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China state-backed developers take on Guangzhou's cornered 'tigers'

Stock MarketsNov 13, 2014 21:20
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6/6 © Reuters A logo of Evergrande Group is seen in front of a construction site in Guangzhou 2/6

By Clare Jim

HONG KONG (Reuters) - China's state-backed developers are making unprecedented investments in Guangzhou, as the private firms that have dominated the wealthy southern city for decades grapple with tight liquidity and Beijing's corruption crackdown.

The waning fortunes of the "Guangzhou Five Tigers" - the city's big private developers - are giving state-owned enterprises the chance to muscle in on one of China's most prestigious property markets for the first time.

"We expect there will be more opportunities going forward in Guangzhou because of a fairer environment under a change of political landscape," state-owned China Resources Land's chief financial officer Yu Jian told analysts last month.

The so-called tigers - Agile Property, Evergrande Real Estate Group, Country Garden Holdings, Guangzhou R&F Properties and KWG Property - would no longer dominate the city, Yu said according to a company official.

Guangzhou's allure lies in its higher margins and stability. The average selling price per square metre in Guangzhou from January to June was almost twice as high as the national average recorded by Country Garden and Guangzhou R&F, according to company statements.

The capital of Guangdong province is also considered better positioned to withstand any housing correction because of its vast reservoir of demand, making it increasingly attractive to developers hit by a sharp downturn in the Chinese property market.

But until recently, state-owned firms have avoided taking on Guangzhou's established players on their home turf.

Those days are over. On Nov. 10, for example, state-backed Longfor Properties entered the city of over 13 million people for the first time, buying two sites at auction for 3.78 billion yuan (393 million pounds).

China Resources Land, the country's ninth-largest residential developer by sales, bought two plots in Guangzhou at the same auction for 3.02 billion yuan, significantly boosting its holdings there.

Other government-backed developers such as China Overseas Land & Investment (COLI), Poly Real Estate and Guangzhou-based Yuexiu Property have also expressed interest in expanding in Guangzhou, analysts said.

COLI bought a plot in the city for 9.6 billion yuan in February, the most expensive acquisition out of 10 it made in the first half.

TYGER TYGER

Chinese developers are under intense pressure, with home prices falling for a fifth straight month in September and the economy growing at its slowest clip since the 2008 global financial crisis.

Bank of America Merrill Lynch head of greater China property research Raymond Ngai said private developers were feeling the pinch of tighter liquidity, while those with state backing were freer to expand.

"State-owned developers are keen to buy land in Guangzhou as they don't have much there. They also have the cash," he said.

President Xi Jinping's crackdown on corruption is squeezing liquidity further, as investors baulk at firms that could be exposed to damaging revelations.

Former vice-mayor Cao Jianliao is the biggest scalp in Guangzhou so far. Arrested in December, he was convicted of pocketing 270 million yuan in bribes over two decades. Former mayor Wan Qingliang and land resources official Li Junfu are under investigation for corruption and have been dumped from the Communist Party.

Unconfirmed Chinese media reports say at least one major developer bribed Cao, but no property firms have been formally implicated in the case.

Even so, investors are getting nervous and that is narrowing private developers' financing options.

"The risk makes investors more prudent," realtor Knight Frank senior director Thomas Lam said.

Already burdened with a $475 million loan due in December, Agile Property last month revealed that its billionaire founder and chairman, Chen Zhou Lin, had been detained. While the reason for Chen's detention remains unknown, it is widely believed to be related to corruption.

Agile's share price has tumbled almost 50 percent so far this year in Hong Kong, compared with a 2.3 percent rise in the broader market.

Andy Lee, an executive with realtor Centaline, said Guangzhou-based developers were "worried about the knock-on effect" of the crackdown, and their out-of-town rivals were eager to take advantage.

"This is a game-changer for Guangzhou ... it will attract more outsiders," he said.

An executive of an unlisted property company based in Guangdong province said life was simpler when developers could bribe officials with "gift cards" of up to 600 yuan each.

"Things were much easier and faster before. If you ask me, I prefer how things were handled in the past," he said.

