China property

As home sales soften, Chinese developers look to insurance services to foster stable revenue

  • Hong Kong-listed developer Greentown China Holdings will spend 2.72 billion yuan (US$390 million) to acquire a 11.55 per cent stake in Aeon Life Insurance
  • Greentown’s effort to diversify into insurance follows a downturn in home sales during the second half
PUBLISHED : Tuesday, 18 December, 2018, 10:54pm
UPDATED : Wednesday, 19 December, 2018, 1:13am

Amid a cooling market, Chinese developers are making a push into the insurance sector in an effort to forge stable revenue flows and offset volatile property sales.

Hong Kong-listed developer Greentown China Holdings announced on Monday that it will spend 2.718 billion yuan (US$390 million) to acquire an 11.55 per cent stake in Aeon Life Insurance.

Analysts said offering services such as insurance would enable the developer to take advantage of opportunities spun out by its property arm.

“It is natural for developers, especially an upscale market developer such as Greentown, to enter the insurance sector because selling insurance products is equivalent to offering value-added services to its existing customers,” said David Hong, head of research at China Real Estate Information.

Greentown has a reputation as an upscale home builder in eastern China. Greentown’s average selling price is 24,440 yuan per square metre, compared with 10,505 yuan for Evergrande, a mass market builder, according to September data.

“The acquisition is also in line with the company’s business principle of ‘being a comprehensive service provider of an ideal life in the PRC’, and diversifying its business in the People’s Republic of China,” Greentown said in the filing.

The life insurance industry in China has encountered headwinds this year, as premium growth contracted 1.85 per cent in the first 10 months to a total of 2.3 trillion yuan (US$333 billion), according to China Banking and Insurance Regulatory Commission.

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“While the premium growth has slowed in 2018, the sector’s growth potential remains very strong. China’s life insurance sector benefits from rising insurance demand amid the country’s ageing demographics and increasing affluence,” S&P Global Ratings said in a recent report.

Aeon Life Insurance has maintained an annual compound growth rate in premiums at more than 50 per cent in the past five years. In the first half, the company’s premiums grew 1.63 per cent to 26.6 billion yuan, according to the filing. The insurer had total assets exceeding 90 billion yuan as of the third quarter, the filing said.

Meanwhile, Greentown’s contracted home sales in the first half were up 26.7 per cent on year to 75.4 billion yuan.

However the story has changed dramatically in the second half, as weaker home sales in the company’s traditional strongholds of Zhejiang and Shanghai dragged its sales growth in the first 11 months of the year to 8.5 per cent. Maybank Research said in a recent note that Greentown is likely to miss its 2018 sales target by 14 per cent.

“Property sales remains the cash cow of China’s developers but the problem is they are volatile and subject to policy changes. Insurance is not a high-growth sector but its cash flow is more stable,” said Shen Xiaoling, an analyst with E-house Holdings.

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A number of Chinese developers in the past few years have pushed into the insurance sector by acquiring or launching insurance companies. These include China Evergrande Group, Seazen Holdings, Tahoe Group and Yango Group.

Greentown shares fell 10.6 per cent in Hong Kong on Tuesday, against a 3.34 per cent slump in the Hang Seng Mainland Properties Index. Analysts said large institutional investors were likely selling the share on concerns the developer was deviating from its core business.