April 23, 2015 12:00 am JST – MANILA — Ayala Land and SM Prime Holdings — two fast-expanding Philippine real estate developers — have different strategies for dealing with a slowing China. One says it is time to exit the Chinese real estate market; the other sees slowing growth as an opportunity to expand.

The Philippines’ second-largest real estate company by market value, Ayala, is now running down its inventory in the northern metropolis of Tianjin, officials say. The company has so far sold 68% of the 724 condominium units it built in the city, far lower than the initially planned 1,244 when the company signed up for the project in 2011.

Chief Financial Officer Jaime Ysmael said Ayala is not keen on building more units or introducing new projects to China for now. “Tianjin is one of the areas that really slowed down,” Ysmael told Nikkei Asian Review after an April 6 meeting with shareholders.

On that day, Ayala announced it was moving into Malaysia by acquiring a 9.16% stake in MCT. The newly listed Malaysian developer has residential, office and hotel projects — a portfolio similar to Ayala’s.

Cooling down

China’s property sector is undergoing a correction because of an oversupply of residential units. Housing prices have been declining and unsold inventory has risen.

China’s National Bureau of Statistics announced April 18 that average housing prices in March dropped in 50 out of 70 major cities from the previous month. They declined in 66 cities in February. In year-on-year terms, however, residential prices in all 70 cities have fallen. “In the face of tight liquidity and high inventory, developers have had to set prices at competitive levels to drive sales volumes,” property consultancy CBRE wrote in a recent report.

The real estate sector has been a key driver of Chinese growth. As the government of President Xi Jinping looks to create a “new normal” for China, structural reform is being prioritized over short-term growth. Gross domestic product for the January to March quarter increased 7.0% from a year earlier. The economy expanded at its slowest pace since the global financial crisis six years ago.

SM Prime is unfazed by events in China. The largest Philippine developer in terms of market value is pushing through with its maiden residential project in the city of Chengdu, Sichuan Province. It operates a mall nearby. The new residential project will initially offer up to 400 units for sale in its first phase, and 1,500 eventually, Chairman Henry Sy Jr. said.

“I do believe that right now, it is the best time to go [into China], because land prices are still up, especially within our mall areas,” Sy said at an April 14 press conference.

Sy argued that SM Prime’s competitors are “not that aggressive” at the moment, due to conditions in the country. He went on to say that SM Prime’s condos are aimed at the middle-income bracket, in line with government efforts to curb “superluxury” developments.

SM Prime has set aside 20 billion pesos ($451 million) in its annual budget for expanding in China. The company, which runs six shopping centers in China, plans to expand at a rate of one mall a year. It also plans to list a real estate investment trust in China going forward.

Romeo Arahan, research analyst at property consultancy Colliers International, said, “SM is trying to benefit from China’s cooling real estate sector,” employing a similar strategy to the one it used at home. SM Group, which started as a retailer, purchased land during the 1980s economic downturn and developed it when the economy improved, Arahan said.

Meanwhile, Ayala’s about-face on China will not be a major setback for the company, Arahan argued. Ayala is aggressively expanding at home. The analyst said that Ayala might as well channel its resources to the Philippines, where prospects for the real estate sector remain rosy. A steady inflow of remittances and stable growth in the business process outsourcing sector have boosted the Southeast Asian nation’s economy.

SM Prime, which operates a network of 50 shopping centers, the biggest in the Philippines, is building “lifestyle cities,” where mall development complements residential units and offices.

The company wants to bring this successful strategy to China, where it has had a presence since 2001. Whether or not this model will work there “remains to be seen,” Arahan said.