Huaku shifts to commercial property investments

By Tim Culpan, Bloomberg

TAIPEI, Taiwan — Huaku Development Co., Taiwan’s fourth-largest developer, will increase investment in commercial projects next year to take advantage of a drop in material prices as the residential property market slows.

Half of the company’s projects by value will be commercial in 2009, compared with none this year and “virtually nothing” the previous two years, said Johnson Yeh, a spokesman for Taipei-based Huaku. The three buildings will only generate income starting in about 2011 because they must be built first, he said.

“Unlike residential, for commercial property you don’t do presales, you have to complete the building before selling it,” Yeh said in a phone interview yesterday. “Given that raw material prices have fallen, right now is a good time to build.”

Commercial property may also be appealing to mainland Chinese investors, Yeh said. Taiwan President Ma Ying-jeou took office in May on a pledge to allow investments from China. Taiwan, run separately from China since the civil war ended in 1949, now restricts mainlanders’ purchases of real estate.

“We believe that if Taiwan does open its economy to China and allows Chinese to start buying property, then most likely that will start with commercial property,” Yeh said.

Residential projects are selling more slowly than Huaku forecast, Yeh said. The company has joined Farglory Land Development Co., Taiwan’s largest builder, in doubling the amount of time it expects to take to sell projects.

Huaku expects to complete sales of two residential projects in Taipei’s Nangang district as late as the second quarter of next year, rather than in October 2008 as it forecast when it began marketing in April, Yeh said.

Huaku shares have fallen 45 percent this year, dropping 3.4 percent to NT$29.65 today in Taipei. The stock has outperformed a 55 percent plunge in the 34-member Taiwan TWSE Construction Index. The company will likely put the first of five residential projects next year on sale in the second quarter, Yeh said. Taiwan’s developers typically sell about 75 percent of a housing project before starting construction. “We’ve got to test the market a little bit,” Yeh said.

“We’ll have to see if the world economy and the stock market have stabilized, because right now the overall confidence is low.”