Moving up the realty ladder

A local employee with Galencia Property (Pty) Ltd at a housing project in South Africa. Photos by Wang Jing / China Daily

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

Manufacturing and trading companies have always been in the limelight when it comes to China's economic strides in Africa. Though there have been instances of little-known Chinese companies making a mark, it is rather rare for a Chinese real estate developer to be talked about in an overseas market for innovation and direction.

But that is exactly what a privately owned real estate 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 also leads its peers in terms of direction, strategy and innovation. Though quality is its hallmark, it is banking on providing value-added services like gardening and interior decoration to gain more customers in South Africa.

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

"Profit is not our sole objective. 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, construction, sales and management, Cheng says during an interview at a gardening yard in Midrand, Johannesburg, South Africa.

"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 says.

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

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

That decision paid off as the company saw its profits rise steadily from 2004 to 2007 with hardly any competition. Though the market in subsequent years remained bearish, prospects have recovered this year, he says.

"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."

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."

Having said that Cheng says the company will need to tweak its long-term strategies to stay profitable. He says that in the next decade the company will move away from small projects to 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 the growth opportunities in the continent," Cheng says.

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

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

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

William Wang, assistant to the CEO and the new development manager of Galencia Property, says 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 Chinese 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 says.

Cheng says 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," he says.

"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 hectares of land, which Cheng says 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 says that the parent company will further expand its South African business to include breeding, construction materials and paper making, depending on the market conditions.

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

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

"There are still some notable challenges such as the cost of construction materials which make up most of total costs and has been rising by 5 to 10 percent every year. Legal and tax policies are sometimes too strict and 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 says.

Wang says 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 says.

Wei Linhui, 46, foreman of a Galencia housing project in South Africa, who supervises about 70 local construction workers, says: "Most of the workers who came to us in the early days were fresh off the streets and had little idea about construction projects. The company provided basic language training and I communicated with the local workers in simple English, some Chinese and using body language.

"Most of the training that I had to do involved teaching workers construction techniques."

Contact the writers at xingzhigang@chinadaily.com.cn and lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 05/16/2014 page19)