The Chiu Clan Guide to Chinese Low Cost Housing

Image: David Hartung for Forbes

Some of Asia’s far-flung busi- ness families are accom- plished but still float below the cutoff for Forbes’ rich lists. One of them is the Chiu clan, which from a Greater China foothold has emerged as a regional provider of subluxury accommodations.

At 17, David Chiu was negotiating with suppliers for his father Deacon, a hard-nosed businessman out of prerevolutionary Shanghai with interests in Hong Kong and Indonesia. So eager was he to work for his dad, Chiu flew back to Hong Kong on the last day of his university exams in Tokyo. That was in 1975. Three years later, he took the reins of the property unit of his father’s Far East group. The timing was fortuitous as Hong Kong’s property market was starting to boom. However, 1983 came and with it a property slump that forced a sale of assets by Far East Consortium. As time wore on, David began to look outside to Malaysia and China, where a bigger middle class was starting to emerge. He also wanted to prove to himself that he could build his fortune without his father’s influence. Now 58, he observes, “Property developers depend on the middle class. It is exciting for us when their income reaches a band, something like $3,000 to $10,000.”

In the mid-1990s, he moved to Kuala Lumpur to develop parcels of land in Sri Hartamas that he had had the foresight to procure 20 years earlier from a friend who’d fallen on hard times. The surrounding area was a burgeoning upmarket neighbourhood, and land values had appreciated. David, through his own venture, Mayland, introduced the integrated concept, a first of its kind in Kuala Lumpur, with serviced apartments, offices and a shopping centre in one location, like in Hong Kong.

When the Thai baht crisis hit Southeast Asia in 1997, he switched his attention to China. Most Hong Kong developers were flocking to the city centre in Shanghai. Chiu instead asked for the mayor’s help in finding a sizeable parcel outside the city but within an hour’s commute. The eventual development, California Garden, is a project of 15 million sq ft in gross floor area, comprising 10,000 middle class town houses and apartments. Values have since risen from a commuter-rail connection and nearby Shanghai University.

With successes under his belt, the son returned to Hong Kong. He says, “Our balance sheet size was only HK$400 million [US$50 million]. You are a nobody in Hong Kong compared to Cheung Kong and Sun Hung Kai.” But he learned that 60 percent of hotels in Hong Kong were five-star, mainly to cater to the Japanese and Westerners. The three- to four-star sector appeared underserved.  Far East acquired the headquarters of Xinhua news agency and converted it to a hotel called the Cosmopolitan. The group expanded and now operates 16 hotels in Hong Kong, China and Malaysia.

Chiu says, “In terms of the number of rooms in this sector, we are the market leader in Hong Kong—4,000 out of 55,000 rooms are ours.”

In 2010, Far East listed the hotel business under Kosmopolito Hotels International, retaining a 73 percent  stake. Chiu put eldest daughter Winnie in charge. She has produced net margins beating 24 percent. In its latest financial year, Kosmopolito reported pretax earnings of $87 million, and Chiu expects this to hit $130 million (HK$1 billion) in two years as it builds eight more hotels in gateway cities in China as well as globally where the Chinese travel and are famously value-conscious in their room stays. It also cross-sells hotels owned by Agora Hospitality in Japan.

Chiu says, “The growth in Asia will be controlled by the Chinese. Hong Kong, Macau, Malaysia and Singapore are popular among them, and the top three destinations where they want to go are Australia, Japan and London. This is where we will build our brand. It is also easier to make money from the Chinese outside their home ground.”

Meantime, Far East Consortium continues its residential buildouts in China. Chiu, who took over from father Deacon as chairman last September, sees a trend toward compact, serviced apartments for lease and sale as Asians are marrying later, and children do not want to live with their parents.
 
Migration patterns will keep the market strong, he thinks. For the year ended in March, Far East reported revenue of $280 million, with earnings of $80 million, and has a cash pile of $180 million. His Mayland development operation generated $320 million in sales last year and is set to expand further. “Due to globalisation, we need economies of scale to protect our turf and be in a position to hire good people,” he says. Among their holdings in Far East, Kosmopolito and Mayland, Chiu and his wife, Nancy Ng, have over $100 million. Deacon today continues to chair Far East Holdings, a separate group focused on technology and manufacturing with a slightly smaller market cap than David’s Consortium. It is in the hands of stepbrothers.

Deacon’s stake in the two Far East operations totals some $35 million. (The Chiu clan saga is a complex one. After David’s mother died in a plane crash when he was nine, his father remarried but not to everyone’s liking, prompting a split-up of assets. Eldest brother Richard lives in Paris, where he has his own Warwick International hotel chain. Dennis lives in Singapore and is also a developer. A fourth brother, Daniel, is in energy and made news this year as his company fought alongside China Gas to stave off a hostile bid by Sinopec).

David argues that real estate is the best preserver of wealth for generations. He prefers to own hotel properties, but Winnie, 32, and a King’s College London graduate, favours management contracts for scalability. David says: “I don’t try to control what she does. I don’t want her to become a paper CEO. If they make a mistake, I’m still here to advise them.”

David stays close with his father, now 87, and is grooming his own children. Winnie is expected to run her dad’s empire. Second daughter, Josephine, married into the founding family of Hengan International, one of the largest makers of sanitary napkins and diapers in China. The youngest, Andrew, 24, shadows his own father. On whether Andrew, being the only son, will inherit most of Chiu’s wealth, he laughs and says, “My family came from Shanghai. They are fair to the daughters.”