Rumors singe Pan

By Zhao Qian Source:Global Times Published: 2013-2-6 23:18:01


Sanlitun SOHO in Beijing Photo: CFP
Sanlitun SOHO in Beijing Photo: CFP

Discussion has been rife online recently about famous real-estate tycoon Pan Shiyi, not because of his commercial activities, but because of his relationship with a woman named Gong Aiai.

Gong, who is rumored to have had business dealings with Pan, has been arrested for possible corruption.

Pan and his company SOHO China announced via their Sina Weibo on February 1 that the rumors of helping Gong with money laundering were groundless, but questions have still been raised over the outlook and business model of SOHO China and other commercial property developers.

Shares in SOHO China tumbled by 8 percent Wednesday on the Hong Kong Stock Exchange.

Dodgy deals

Beijing police said on January 31 that Gong, the former deputy manager of the Xingcheng branch of Shenmu Rural Commercial Bank, had faked extra ID cards and hukou (residence permit) documents in order to buy 41 properties in Beijing with a total area of 9,666.6 square meters.

Gong was arrested Monday by local police in Shenmu county, Northwest China's Shaanxi Province on suspicion of forging official documents and stamps, Xinhua reported Tuesday.

The Beijing Municipal Public Security Bureau said on its official Sina Weibo account on January 31 that Gong's Audi car and 10 properties covering some 2,000 square meters had all been purchased using an illegally registered Beijing hukou, and they have now been seized by Beijing police.

An Internet user named "female financial journalists club" said on Weibo on January 31 that 14 units of No.3 Building in Sanlitun SOHO in Beijing had been bought by Gong, without disclosing the source of the information.

It would have been hard to amass such fabulous wealth if Gong only worked as a bank executive, Beijing-based magazine Legal Weekly reported, citing a source close to the matter. In fact, she helped to get financing for capital-thirsty local mine owners in Shenmu, where coal mining has been a pillar industry, and allegedly received free stakes in many mines in return, the magazine said.

While the investigation into Gong's case continues, various people are being dragged in, including Pan Shiyi.

Pan visited Shenmu on November 9, 2011, and he wrote about it on his Weibo saying he had been down a coal mine and "talked with some miners."

Another rumor that has spread widely on Weibo is that Gong introduced seven coal mine owners to Pan to encourage them to buy his properties, and that she gained a cut of the deal as a result.

These rumors fueled a discussion about a relationship between Pan and Gong among the media and Internet users, which forced Pan and SOHO China to issue the clarification on Weibo saying the rumor was groundless.

However, Pan admitted that Gong is the owner of some properties in the SOHO China Sanlitun development.

"As an enterprise, our company can only trust in the information released by the government, and we don't have the ability to judge how many ID cards she has, or whether one is fake," Pan said on his Weibo.

"The ID card Gong held when she purchased SOHO China properties was considered valid by the police bureau, and she also passed the review from the banking credit system when she applied for a mortgage," SOHO China said on its Weibo.

Overheated investment

In the midst of this controversy, SOHO China has made no comment other than the Weibo posts.

Gu Bo, a member of the SOHO China PR section, declined to offer more details about the case when reached by the Global Times Tuesday.

But Gong's case is seen as an example of overheated investment in commercial properties, sometimes using funds drawn from dubious sources.

The current rental income for retail stores and smaller-sized offices is relatively low compared with the properties' high purchase prices, but demand is still strong, partly because "some buyers don't care about the rental income," said Wang Yongping, secretary-general of the China Commercial Real Estate Association.

"Some buyers, who gained a huge amount of money via gray or unclear sources, are just in a hurry to transfer the funds by purchasing fixed assets that will rise in value, such as in prime areas like the Beijing central business district (CBD)," Wang noted.

SOHO China has been accused of helping Gong with money laundering in recent media reports, but Zhang Xin, CEO of the company and Pan's wife, denied the accusations in a Weibo post Tuesday.

The average return rate for rental is only around 3 percent for commercial property developers in Beijing, but the prices of retail stores in the CBD have reached as high as 280,000 yuan per square meter, according to Wang.

Wang warned that the fast appreciation of property prices at the same time as slow growth in rent could cause a bubble in the market.

The Beijing municipal government has tried to curb the rise in residential property prices with measures such as purchase limits, which allow only local residents and taxpayers to buy apartments.

Consequently, a large number of potential buyers such as wealthy coal mine owners were squeezed out of the residential market, forcing them to turn to commercial developments instead.

Wang cited an example of an owner of a retail property in Jianwai SOHO in Beijng who left his property vacant for four years without renting it out.

Change in sales model

An insider was quoted by the National Business Daily Monday as saying that the sales of retail stores and offices could be impacted because the publicity surrounding Gong's case might put off some potential buyers.

Most buyers of SOHO China are businessmen in the energy sector and other rich people from resources-rich Shaanxi and Shanxi provinces, as well as Inner Mongolia Autonomous Region, according to the newspaper.

On the first day when sales started at Sanlitun SOHO, nearly all of the top 20 buyers were mining bosses, New Real Estate magazine reported.

A mining boss from Shaanxi spent 250 million yuan to buy premium office space in the development, Beijing-based Ihome magazine reported.

"For a commercial property developer, it is not wise to sell the properties to too many individual owners, who then rent them out, as it could impact the level of property management," said an insider from an international real estate consultancy, who preferred to remain anonymous.

To deal with these issues, SOHO China began to change its business model last August, when it declared that commercial properties with a total area of 1.5 million square meters or more will not be sold, but held and rented out by the developer itself.


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