Mainland property developers feel heat from rail builders

There are two new kids on the property block on the mainland, namely the nation's big railway builders, China Railway Group and China Railway Construction Corporation (CRCC), which are fast becoming major property developers that are likely to overtake leading mainland and Hong Kong players in the near future.

On a recent trip to Xian, I saw several blocks of flats built and owned by China Railway Group, evidence of a rapidly growing real estate business that generated revenue for the group of 17.14 billion yuan (HK$21.3 billion) in 2011, an increase of 43.4 per cent from the previous year's property contribution.

CRCC's property revenue for 2011 rose by an even more spectacular rate of 160.7 per cent to 13.54 billion yuan.

At the end of last year, CRCC had property projects under way in 30 cities, including Beijing, with land area for construction of 7.24 million square metres and a planned gross floor area of 3.15 million square metres, according to the Hong Kong and Shanghai-listed firm's annual report.

Yet property is a tiny fraction of these two state-controlled companies, which together build most of the country's railways. In 2011, property constituted only 3.9 per cent of China Railway's turnover of 442.22 billion yuan, and 3 per cent of CRCC's turnover of 457.37 billion yuan.

Their property sales still lag behind those of the biggest developers in the mainland and Hong Kong. The turnover of the largest Hong Kong-listed property firm, Sun Hung Kai Properties, was HK$68.4 billion in 2011, while that of the mainland's top developer, Vanke, was 64 billion yuan.