Property mergers and acquisitions reach fever pitch in Chengdu as Chinese market slows

Merger and acquisition (M&A) activities in Chengdu’s property market reached a fever pitch last year and is expected to continue as deals are expected to come thick and fast in a depressed market, say industry experts.

The idea of bigger and better is the driving force behind the latest round of consolidation, they say.

“Although no official figures have been released so far, the total value of M&A deals concluded in 2015 was likely 50 per cent more than in 2014,” said Xiang Wei, head of research at Sichuan Centaline Property Consultants, pointing out that the deteriorating of investment market could accelerate M&As.

“Some small to medium-sized firms have been forced to sell their businesses or scale down their operations in a bid to halt bleeding amid a slowing housing demand as the glut worsens, he said.

In a highly competitive market, he said, Hong Kong developers including Chinese Estates Holdings and New World China Land also decided to exit their investments.But this time, he said most companies or assets are being swallowed by cashed up domestic giant players who intend to expand their market share in second- and third-tier cities.

In December, Evergrande Real Estate was the biggest spender, buying up two major property projects in Chengdu from New World China Land and Chinese Estate Holdings for a total of of HK$8.89 billion.

READ MORE: Sunac China Holdings to acquire 7 properties in Chengdu for 3.2 billion yuan

New World China Land sold its 60 per cent stake in a residential-hotel-commercial development, Chengdu New World Riverside, in the outskirts for HK$2.39 billion.

Chinese Estate in July announced selling its residential-hotel-retail-office complex in the city centre for HK$6.5 billion to Evergrande.

Other active buyers include China Merchants Property, Poly Real Estate, Gemdale and Sunac China Holdings.

Michael Wu, a general manager at property consultancy DTZ/Cushman & Wakefiled, said local insurers and sovereign fund are looking for acquisition targets in the mall industry.

“They are interested in underperforming malls that need asset enhancement or repositioning their tenant mix inside the third ring road. After adding value, these retail properties could achieve an overall improvement in rental income,” he said.

In addition, some investors intend to repackage these retail properties into real estate investment trusts and seek listing in the domestic or an overseas stock exchange.

He said the acquisition budget could range from about 3 to 5 billion yuan, with a size of at least 100,000 square metre each.

READ MORE: New World China Land sells three projects in China to Evergrande for HK$16.36 billion

“What the new property funds are looking at is not the budget but the upside potential after revamping the retail properties,” he said.

Besides assisting these funds to identify retail properties that are put up for sale, he said his firm also provides professional services like due diligence. After the completion of the transactions, he said, the firm would offer property management, operation and review tenant mix to help to upgrade the malls.

“We are offering one-stop service for investors,” he said, adding the firm has been appointed by Evergrande to reposition its shopping mall at the 4.6 million square feet Chinese Estate Plaza, renamed Evergrande Chinese Estate Plaza after its acquisition.