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Property investment

China’s property investors target domestic M&As amid capital curbs

The value of mergers and acquisitions in China’s property sector has hit a new high in the second quarter of 2017

PUBLISHED : Tuesday, 08 August, 2017, 5:03pm
UPDATED : Tuesday, 08 August, 2017, 7:40pm

As Beijing strengthens its crackdown on capital outflows since the start of the year, deep-pocketed Chinese property developers have turned their shopping targets back to the ones on home turf, a trend that analysts say will accelerate in the coming months.

Already, the value of mergers and acquisitions (M&A) in China’s property sector has hit a new high in the second quarter of 2017 to 94 billion yuan (US$13.98 billion), representing a whooping 339 per cent year on year growth, according to Moody’s. It also expects the volume in the third quarter to outstrip the previous quarter as a number of big acquisitions were announced in July.

The most eye-catching deals in July included Dalian Wanda Group’s 63.7 billion yuan sale of its tourism projects and hotels to rivals, Sunac China and Guangzhou R&F Properties, and the proposed US$11.6 billion (79 billion yuan) buyout of Singapore-listed Global Logistic Properties by a Chinese consortium led by includes China Vanke. GLP is the largest operator of warehouses in China.

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One month earlier, China Vanke – the country’s second largest developer – had only announced that it was paying 55.1 billion yuan to acquire the property assets of Guangdong International Trust and Investment Corporation.

Carol Wu, a China property analyst with DBS Vickers, said the surge in domestic M&A transactions was within expectation.

“On the one hand it’s very hard to get money overseas. On the other hand, the property tightening measures by the government have resulted in the acceleration of industry consolidation and benefited the big players,” she said, adding that the purchase of GLP could be seen as an exceptional caseas most of its key assets are in mainland China.

Moody’s said M&A were being favoured by developers as a way to replenish land banks at relatively low costs, compared to the skyrocketing land prices in the public market.

The active transactions also reflected “developers’ desire to attain greater economies of scale and market share,” said Chris Wong, a Moody’s analyst.

The rating agency expects the value of M&A transactions in China’s property sector to reach a record high for the 2017, supported by developers’ strong liquidity from contracted sales.

Nationwide property contracted sales grew by 17.9 per cent year on year in the first half of 2017, official data showed, faster than the 15.3 per cent growth in the first five months.

On the other hand, the property tightening measures by the government have resulted in the acceleration of industry consolidation and benefited the big players
Carol Wu, DBS Vickers

Despite the solid overall sales, small players could face a tougher business environment as banks are increasingly reluctant to provide credit to those that don’t fall within China’s top 100 developers, as regulators continue to push for deleveraging, Wu said.

But she said the current environment would continue to provide acquisition opportunities for larger developers to expand market share.

On the commercial side, the latest report by CBRE showed that the turnover in commercial real estate investment in China surged by 46 per cent year on year in the first half of 2017 to US$14.5 billion. Out of that amount, 79 per cent were accounted for by local buyers.

The amount also compared to a 59 per cent year-on-year decline of Chinese outbound investment in Asia-Pacific.

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