The Real Deal New York

Chinese real estate industry is set for an insane level of consolidation

By 2020, top 10 firms will increase market share from 20 to 35%: analysts
July 10, 2017 08:39AM

Wang Shi and Guangzhou, China (Credit: Getty Images)

Chinese real estate companies are on track to surpass more than $27.6 billion (188 billion yuan) to acquire competitors this year as the industry rapidly consolidates.

On Monday, real estate titan Dalian Wanda Group TRData LogoTINY, under the watchful eye of regulators, signaled its retreat, selling a portfolio of 76 hotels and 13 theme parks to Sunac China Holding for $9.3 billion on Monday. Wanda can start to pay down its considerable debt with the sale, the second-biggest ever in the history of China.

Analysts at Citigroup say that there is a wave of consolidations washing over the Chinese real estate industry, and they predict that the country’s 10 biggest developers will increase their joint share of sales from 20 percent in 2016 to 28 percent by the end of the year, Bloomberg reported.

And by 2020, that share is expected to grow to 35 percent.

“Slimmer profits on home sales and ever-climbing land prices will keep squeezing smaller developers out of the industry,” said Le Jiadong, an analyst with Guangfa Securities Co. in Shanghai. “Even amid buoyant sales in lower-tier cities, some small builders are choosing to sell their entire assets — and leading players are seizing the chance for further landbank acquisitions.”

Developers spent a record $14 billion (96.7 billion yuan) on acquisitions of competing firms or their assets and are on track to surpass last year’s $27.6 billion, according to Bloomberg.

Other massive deals include China Vanke’s $8 billion (55.1 billion yuan) purchase of the real estate assets of the bankrupt Guandong International Trust Investment Corp. in Guangzhou earlier this month.

Shares of Dalian Wanda, meanwhile, were up 150 percent following the deal with Sunac. Sunac’s boss Sun Hongbin last year complained that government land auctions had climbed to “absurd” levels.

Chinese outbound capital, meanwhile, fell 67 percent during the first four months of the year as government controls look to shore up the country’s currency.  [Bloomberg]Rich Bockmann