Real Estate Check-Out Time in China

Image result for Real Estate Check-Out Time in ChinaChina’s second-richest man is going asset-lite, offloading some of his real estate holdings. Perhaps you should too.

Sunac China Holdings Ltd. agreed Monday to buy hotels, land and projects from Dalian Wanda Group Co., the sprawling conglomerate controlled by billionaire Wang Jianlin.

In an interview with Caixin, Wang said he wants to position Wanda so that its brand name and management expertise is leased out to other commercial property investors, not unlike what Donald Trump has done with his real-estate empire. Wanda plans to use proceeds from the record $9.3 billion sale to deleverage, and should be able to pay back most of its bank loans by the end of the year.

People familiar with the matter said that as Wanda prepares for a stock listing in Shenzhen, it doesn’t want to be seen as just a property developer, according to Caixin.

That’s a curious remark, because Chinese developers are the best performers this year.


The 14 firms in the benchmark MSCI China Index have gained more than 50 percent since January, with China Evergrande Group and Sunac leading the pack, soaring 216 percent and 130 percent respectively. In June, developers’ contracted sales rebounded, increasing 43 percent from a year ago and accelerating from 24 percent growth in May.

But Wang is a clever man and has his own reasons to exit. JPMorgan Chase & Co. reckons developers in Asia’s biggest economy are having more trouble collecting cash from their property deals. Many home sales, particularly in the top-tier cities that command higher prices, haven’t been registered in the system because local governments don’t want to be seen to let their cities’ house prices soar out of control, analysts at the New York investment bank said.

As a result, developers aren’t able to receive property down payments from banks as quickly as they might. Does Wang, whose assets span movie theaters to hotel chains, really want to move into the debt collection business?

Hard Up
Developers’ ability to collect cash from home sales is deteriorating
Source: Bloomberg

Meanwhile, the macro backdrop is that Beijing is determined to avoid another property bubble. Sales-price growth seems to have peaked, along with transaction volumes.

Heading for the Exit?
Property prices, and sales, in China look to have peake
Source: National Bureau of Statistics, China Real Estate Information Corp.

To be sure, one man’s meat is another man’s poison. Sunac’s billionaire chairman Sun Hongbin is betting he can continue to grow his company at breakneck pace by being an industry consolidator. Citigroup Inc. research estimates the top 10 developers in China had a 20 percent market share in 2016, up from 12.7 percent five years ago. That could expand to 25 percent in 2017.

Sunac has deep pockets, so it might be able to afford to chase top-line growth by gobbling up smaller fish. Retail investors, however, would do well to consider taking some profits while they can.