Riviera's Shanghai Dream

Tomson Group is swimming against the tide in seeking top dollar for its apartments but it has superb location and top-notch views of Puxi on its side, writes Olivia Chung in Shanghai

Monday, April 03, 2006



Tomson Group is swimming against the tide in seeking top dollar for its apartments but it has superb location and top-notch views of Puxi on its side, writes Olivia Chung in Shanghai
How much would you pay for the best view in Shanghai?

Tomson Group, the first Hong Kong property developer to invest major money in Shanghai back in the early 1990s, reckons that 143,000 yuan (HK$138,252) per square meter is about right.

That's what it is likely to demand for the best apartments in Tomson Riviera, four luxury tower blocks in the center of the Lujiazui financial and trade development zone in Pudong, the section of the city that lies east of the Huangpu River.

By asking well above the going rate for luxury apartments, Tomson Group is betting that last year's Shanghai property slump, when prices of all classes of housing fell an average 20 percent, won't last long.

In a city as flat as Shanghai, the only way to enjoy a view is to be in a tall building. But even that is problematic since new skyscrapers are going up all the time, and broad vistas can easily turn into blind alleys.

Tomson Group believes it has the problem licked, however.

Riviera is the Pudong development closest to the river, with only a green belt separating them. There's little chance of anything interposing itself between Riviera and its classic Old Shanghai view.

The company is most proud of the the flats in Riviera's Block A - 36 in all, each one a floor unto itself with an area of 597.57 sq
uare meters.

From their 20-square-meter balconies, the occupants will have an unimpeded western view of the Bund and its riverfront promenade, the 19th century Customs House, the early 20th century Hong Kong and Shanghai Banking Corp building and the Peace Hotel, the 16th century Ming dynasty Yuyuan Garden, and a sprawl of other buildings whose architecture runs the gamut from baroque and Roman to art deco and art nouveau.

Tomson says it is not at all concerned that since it put the first flats in the development up for sale last October at an average price of 110,000 yuan per square meter - a Shanghai record - it has yet to record a single sale.

"After seeing the two-bedroom units in Block C in the showroom, many potential clients expressed an interest in buying the best units in Block A, which are bigger and have a better view," says executive director Albert Tong, the 23-year-old son of the company's founder.

When the four-bedroom apartments in Block A finally come on the market, he adds, they will cost 20 to 30 percent more than the Block C flats, or as much as 143,000 yuan per square meter.

Some in the property industry believe Tomson Group is being unrealistic.

"The city's property market has recently shown some signs of recovery, but I believe it will take a very long time for prices at the luxury end to return to the level demanded by Tomson," said Peter Lee, vice general manager of Shanghai Centaline Property Agency.

"While it waits for that to happen, Tomson will be paying an opportunity cost because it has billions of yuan locked up in the Riviera project."

The 220-unit project, comprising four tower blocks - two of 40 stories and two of 44 stories - cost Tomson three billion yuan in land and construction outlays.

Lee noted that while the average level of Shanghai property prices fell by 20 percent last year, luxury properties took an even bigger hit, falling by 30 percent.

Transaction volumes in the primary market totaled 500 a day in the first two weeks of last month, up from 200 units per day in December.

But that is far below the peak of 1,000 units per day in the first three months of 2004.

Tong insists, however, that the company will not cut prices.

He said the failure as yet to sell any of the less expensive apartments wasn't due to a lack of buying interest but because of ongoing bulk sale negotiations between the company and certain property investment funds.

Until these are resolved, no intensive sales promotions for individual buyers can be launched.

An Australian fund hopes to acquire an entire Riviera block, while an American fund has its sights set on two blocks.

An individual investor, who Tong said was considering withdrawing capital from Thailand because of the political situation, also approached the company about a block purchase.

Tong said the company had already turned down a Japanese fund's bid to buy two blocks because it offered 20 percent less than the asking price.

"If we cannot reach a deal with the funds or the individual buyer within a month, we will launch an intensive global promotion program for individual buyers, including those in Hong Kong," Tong said.

Tomson's plan is to sell three of the four blocks for about eight billion yuan and to keep one as an investment, leasing out the apartments at 40 yuan per square foot per month, a rental return of more than 4 percent.

Tong said the company can afford to name its price and bide its time because it has HK$1 billion of cash on hand and a net debt-equity ratio of less than 30 percent.

He said there were already about 30 potential clients for the most expensive units in Block A, half of them from Taiwan.

General manager Hsu Bin said some people had put down deposits on the most expensive flats without waiting to know what the final prices would be.

But Hsu said the high-profile nature of the development was making some buyers cautious.

"There's a Chinese saying - to shoot the bird which takes the lead. Because the media have called Riviera the most expensive apartment complex in China, the first buyer is bound to attract a lot of attention - from the mainland authorities, the tax bureau for example."

Developers are required to provide accurate sales information on fangdi.com.cn, which is the official online trading platform for both new and second-hand homes.

This is to prevent them from manipulating prices by claiming that apartment sales are better than they really are.

"So that our customers won't be hassled, a number of buyers' names will be posted on the official online trading platform at the same time. No one will be able to guess who our first buyer was," Hsu said.

Despite Beijing's renewed pledge in March to curb property price rises, Tong says further macro-economic measures to rein in the market are unlikely. He expects overall property prices in the city to climb 70 to 80 percent in the next five or six years.

High-end prices will rise 10 percent this year, he predicts.

"Foreign investment and economic growth are unlikely to slacken in the next five to 10 years.

"These continue to be the factors driving property prices," he said.