Wang Jianlin, the founder of Dalian Wanda Group, has a lot in common with Frank Lowy, the property mogul who founded the Westfield Group. Both come from humble origins and have grown their businesses into sprawling global empires. In fact, Wanda is now the world’s largest commercial property developer.
Wang plans to open his 1,000th Wanda Plaza by 2025 -- and we’re not talking about suburban shopping centres here, but huge integrated shopping and residential projects that are larger than the biggest Westfield shopping centres in Australia. Wang is not only building them in China but abroad as well, from the Gold Coast to Chicago.
While Wanda is aggressively expanding its footprint abroad, including two multi-billion dollar projects in Australia, it’s also transforming itself from a ‘heavy-asset’ company into a ‘light-asset’ company. Or to put it another way, Wanda is making the transition from being a property developer to an asset management company.
Wang outlined his new vision back in April at a forum organised by the Shenzhen Stock Exchange. The powerful billionaire said China’s property market had reached a tipping point and that the golden age of easy profits had passed. Wang said he wanted to fundamentally change the way he does business.
Traditionally, Wanda uses its own balance sheets to build large-scale shopping and residential complexes and the company derives its revenues from selling and renting the properties it builds. This is the so-called ‘heavy-asset’ model. However, in the future, Wang wants to use OPM (other people’s money) to build his projects.
To put it simply, Wanda wants to leverage its brand power and experience to develop projects on behalf of investors. It will select sites, construct buildings and manage these Wanda plazas without putting up its own capital. This is the so-called ‘light-asset’ model. It the future, Wanda will operate more like the Hilton hotel chain, it won’t own the buildings but manage them on behalf of investors.
From 2016 onwards, Wanda will rapidly adopt this ‘light-asset’ approach to develop its projects. Wang plans to build 20 large shopping and residential complex using this strategy and another 30 using its own balance sheets. However, by 2017, Wanda will use its own capital to build just 10 projects out of a planned 50 shopping complexes. The company’s eventual goal is to completely phase out using its own money to develop any projects.
Apart from not using its own balance sheets to build new projects, Wanda is also venturing into China’s vast hinterland and overseas markets to expand its footprint as well as diversify its risk. There are simply too many shopping centres in major cities such as Beijing, Shanghai and other provincial capitals.
Building shopping malls in Beijing at a time of skyrocketing land prices and a dramatic expansion of the e-commerce sector seems like a risky strategy and it is something Wanda wants to avoid. Just last week at an Australia China Business Forum luncheon, a puzzled Malcolm Turnbull asked why China was still building so many shopping malls given e-commerce was growing at such a rapid pace.
As a result, Wang is eyeing China’s vast hinterland. The property mogul believes there is ample room for Wanda to grow there. “Many places [third- and fourth-tier cities] don’t have any large shopping complexes and they don’t even have multi-theatre cinemas. According to data from Wanda theatres, 70 per cent of revenue growth comes from third- and fourth-tier cities,” he said in Shenzhen back in April.
Apart from going to rural China, Wanda is also expanding aggressively overseas, cutting deals from London to Chicago. The company is building two large projects in Australia -- one beachfront luxury hotel and apartment project on the Gold Coast and another one at the heart of Sydney’s CBD. Eventually, Wanda wants to derive 30 per cent of its revenue from outside China.
Wanda’s new strategy of turning itself into an asset management company is indicative of several major trends in China. After years of breakneck development, the commercial property sector has reached a saturation point. There are simply too many shopping centres, especially in major cities like Beijing and Shanghai.
More importantly, the old bricks-and-mortar model is also under assault from the country’s rapidly expanding e-commerce sector. Chinese customers are the world’s most avid online shoppers and the younger generation is eschewing shopping centres in favour of smart phones.
A second interesting trend is that most of China’s large, listed property developers are expanding into overseas markets in a big way as they get more nervous about the state of the real estate market in China. Many big developers, like Vanke, have publicly announced the need to diversify its risks. We can definitely expect more Chinese investment in commercial and residential projects in the future as they strive to diversify their portfolios.