A particularly interesting session of the conference was on an “Emerging Market Perspective on Development and Retail – Dual Realities and Challenges.” Two scenarios were presented – one of India and the other of China. The two speakers were Rajnish Changrani, Vice President of Equity Investments of a company called Red Fort Capital in India and Martin Wragge, Director of Cobrole, Ltd. Martin is better known in South Africa as the erstwhile developer of Canal Walk, Century City, Ratanga Junction and Tyger Valley Centre all here in the Cape than as a developer in China

China, which achieved a world-leading 11 percent growth in GDP last year, is often lauded as a land of opportunity for developers and retailers. Consumer sales growth hit a record 13.4 percent last year, with incomes still rising. While the annual average income in China only amounts to about $2,000, this is in a country with 1.3 billion people. Consequently, the number of people with incomes considerably higher than this is significant.

Demographic shifts are also favoring retailers. Some 10 million people a year are moving from rural areas to China’s cities, boosting demand for retail and services. Little wonder then, that China has seen a dramatic influx of foreign retailers, especially since its 2001 entry into the World Trade Organization.

In terms of urbanisation, China presently has some 660 cities of which 100 have a population of more than a million. Twenty million people a year are moving to the cities – Shanghai will grow from 20 to 80 million within a short space of time.  The current 190 000 kms of expressways will be increased to 370 000 by 2010! Whilst the mind indeed boggles at the rate of growth, as became clear from Martin Wragge’s presentation, China represents an “enormously complex” market, and whilst China’s government and legal system have become friendlier and more transparent towards foreign retailers, on the ground challenges and insights can scare any hardened investor away, as the following development anecdote portrays:

Martin Wragge told the conference that whilst part of a non-property delegation to China in 2001 - during which he had opportunity to visit a city of about 1.5 million people - he noticed that the city was divided into two distinct areas with a large, 180 ha area  of farm land between the two sections. He sensed that the farmland had the potential to become the centre of development at some stage in the future and that a visionary development could be the catalyst to accelerate this trend. Within four days he had reportedly tied up a “deal” with the City Council to basically evict the two thousand farmers and develop substantial residential accommodation, small retail and park facilities. The eviction was done with 24 hours notice before commencing to demolish the houses.

In essence the plan was to build a 100 ha. park which would be handed back to the City Council for use by all residents in exchange for which he would retain the balance of 80 hectares for basically high-rise residential development and a small retail facility. One year later he was breaking ground and has completed a substantial number of units, the park, and is now busy constructing the retail section and a 21 storey office tower. This latter requirement was in fact “imposed” on the development for political reasons, short of which non-delivery could have seen the entire development "expropriated" by the ruling governor , who in Wragge's words, "has a say on everything that opens and shuts in his area of jurisdiction".  In essence he described the difficulty of the Chinese land development process and the high level of political involvement and demands for facilities that were sometimes neither logical nor economic. 

Of course the eviction of the 2000 farmers created quite a stir at the conference and led to a question from the floor as to whether significant international development opportunities could only take place in countries like China where people could be summarily moved off the land and where there was a high level of political meddling and corruption!  Wragge’s justification -  “ 2000 farmers were living on the ground and not using it – in ten years time they’ll still be there not using it.”

However, it later transpired that the evictees were not left without accommodation. In fact Wragge lauds the dynamic leadership in China at all levels of government that has resulted in its robust economy. There are no squatters or low cost developments – if the farmers were evicted then they would have been appropriately relocated as “the city takes care of their own” He pointed to the squatter camps that line the drive from Cape Town airport to the city stating that this would just not be acceptable in China. “In China they do what is necessary to go forward – here (SA) we are held hostage by people who have no idea of economics and what needs to be done” .

By comparison and from an Indian perspective, Rajnish Changrani explained why his large investment company does not invest in retail in India:  Evidently, some 95% of all retail in India is single, stand-alone shops usually family owned. The other 5% is in malls. Malls however tend to be a series of shops disconnected from each other and parking is usually not provided. The very high cost of land makes rentals un-affordable other than for the anchor tenant.  As a result, a number of malls are being recycled into other activities.

The development sector in India also faces major challenges such as no clear cut evidence of land ownership; rapid urbanization involving many millions of people (20 million condominiums are required over the next 10 to 15 years!); a huge shortage of skilled labour; and, again, the very high land prices. All of this results in unaffordable sale prices or rentals. He stated that there are very few ‘good deals’ where land title is in place; plans prepared and skills available. Corruption is clearly a major issue – research indicates that for one Rupee set aside for infrastructure, only 15% finds its way ultimately into the project, the balance generally into the pockets of others, particularly politicians!

Much of the land is not generating enough to sustain the population. Indeed, in Kolkata, a number of PPPs are introducing a new approach to land reform. Farmers are being persuaded to give up non-generating land in return for a shareholding in the development on their land. The profits generated by the development thus become their income, making it beneficial for them to give up their land and results in poor farmers becoming real stakeholders in the country.

Indeed the equitable distribution of property ownership speaks to the South African scenario:  Rajnish’s comments as well as those made by one of the conference panelists, Wayne van der Vent, head of Investments at PIC, who said that "the previously disadvantaged have been bricklayers, carpenters, tea ladies and security guards in the property industry for far too long and now is the time for them to be included as real stakeholders in the economy", were poignant.