Greentown’s house building unit plans overseas IPO

Greentown Real Estate Construction & Management Group, the house building unit of Hangzhou-based developer Greentown China Holdings, is seeking an initial public offering overseas in the near future, according to its general manager, Li Jun.

The unit, which builds homes on land acquired by other parties and collects management fees, is the second largest of Greentown’s four subsidiaries in terms of contracted sales, after the group’s development arm.

Its business model is vastly different from the predominant “asset-heavy” model adopted by most mainland property companies, of acquiring land at heavy cost, then designing, building, and selling the completed homes.

Other developers have begun to use this so called “builder” concept as gearing ratios rise, land becomes scarcer, and margins are squeezed.

However, few have set up an independent company, such as Greentown’s.

Li said the firm is fast expanding its business by utilising the advantage of its brand, which is recognised in China as high quality.

Local governments, financial institutions and developers have tuned to the company to lift the branding of their projects, which typically carry a 20 per cent premium.

The company has so far signed construction contracts covering a total of over 50 million square metres. Last year it built homes with a contracted sales of 18.1 billion yuan, accounting for 15.9 per cent of Greentown China Holdings’ total.

Li claimed Greentown Construction & Management is the largest company in this niche sector, with contracts now worth, from the second largest to the 19th largest operator in the sector, combined.

“Not many people understand our business model in China. But in the US, investors are familiar with it,” Li said. “If listed, we’ll be Asia’s first using the ‘builder’ concept to do so.”

He said the sector, currently very small in China, has huge potential, explaining that in the US such builder businesses account for 30 per cent of real estate company portfolios, while in China it’s less than 2 per cent.

Last July, Greentown Service Group, its property management unit, was listed in Hong Kong, and now has a market capitalisation of HK$7.97 billion.