As one of the "diao kings" in Hong Kong, can Zhong Chuyi, once known as "Li Zekai's right hand", establish a real estate kingdom comparable to Henderson Land (12) or New World (17)?

The property market in Hong Kong has always been monopolized by several local developer giants, and the market believes that their strength and even the ranking among the giants is irreversible.

However, this is not the case for Zhong Chuyi, chairman of Capital Strategy Real Estate (497). Capital strategy real estate has been focused on the re-development of commercial properties, in recent years involved in luxury projects, the rapid rise of the company, actively squeezed into the leading ranks of real estate developers.

Since Zhong Chuyi bought a shell into the capital strategy real estate in 2004, the income of the investment strategy has been rising steadily. In 2005, the company's income was HK $368 million (US $46.9 million at current interest rates) and the profit attributable to shareholders was HK $71 million. In 2017, the income of Zishi increased to HK $1.86 billion and the profit attributable to shareholders was HK $1.35 billion. 2012 was a brilliant year with an annual income of HK $3.2 billion and a profit of HK $1.7 billion. However, this is still a long way from the giants: new World had revenues of HK $56 billion in 2017 and profits attributable to shareholders of HK $7.6 billion. Therefore, Zhong Chuyi will not be satisfied with this, but will continue to work hard to gradually move towards Hong Kong's top real estate developers.

Zhong Chuyi's first exposure to the real estate industry began with a small real estate development company founded by his father in the 1960s. Zhong Chuyi's father emigrated to Hong Kong from the city of Chaozhou in eastern Guangdong Province, Shantou, which has been the commercial center of the region since ancient times. His father started out as a blue-collar worker, then set up his own factory, and finally started a real estate business and devoted himself to the development of real estate projects.

Look up to his father.

Zhong Chuyi's family is not well-off, and there is no maid or babysitter. When he was young, Zhong Chuyi often inspected real estate projects and construction sites with his father. His father devoted himself to real estate right after the riots in Hong Kong in 1967, when property prices plummeted.

"Real estate is in my father's blood, and I'm used to it," Zhong Chuyi said. "as I grow up, I feel that this is my future-you will always look up and follow your father."

Although his father would drive Zhong Chuyi around the city to inspect the construction site, he had other expectations for his son. Zhong Chuyi recalled: "he thought he spent too much on hiring a lawyer, so he wanted me to study law, and I read it for him." The original plan was for Zhong Chuyi to work as a lawyer in the family business to save indirect expenses.

Zhong Chuyi graduated from the Law Department of the University of London in 1983. But it was at a time of negotiations over the handover of Hong Kong and financial and political upheaval began. By 1984, his father had gone bankrupt due to high and volatile interest rates (in October 1982, the best lending rate in Hong Kong was as high as 19.6%), and Zhong Chuyi had to work for a law firm. This also represents the family's vision of developing a real estate business.

However, Zhong Chuyi soon found the law boring and the bargaining he was interested in was too conservative. He moved to Standard Chartered Investment Bank a few years later, which is more in line with his preference.

The rise of "Diao Wang"

During a brief stint at Bunda International Co., Ltd., Chung Chu-Yee led the acquisition of the Causeway Bay World Trade Center for HK $1.72 billion in 1990 and was subsequently discovered by Singaporean businessman Wong Hung Nien in 1991. Mr Huang bought a stake in the company that runs the World Trade Center (WTO), and although the deal ended in a legal dispute, he was keen to hire Mr Chung to run a new investment fund for him. Huang Hongnian himself is interested in China's potential, and he is also known in Singapore for his brisk trading style.

This is a big opportunity for Zhong Chuyi, when mainland Chinese companies tried to list overseas for the first time.

