2000 to June 2013 was pegged at 10.9 million square meters.As of 2011, there were 2,812 shopping malls in China. By 2015, the number will grow to 4,000, according to the China Chain Store and Franchise Association.

The commercial real-estate market is a fierce battleground for foreign investors, state-run enterprises and domestic private developers.

Cora Guidote, SM Investment’s vice president for investor relations, stated, “we believe that as Chinese people’s disposable income increases, the retail business will also rise, and the Chinese government’s policy to expand domestic demand will also benefit the retail business.”

“By 2015, SM will operate seven shopping malls in China. We will consider listing on the stock market in China, Hong Kong or Singapore,” Guidote added.

SM’s point of view reflects that of many foreign investors. However, Vernon Martin, founder of American Property Research, termed the ideas of some foreign investors as “naive.”

“China’s economic miracle is exaggerated,” he said, adding that China’s consumption-to-GDP ratio is on an obvious decline, compared with a decade ago and that market demand is not strong enough to support the shopping mall boom.

James Hawkey, managing director of Cushman & Wakefield’s retail services for the Asia-Pacific, pointed out that commercial land supply was largely decided by each city’s urban planning bureau, hinting that the oversupply of shopping malls might be connected to government policy.

Situations like declining consumer flows in shopping malls and stores having difficulty staying in business have been observed in many cities this year, Hawkey said. “We believe such situations will be more common in the country next year. There will be a glut of malls,” he added.

According to a research by Cushman & Wakefield, the vacancy rate at shopping malls in first-tier cities was around 10%, while the rate rose to 15 to 20% in malls in second-tier cites such as Chongqing, Qingdao and Xiamen.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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