This old house, in Chengdu
By Michael V. Copeland, Business 2.0 Magazine

(Business 2.0 Magazine) -- Slapdash housing construction in fast-growing Chinese cities has generated strong demand for contractors to handle renovation projects.

Investment level: $100K-500K


Risk level: High

Ten years ago a young family in Shanghai or Beijing looking to buy a first home did well to land a new two-bedroom condo for about $40,000. Of course, back then, "new" in Shanghai equated to "the projects" in most U.S. cities.

To tamp down costs, Chinese builders would slap "For Sale" signs on homes that were little more than concrete boxes with windows. And families happily moved in without changing much at all.

Not anymore. Today cranes fill the skylines of most Chinese cities, where tens of thousands of comparatively chic new homes are going up for an exploding population of middle-class consumers.

With more cash in their pockets, these buyers are discovering their inner Martha Stewarts and won't stand for the prison-block interiors that most developers still supply.

"People are moving into higher-quality homes, and they want everything inside to reflect that," says Claude Leglise, a venture capitalist with W.I. Harper, a San Francisco-based firm that specializes in Chinese startup investments and recently backed Chinese home improvement website HomeE. "They are decorating and remodeling like crazy."

Problem is, Chinese builders have little expertise with either type of contracting, leaving homeowners to hunt down their own designers, architects, carpenters, and so on. And that, Leglise says, leaves a big hole in the market to be filled by small, regional contracting firms that can deliver it all.

In fast-growing cities like Chengdu or Wuhan, "an American builder with a sense of adventure and some business savvy could make a fortune," Leglise says.

Recent market data supports the idea. Annual sales of home improvement products and services in China hit $92 billion in 2004 - nearly double the 2000 figure - and are projected to climb to $122 billion by 2009, according to a study by the Boston Consulting Group.

That's opened the door to a flood of home improvement retailers, including Britain-based B&Q, Ikea, and Wal-Mart (Charts), which have all set up in the major cities. And Home Depot (Charts) has reportedly been courting Chinese home improvement chain Orient Home for a joint venture.

Despite the retail stampede, Chinese homeowners don't yet share the same do-it-yourself gene of their American counterparts, making the need for small finishing contractors even more alluring.

"Among white-collar workers in China, there isn't the same culture you find in the United States," says Anna Kalifa, head of research in the Beijing office of global real estate firm Jones Lang LaSalle (Charts). "They don't like to do any manual labor, and they're willing to pay extra for someone to come and do it all for them."

So how does an entrepreneur with construction industry savvy reach all those customers? The easiest way, Leglise says, is to become an approved home designer or contractor for Orient Home or another big-box home improvement chain.

At a minimum, you'll need a designer or architect with Western expertise and a Chinese foreman who can source local labor and deal with the bureaucracy of building codes.

"It certainly helps if you speak Chinese," Leglise says. "But the great thing about China is, if you are providing people with something they want and can't get anywhere else, they'll do business with you." Top of page

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