CREO eyes China prospects despite losses

THE relative strength of the Chinese economy has made China Real Estate Opportunities (CREO) optimistic about the remainder of the year.

That is despite the fact that fickle exchange rate movements brought the Irish controlled developer into the red in the first half of the year.

Treasury Holdings and parties associated with it are the primary owners of CREO, along with its London-based sister company Real Estate Opportunities (REO).

CREO reported a £2.41 million (€2.76m) after-tax loss for the six months up to the end of June. This was down from a profit of £22.5m (€25.7m) for the same period last year and was chiefly driven by exchange rate fluctuations. On a pre-tax basis, the first half loss came in at £7.06m (€8.07m), down from a pre-tax profit of just under £40m (€46m) for the first half of 2008. Gross rental income, however, was up by nearly £4m (€4.57m) to £15.9m (€18.2m).

The Chinese economy has performed stronger than many of its international counterparts over the past six-to-nine months, on the back of a stimulus package introduced by the national Government. Crucially, on the back of that banks have upped their lending practices.

On top of that the first half of this year has seen a general 15% year-on-year increase in retail spending amongst Chinese consumers – good news for CREO as much of its commercial property assets lie in the shopping centre area.

But, while the company saw rental income rise by 11% over the period, overall vacancy rates have widened from 3% in the first quarter of 2008 to a current level of 18% in the commercial property market in China.

CREO has also been aided by reaching agreement with Treasury Holdings (China) over the repayment of an outstanding £22m (€25m) performance fee – which now is due to be repaid over a phased period. All in all, management said that it is “well positioned” to take advantage of further improvements in overall market conditions.