Beijing yanks license of Fang Holdings’ unit for defying rules on converted flat listings

NYSE-listed Fang Holdings became the latest target of Beijing’s property crackdown, after a local unit had its real estate brokerage license revoked, in what amounts to the harshest penalty so far given to a real estate company for violating rules against marketing flats converted from commercial or office space.

The license cancellation is part of a clampdown on sales of “commercial-converted apartments”, flats that are built on land zoned for commercial or office use. The practise was until recently very common in major Chinese cities where residential land supply is disproportionately low.

Beijing to launch lottery for prized school spots as home prices go through the roof

An announcement of the license suspension was posted Wednesday evening on the Weibo account of the Beijing Municipal Housing and Urban-rural Development Commission.

Fang Holdings is the parent group which operates Fang.com, a real estate listings platform that markets new and secondary-market homes.

On Sunday, authorities banned the sale of flats converted from commercial or office space – known as “lofts” or “hotel apartments”– to individual buyers.

As part of the ban, the government asked all property agents to remove affected home listings from public view. The Weibo post said authorities launched a raid on Tuesday and found Fang.com was in breach of its directive.

Earlier in the week, the government identified six “commercial-converted apartments” projects that were being marketed for residential purposes. All properties in the projects were barred from sale, a move that affected China Vanke, Longfor Properties and China Evergrande Group, according to a posting on the government’s Weibo account on Monday.

In addition to the action against Fang Holdings, 15 branches of property offices belonging to Homelink, 5i5j and Centaline Property have been closed for violating the listing ban. However, the shutdown order was limited to individual branches found to be in violation of the directive, as authorities stopped short of taking action against the parent companies.

The new measure bans owners of existing converted apartments from selling via property agencies, making it much more difficult to reach eligible individual buyers.

These illegal conversions were are a big draw for younger buyers unable get on the housing ladder amid skyrocketing home prices, as well as non-local buyers who did not qualify for residential purchases in Beijing.

Beijing’s tough new property cooling measures see immediate results

Fang’s NYSE-listed shares plunged more 10 per cent on Wednesday before paring the loss to end 2.2 per cent lower at US$2.71.

The company is expected to release its 2016 results before the US market open on Friday.

During the week-long period ended last Sunday, 2,264 new converted apartments were sold, reflecting 77 per cent of new home sales, according to Yahao Real Estate Selling & Consulting Solution. That’s up from 60 per cent year to date, and just 29 per cent in 2015 .

Fang.com said one of its related companies was affected by the license revocation and that its other units would continue to provide real estate listing services.

An employee of Fang,com, who asked not to be identified, told the Post that the company will continue its property business under another company and that the disruption to its operations was minimal.

Founded in 2014, Fang.com has expanded aggressively, setting up many brick-and-mortar stores in major Chinese cities in an effort to compete head-on with offline giants Homelink and 5i5j by offering lower commission fees on sales of secondary homes.

The property agency business is a small contributor to the overall revenue of Fang Holdings, as the company is more reliant on e-commerce and marketing services. For the third quarter of 2016, e-commerce accounted for 66.9 per cent of total revenue, up from 53.7 per cent in 2015, according to its quarterly results filing. Marketing services accounted for 14.2 per cent of revenue and classified information services 11.4 per cent. No revenue figures were provided for the property brokerage business.