Huang Hongnian and Zhong Chuyi set up China Strategy Group Co., Ltd., to assist in the privatization of China's manufacturing and real estate state-owned enterprises. Zhong Chuyi said that he ran the company from 1992 to 1998: "there are many opportunities along the way. My boss gives me a lot of freedom in running my business. My job is to make profits every year, and other power and capital comes from him." These businesses include some of China's first overseas listed state-owned enterprises. The strategy often involves how to modernize China's outdated factories and turn them into competitive companies so that assets can be sold in the future.

Chung Chuyi still maintains contact with the Huang family as a director of Hong Kong-listed Chinese property developer Hong Kong Construction (190), led by Huang Hongnian's brother Huang Zhiyuan and his son Huang Gang.

In 1999, Mr Chung moved to Pacific Century Development Group, which is owned by Richard Li, who had just started to dabble in mergers and acquisitions. Hong Kong was in the midst of the Asian financial turmoil, but Richard Li was trying to raise money for mergers and acquisitions. Yuan Tianfan, one of the most famous figures in Hong Kong stocks and financial circles, knew Zhong Chuyi as early as when he was an investment banker. Yuan Tianfan began to work for Richard Li after selling the insurance company to Richard Li. He even encouraged Zhong Chuyi to join Li's new joint venture.

Yuan Tianfan pointed out: "Zhong Chuyi joined the company as a dealmaker and he did a very good job. He has a rare talent for tapping business opportunities and is very creative in how to make a plan to close a deal. Yuan Tianfan has kept a low profile since he retired from PCCW in 2006, but he once again attracted market attention when he sold his mansion at 22 Parker Road to BABA founder and Jack Ma, who owns the South China Morning Post, for HK $1.5 billion in 2015. Yuan Tianfan bought it from the Belgian consul general for HK $163 million in 2000.

Mr Chung's ability to broker a deal is an important element that gives Mr Li's fledgling group a foothold. Yuan Tianfan said: "at that time, PCRD was like a start-up company. We need enterprising people. We have nothing but capital, contacts and knowledge. We need dealmakers to build the business. Sometimes we have to give up some assets to create capital. Zhong Chuyi was also involved. PCRD's acquisition of TRICOM owned by its former boss, Huang Hongnian, which led to the establishment of PCCW in the future, seems to further prove that Chung Chu-Yi has maintained a good relationship with his old owner. Today, Zhong Chuyi is still a member of HKT Trust and HKT's board of directors.

By the beginning of the 21st century, Li Zekai's rising M & A boom has been basically completed. Zhong Chuyi described PCCW's transformation into a public utility company, and he enjoyed limited room for bargaining.

Return to the real estate industry

As early as 2002, Zhong Chuyi, who was in his 40s, was already considering starting his own house and rejoining the real estate industry. During the outbreak of atypical pneumonia in 2003, Zhong Chuyi saw the right time to act. In 2004, he acquired Capital Strategy Real Estate, a holding company with only cash and no assets at that time, and raised the first HK $200 million fund to start a business.

Yuan Tianfan, who encouraged Zhong Chuyi to leave and start his own business, put money into his first fund, and he is still a shareholder in Zishi.

In 2004, Zizhi made its first acquisition, targeting 88 Gloucester Road, owned by the Louis Vuitton family, opposite Revenue Tower in Wan Chai. The building was bought by the Louis Vuitton family in 1996 for HK $850 million and renovated at an additional HK $50 million, while Chung Chuyi bought the building for HK $190 million in 2004.

Atypical pneumonia scares the whole real estate industry in Hong Kong, but the capital strategy happens to have a lot of capital. Just then, Zhong Chuyi's father reappeared in his life as a friend and mentor. "he went through a very difficult time. Zhong Chuyi said, "he told me that under such circumstances, if you don't buy it, you will never buy it, so you should buy it bravely. "

This first acquisition laid the foundation for the business model of Capital Strategy and gave Zhong Chuyi a shot in the arm. "We bought the building at a 15% yield, which was amazing, and then the market recovered quickly. In 2007, Zhong Chuyi sold the building for nearly HK $800 million.

