Property management firm IPOs on the rise in Hong Kong
Despite a slowdown in China’s domestic real estate market, Chinese property management firms have accelerated their expansion plans with some keen to go public in Hong Kong, prompting analysts to predict a rosy future for the sector.
Greentown Service Group, a property management spin-off from Hangzhou developer Greentown Holdings, is the latest to join the initial public offering (IPO) queue. The company is reportedly seeking to raise up to US$200 million in Hong Kong, with the offer period running from June 28 to July 4.
According to a filing to the Hong Kong stock exchange, the company’s net profit grew 25 per cent in the first three quarters of 2015 compared with the same period in 2014.
“The valuation of property management firms is much better than developers as they are asset-light and their revenues are more stable and not affected by property sales,” said Carol Wu, China property analyst at DBS Vickers.
Greentown Services is set to be the third mainland Chinese property manager to list in Hong Kong since October last year. There are at least two more property management firms that have submitted IPO applications in Hong Kong, including Guangzhou’s Clifford Modern Living Holdings, according to the Hong Kong bourse.
Wu said the potential of China’s property management market is huge because the current management quality is not good, meaning there is a lot of room for improvement in services and opportunity to increase market.
As an example, Colour Life Services, which has acquired a number of small property management firms over the past few years and redeveloped them through its management expertise, has grown to be a provider with the largest coverage of community services in the world in terms of the area of residential properties, she said.
Colour Life Services, a subsidiary of Shenzhen-based developer Fantasia Holdings, in 2014 became the first mainland property management firm to list in Hong Kong.
Hong Kong’s capital markets welcome property management firms in anticipation of quick growth in their value-added services, said Tony Li, an analyst at China Galaxy International Securities.
Apart from collecting the traditional monthly management fee, the new generation of property managers focus more on value-added services. They have established their own online-to-offline (O2O) platforms and seek to provide services, ranging from online shopping and children’s playgroups to wealth management, to meet a wide range of client needs and to generate revenue from the services.
“There could be a big market as community residents require better services. Also, as the market is highly fragmented in China, for those emerging leaders there is big chance to expand market share,” Li said.
Currently, listed property management firms on average are valued at more than 30 times earnings, compared to the less than 10 times average earnings valuation of property developers in Hong Kong, according to Li.
Facing more challenges in traditional property sales, a number of leading property developers, including Vanke, Poly and Country Garden, have increased their investment in property management and are said to have plans to spin off new listings in the sector.
But David Hong, head of research at China Real Estate Information Corp, said growth prospects for the sector might not be that exciting as it remains unclear whether profits from O2O community services would be largely shared by internet companies as the implemention of many services require the participation of internet companies.