Moving up the property ladder

A local employee with Galencia Property (Pty) Ltd at a housing project in South Africa. WANG JING/CHINA DAILY

Chinese real estate developer uses innovation to stay ahead of the game in the South African market

Manufacturing and trading companies have consistently been in the limelight when it comes to China's economic strides in Africa. And while some small companies occasionally make their mark abroad, it is quite rare for a Chinese real estate developer to be touted for its innovation in an overseas market.

But that is exactly what one privately owned developer from China has been doing in South Africa for over a decade now.

Galencia Property (Pty) Ltd has not only carved a niche for itself in the South African realty market, but it also leads its peers in terms of direction, strategy and innovation. Although quality is its hallmark, it is banking on providing value-added services such as gardening and interior decoration to gain more local customers.

"I can proudly say that we, to a large extent, influence the overall trends in the South African property markets," said Cheng Cheng, Galencia's CEO and executive director.

"Profit is not our sole objective," he said. "Instead, we are more brand-oriented and want to be the real estate company that provides the most valuable services in Africa."

Galencia has businesses ranging from property design to construction, and sales to management, Cheng said in an interview in Midrand, Johannesburg.

"We are using the business model perfected by our Chinese parent - Huaqiao Fenghuang Group - to succeed in South Africa. Providing value-added services like gardening and interior decoration are part of this strategy," he said.

In 2004, the Sichuan-based parent company decided to tap into overseas markets, as it felt it could profit from the lower costs and easy availability of land in places such as South Africa, Cheng said.

"Lower development costs were another reason why we zeroed in on the South African market," he said, adding that they account for just 15 percent of average project costs.

The move paid off as the company saw its profits rise steadily from 2004 to 2007 with hardly any competition. Although the market in subsequent years turned bearish, prospects have recovered this year, he said.

"The realty market in South Africa is slowly returning to normalcy. But there are still risks like currency fluctuations, higher operating costs and weak industrial facilities. But the silver lining has been the buoyant local demand, which we expect will provide the right cushion for sustained growth," Cheng said.

Yet another reason for the Chinese company to be bullish about South Africa is the steady demand among the local populace for new houses. "People want their houses to reflect their lifestyle changes."

Cheng added that the company will need to tweak its long-term strategies to stay profitable. He said that over the next decade, the company plans to move away from small projects toward urban development and large community projects.

"By taking on such projects, we will be able to enhance or even double our land value and also offset other rising costs. We are confident as Johannesburg is a major economic hub in Africa. We will also consider moving on to other African markets as we want to tap into growth opportunities on the continent," Cheng said.

The company has land reserves totaling more than 300 hectares, with most of its holdings in Cape Town. That is also where the company will invest 10 billion rand ($1.14 billion) to develop luxury resorts, Cheng said.

Galencia has, to date, developed 10 realty projects in South Africa and added about 1,000 new houses every year to the property market there. The company's average annual investment works out to between 400 million and 500 million rand, Cheng said.

"The main difference between us and others is the way we gauge and tap potential demand." he said. "By offering interior decoration and gardening services, we have been able to leapfrog our competitors and forge strong bonds with local customers."

William Wang, assistant to the CEO and the new development manager of Galencia Property, said the company's interior decoration services rely heavily on design tips borrowed from Chinese architecture, such as hollowing-out for better use of space, use of power-saving appliances and furniture with better function and style.

"We have a design team in China and also in South Africa. A design will be exchanged and modified many times to meet local demand and add Chinese ingredients. In most cases, our innovation has been accepted readily by local consumers," Wang said.

Cheng said that gardening services have been the top draw for the company. "Such initiatives set us apart from other developers who undertake regular projects like houses, garages and roads.

"But a bigger garden has a higher requirement for trees. The more we emphasize our selling point, the more we are creating a demand for ready-made nurseries, something that is expensive and always in short supply."

The company has already branched out into the nursery business on 30 ha of land, which Cheng said is also profitable. "Profit margins from the nursery business are really high, sometimes as high as 300 percent, and much higher than what we would make in China."

He said that the parent company will further expand its South African business to include construction materials and papermaking, depending on the market conditions.

Parent company Huaqiao Fenghuang is already involved in real estate, agriculture, manufacturing, finance, overseas investment and trade. This background has enabled Galencia to explore the possibilities of entering different industries, which "may not necessarily be independent but must be profitable", Cheng said.

As a company straddling various businesses, the subsidiary's key to successful management lies in how it manages and controls the details, he said.

"There are still some notable challenges, such as the cost of construction materials, which makes up most of the total costs and has been rising by 5 to 10 percent every year," Cheng said. He added that legal and tax policies increase the overall costs.

"Government support is very important for the overseas expansion of a big group like us. However, the frequent changes in the South African immigration laws and currency fluctuations are major constraints," Cheng said.

Wang said the company has played an important role in adding more jobs to the South African economy.

"We have provided employment to over 1,000 South Africans in the construction sector, along with the necessary training. Many of them have been with us for over 10 years now," Wang said.

Wei Linhui, foreman of a Galencia housing project in South Africa, who supervises about 70 local construction workers, said: "Most of the workers who came to us in the early days were fresh off the streets and had little idea about construction projects."

But thanks to basic language training provided by the company, Wei said he is able to communicate with the workers in simple English, some Chinese and body language.