Mr Chung's model is to buy commercial real estate, renovate or change its use, and then sell it quickly. The aim is to return the funds as soon as possible and establish cash reserves. Zizhi went public in 2004, which Zhong Chuyi believes is a better way to raise money than private companies. It is at this point, he says, that he feels his experience as an investment banker is invaluable.

The number of employees in Hong Kong has increased from 2 in 2004 to more than 100, while 30 people have been employed in Shanghai, one of the largest development markets under the strategy. The purpose of the financing is to transform from a real estate buying and selling company to a real estate developer, just as Zhong Chuyi's father did decades ago.

Ma Anping (Denis MA), head of research at Jones Lang LaSalle, says many small developers in Hong Kong use the same approach-by buying, changing uses and then reselling real estate to try to break into the leading ranks. But Ma Anping says some new opportunities have emerged in recent years, opening up a new path for small businesses to enter a big era. He pointed out that he was also familiar with the local market with mainland companies and tended to co-operate with smaller local developers in the development of Hong Kong projects.

According to Ma Anping, due to the extremely high land prices, even large local developers sometimes work with small developers to give small developers the opportunity to get involved in projects in which they have fewer opportunities to participate.

Zhong Chuyi's reputation in brokering deals clearly makes him stand out in the industry. In 2017, ZTE partnered with Wing Tai Real Estate to redevelop a property in SoHo District, Central, into a comprehensive office, retail and hotel project at a cost of HK $1.9 billion.

According to media reports, Zizhi recently sold a residential project in Gilinali for HK $2 billion in cash, which is located in Lan Kwai Fong, Hong Kong's core bar and entertainment district. Zizhi can also develop the project in collaboration with PCG property owned by Richard Li and get half of the future profits of the project.

With the opening of the Hong Kong West Kowloon Station, Chung Chu-Yee has been actively studying property projects in the area. There are many old residential and commercial buildings to be redeveloped in West Kowloon, which are exactly in line with his business model of buying, renovating and redeveloping and selling commercial buildings.

Many mainland tourists want to experience an authentic "Hong Kong", which is also one of Zhong Chuyi's strategic priorities. "We feel that there are many older areas which are not very popular with Hong Kong people, but will become more and more popular with mainland tourists. "

Mr Chung says that after two or three years of implementation of this strategy, the net return has reached 40 per cent or more. Although there are many other small-scale or family businesses doing the same type of real estate transactions in the market, none of them are listed on the market or go deep into the capital market. Nevertheless, Zhong Chuyi stressed that most of the capital strategy projects are formed through internal financing.

In April this year, the Group was awarded the first place in the "Best medium Market value Company" in the voting held by FinanceAsia, an authoritative financial magazine in the Asia-Pacific region.

The next step towards becoming a giant is the luxury housing project, which Zhong Chuyi started in 2007, which requires more money and a four-or five-year payback period.

In 2011, he set up Shangjia Life, a subsidiary of Zizhi, to develop a luxury portfolio. The Fan Jin Road project, which is currently under development, is a truly large-scale luxury project. It can be said that Zhong Chuyi made a big bet when he found this site on Fan Kam Road near Fanling in the New Territories. the project will consist of only six houses of 7000 square feet each, plus a garden of 4000 square feet. These gardens will all be designed by the famous landscape designer Randle Siddeley, which Zhong Chuyi said bluntly is the biggest selling point of the project.

By contrast, other luxury villa projects in the New Territories or outlying islands are much smaller-the villas in Swire's Whitesands project range from 2000 to 2500 square feet, Sino Land Co. Ltd. 's Botanica Bay project in Jiudu Hill near Tolo Harbour has an area of 3700 to 5500 square feet, and Wing Tai's Le Cap unit area ranges from 1700 to 4700 square feet.

This extremely spacious large-scale luxury project is located near the Shenzhen border, hoping to meet the needs of Shenzhen businessmen looking for a good place to entertain Hong Kong customers. Mr Chung expects the price of each flat to be between HK $150 million and HK $200m. Each house will have a 20-meter swimming pool, and the project is expected to be completed next year.

