Excellence Group, only the mainland's 48th-largest developer in terms of sales in the first half of this year, stunned the market yesterday when it beat big property players to secure two commercial sites in the first land auction in Shenzhen's Qianhai special economic zone for a total of 12.36 billion yuan (HK$15.5 billion).
It beat out bids by a joint venture between the mainland's largest listed developer, China Vanke, and New World Development; Financial Street Holdings; CR Land; Greenland Group; Kaisa Group and Shimao Property.
Excellence outbid four competitors to win the first office-hotel-serviced apartments site, T201-0077, which would yield a total gross floor area of 320,400 square metres, for 5.18 billion yuan, about 48 per cent above the opening bid of 3.5 billion yuan.
It won a second office-serviced apartment site, T201-0075, for 7.18 billion yuan, 53 per cent higher than the opening price of 4.7 billion yuan after defeating five bidders. That made the site, which will yield a total gross floor area of 450,200 square metres, the most expensive land in Shenzhen.
Alan Jin, an analyst at Mizuho Securities, said he was surprised by the winner but not by the prices.
"The transacted accommodation value of around 16,000 yuan per square metre is not surprisingly high given the high market expectation about the Qianhai area and recent upbeat sentiment in the land market in tier-one cities," he said.
On top of the land cost, according to the land sale document released by the Qianhai Authority, the winning bidder will be required to invest at least 15,000 yuan per square metre on the commercial developments to be built on the two sites. That would raise the total investment cost, inclusive of land cost, for Excellence to nearly 24 billion yuan.
Although Excellence is the largest commercial builder in Shenzhen's core business district, Futian, its sales amounted to just 10.2 billion yuan last year. The auction for the two sites was restricted to companies with an annual turnover of 10 billion yuan last year.
In the first half of this year, it earned 5.8 billion yuan, it said on its website. In comparison, China Vanke made 83 billion yuan.
One analyst said Excellence might need to tap the equity market by reviving its listing plan in Hong Kong. The Shenzhen developer scrapped a US$1 billion initial public offering in Hong Kong in late 2009 owing to poor market conditions.
"It is hardly likely to finance the two projects just through bank borrowing and internal resources," the analyst said.
"It is highly likely it will need to raise funds by tapping the equity market."
Bu Wei, the group's head of investment and development, said there were many financing channels available.