(Editing by Stephen Coates) 201

By Clare Jim

HONG KONG (Reuters) - China's state-backed developers are making unprecedented investments in Guangzhou, as the private firms that have dominated the wealthy southern city for decades grapple with tight liquidity and Beijing's corruption crackdown.

The waning fortunes of the "Guangzhou Five Tigers" - the city's big private developers - are giving state-owned enterprises the chance to muscle in on one of China's most prestigious property markets for the first time.

"We expect there will be more opportunities going forward in Guangzhou because of a fairer environment under a change of political landscape," state-owned China Resources Land's chief financial officer Yu Jian told analysts last month.

The so-called tigers - Agile Property, Evergrande Real Estate Group, Country Garden Holdings, Guangzhou R&F Properties and KWG Property - would no longer dominate the city, Yu said according to a company official.

Guangzhou's allure lies in its higher margins and stability. The average selling price per square metre in Guangzhou from January to June was almost twice as high as the national average recorded by Country Garden and Guangzhou R&F, according to company statements.

The capital of Guangdong province is also considered better positioned to withstand any housing correction because of its vast reservoir of demand, making it increasingly attractive to developers hit by a sharp downturn in the Chinese property market.

But until recently, state-owned firms have avoided taking on Guangzhou's established players on their home turf.

Those days are over. On Nov. 10, for example, state-backed Longfor Properties entered the city of over 13 million people for the first time, buying two sites at auction for 3.78 billion yuan (393 million pounds).

China Resources Land, the country's ninth-largest residential developer by sales, bought two plots in Guangzhou at the same auction for 3.02 billion yuan, significantly boosting its holdings there.

Other government-backed developers such as China Overseas Land & Investment (COLI), Poly Real Estate and Guangzhou-based Yuexiu Property have also expressed interest in expanding in Guangzhou, analysts said.

COLI bought a plot in the city for 9.6 billion yuan in February, the most expensive acquisition out of 10 it made in the first half.

TYGER TYGER

Chinese developers are under intense pressure, with home prices falling for a fifth straight month in September and the economy growing at its slowest clip since the 2008 global financial crisis.

Bank of America Merrill Lynch head of greater China property research Raymond Ngai said private developers were feeling the pinch of tighter liquidity, while those with state backing were freer to expand.

"State-owned developers are keen to buy land in Guangzhou as they don't have much there. They also have the cash," he said.

President Xi Jinping's crackdown on corruption is squeezing liquidity further, as investors baulk at firms that could be exposed to damaging revelations.

Former vice-mayor Cao Jianliao is the biggest scalp in Guangzhou so far. Arrested in December, he was convicted of pocketing 270 million yuan in bribes over two decades. Former mayor Wan Qingliang and land resources official Li Junfu are under investigation for corruption and have been dumped from the Communist Party.

Unconfirmed Chinese media reports say at least one major developer bribed Cao, but no property firms have been formally implicated in the case.

Even so, investors are getting nervous and that is narrowing private developers' financing options.

"The risk makes investors more prudent," realtor Knight Frank senior director Thomas Lam said.

Already burdened with a $475 million loan due in December, Agile Property last month revealed that its billionaire founder and chairman, Chen Zhou Lin, had been detained. While the reason for Chen's detention remains unknown, it is widely believed to be related to corruption.

Agile's share price has tumbled almost 50 percent so far this year in Hong Kong, compared with a 2.3 percent rise in the broader market.

Andy Lee, an executive with realtor Centaline, said Guangzhou-based developers were "worried about the knock-on effect" of the crackdown, and their out-of-town rivals were eager to take advantage.

"This is a game-changer for Guangzhou ... it will attract more outsiders," he said.

An executive of an unlisted property company based in Guangdong province said life was simpler when developers could bribe officials with "gift cards" of up to 600 yuan each.

"Things were much easier and faster before. If you ask me, I prefer how things were handled in the past," he said.

(Editing by Stephen Coates)

China state-backed developers take on Guangzhou's cornered 'tigers'
 

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