When it comes to luxury homes, Zhong Chuyi is proud that his sense of touch in creating a sense of luxury is better than that of most of his peers.

His office is full of art, and you will see a bunch of super yacht magazines on his desk. He himself spends a lot of time on superyachts (Richard Li is famous for his love of high-performance yachts), and Zhong Chuyi also wants to introduce the design aesthetics and technology of superyachts into his mansion.

"I believe people will remember us for the brands we create. Mr Chung believes that his willingness to take risks and break through the limits of the luxury property market in Hong Kong will bring him more capital and create opportunities for him to break into the elite world of large-scale housing projects. Just last week, Zizhi Real Estate partnered with Sino Group to invest in a residential development in Yau Tong, Kowloon, which is estimated to be about HK $3.8 billion.

Zhong Chuyi said with a smile: "in terms of brand metaphor, our capital strategy is now LV, but we are turning to Giordano." "

With a tight supply of real estate in Hong Kong and strong demand from the mainland, the market can only accommodate people with courage. Mr Chung agrees that it is very difficult for small developers to gain a foothold in the Hong Kong property market. He added that it was only in Hong Kong that the market capitalization of listed property developers lagged far behind their income. Large property developers can mass-produce and quickly pre-sell residential units, making it easy for them to raise money.

Apart from Hong Kong, Zhong Chuyi is not very interested in expanding into markets other than China. Shanghai and Beijing are his next major focus. Zhong Chuyi said with satisfaction: "if you can be big in these two places, that's enough-it's really big." Zishi currently has a 50% interest in a major residential project and two commercial projects in Shanghai.

Zhong Chuyi is optimistic about the future of the Chinese market. In the long run, a population of 1.3 billion and a growing middle class will create a huge real estate market. He also said that one day Hong Kong will no longer be a target for domestic investors, especially after the renminbi is fully convertible. "I think the 'magic' in Hong Kong will disappear soon," he said. Nowadays, many Chinese businessmen go there whenever they want-Milan, Japan. "

Extremely high property prices are one of the main factors hindering Hong Kong's development as a business centre. In this regard, Zhong Chuyi believes that the government can do more to ease supply without intervening in the market. In particular, he pointed out that the Town Planning Board imposed great restrictions on the conversion of industrial land into residential land. He also mentioned some unused infrastructure such as abandoned school buildings, which can actually be converted into residential or commercial projects.

"our first priority is to comprehensively re-examine the available land," he said. "

Another urgent task is to reform the land tendering system in Hong Kong. Hong Kong began to implement a secret marking system during SARS, and since bidders did not know their competitors' bids, they paid high prices to ensure that they won. "Government insiders are worried that the land will not be sold because no one is interested in it, so they will replace the auction with a secret bid," he said. However, he believes that it is time to return to the normal tender auction, which will help reduce property prices.

No matter what happens to Hong Kong's property market, Zhong Chuyi will not stop complacently until he enters the ranks of giants. As Yuan Tianfan said, "his strength is to facilitate transactions, not professional management." His assets are traded frequently and of high quality, and he has built a good portfolio. "

Ma Anping, Hong Kong representative of Jones Lang LaSalle, who understands the strategy, said: "so far, they don't seem to have missed a step. "

A few years ago, Zhong Chuyi reinvested his resources in the real estate market, and his father continued to act as his advisor. they often discussed business over takeout lunch in Zhong Chuyi's office. Although his father died last year, Zhong's pace of building a real estate empire has not stopped. Zhong Chuyi: "I got inspiration from him." "

Zhong Chuyi's two daughters, Ashley, are studying at New York University, while Jasmine is in charge of business sales at Zishi. From this point of view, a new Hong Kong real estate family is being built step by step.

(this article is published in the May issue of The Peak magazine)

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