Property

Going south

Vanke spends $8 billion on Guangzhou land bank

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Yu Liang: Vanke’s new boss

China’s ghost towns are back in the headlines. But this time around they are not in more remote locations like Ordos but nearer to bustling metropolises.

In Nanhui New City, a satellite town about 70 kilometres from the centre of Shanghai, row upon row of newly completed apartment complexes stand empty. When the sky turns dark, the town turns eerily quiet. Only a handful had lights on the night that Hong Kong’s Wen Wei Po newspaper was there.

Unlike the previous housing bubble, which saw cities like Ordos (which can also be spelled Erdos) in Inner Mongolia going into construction overdrive but then fail to sell the bulk of the inventory, Shanghai has a different problem. People are buying the apartments, but no one is living in them.

“What’s interesting is that these new ‘ghost towns’ all happen to be in areas where home prices have gone up the most dramatically compared to nationwide figures. What this means is that a lot of people view these houses as an investment. Even though the nearby infrastructure hasn’t caught up yet, they are still rushing to snap up the units,” the newspaper observed.

According to statistics from E-House, a news portal on the property sector, unsold housing in the Shanghai municipality was down by 30% in 2016 from a year ago. Similarly, Guangzhou and Beijing also saw decreases of 20% during the same period.

Most investors still believe that property is a safe bet, and despite the government’s efforts to cool the market, home sales have remained robust. “The government will spare no effort to make sure there are no big swings in the property market,” Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank, told the Wall Street Journal.

Property developer Vanke is also bullish, having just won an auction for a package of land assets in Guangzhou for Rmb55.1 billion ($8.1 billion). It has secured 16 land parcels in Guangzhou’s Liwan and Yuexiu districts from GITIC, Guangdong province’s state-owned investment firm. This is China’s biggest-ever land sale by value.

“Even though the total cost of the deal seems exorbitant, the price per square metre is actually less than half of what other nearby developments are going for. In fact, to be able to get its hands on such valuable land in such a prime area at this price is almost a bargain,” one industry insider told Securities Daily.

The Shenzhen-based homebuilder has just survived a drawn-out battle for control of the company, after rival developer Evergrande transferred its shares to Shenzhen Metro. That transaction cemented the state-owned subway operator’s position as Vanke’s largest shareholder.

News of the auction shows that Yu Liang, who replaced Wang Shi as Vanke’s chairman, is eager to make his mark (for more about Wang, see our profile in issue 372).

Nevertheless, data from the China Index Research Institute shows that all major cities recorded a decrease in home sales by saleable floor area in June compared with a year ago. Sales in Beijing fell over 50%, while Shanghai saw a decrease of 47.4%. Guangzhou saw the biggest drop of 62.6% year-on-year.

To hedge some of its risk, Vanke has tried to diversify away from residential housing into adjunct areas. Last week a consortium led by the developer led a management buyout of Singapore-listed Global Logistics Properties (GLP), the largest operator of warehouses in China, for $11.6 billion. It is not the first time Vanke has dabbled in logistics: back in 2015, it formed a joint venture with private equity giant Blackstone to capitalise on the booming e-commerce sector. It now controls over 1.5 million square metres of warehouse space (in comparison, industry leader GLP owns 20 million square metres).

“First there was home decor, and then came senior care and long-term rental. Not only has Vanke boldly ventured outside of residential property, it is also in the forefront of these subsectors. What’s clear is that Vanke plans to be very diversified. By investing in GLP it shows that it is more determined than ever to go into logistics,” says Yan Yue, director of the E-House China R&D Institute.


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