China's state developers to better survive industry's hard times
Large state-owned property firms expected to emerge winners in industry rebound from downturn with cheaper and easier access to land and funds
The shake-up in the mainland's property industry will accelerate in the next few years, with state-owned enterprises expected to be big winners, thanks to easier and cheaper access to land and funds.
There is also potential for growth through mergers and acquisitions for big non-state-owned developers, but their priority should be on prudent cash-flow management and debt optimisation, analysts say, as aggressive expansion had burned some major players in the industry's previous downturns.
Take, for example, Hangzhou-based Greentown China Holdings, founded by former Communist Party school teacher Song Weiping. The company is now controlled by state-owned China Communications Construction Group (CCCG), which replaced rival Sunac China Holdings to buy 24.3 per cent of Greentown shares in December last year and increased the stake in May to 28.9 per cent to become the biggest shareholder.
We have a lot of cash … but safety is the top priority
"A new advance by state-owned firms and exit of private players is coming," said Chen Xiaotian, the chief researcher at property consultancy E&H Corp in Shanghai.
That was what happened in the wake of the 2008 global financial crisis, when many non-property state firms entered the lucrative industry as a massive government stimulus package engineered a V-shaped market rebound, much before the broad economic recovery.
But policy tightening towards the end of 2009 to tame housing inflation caught aggressive private firms, including Greentown, off guard. The industry heavyweight in the prosperous Zhejiang province had to sell a 24.3 per cent stake to Hong Kong developer Wharf (Holdings) and some assets to Sunac to ease a cash strain.
Song blasted policymakers as "stupid" and policies "unreasonable" in May when it was caught in another cash crunch and tried to sell a stake to Sunac. The government's home purchase restrictions had curbed demand for luxury flats built by Greentown, triggering the unusual outburst.
Greentown will today tell investors what changes the new team, led by Song and co-chairman Zhu Bixin, from CCCG, will bring. CCCG has obtained four seats on Greentown's board while Wharf has given up its two seats.