Foreign Capital Influx Accelerates Chinese Real Estate Market Growth, Li Ka-shing Shows Interest

BEIJING -

According to the “Sales Rankings of Chinese Real Estate Companies for Q3 2009″ report released October 9, the results achieved by Chinese real estate firms are altering the competitive landscape and forcing the industry leaders to seek new approaches, in a move for survival, with focus on proper capitalization of their efforts. New industry leader, Evergrande Real Estate Group, has recently attracted the attention of China’s richest man Li Ka-shing who has agreed to invest. Sina Leju was the first media source to announce the release of this report, part of which is as follows:

Sales revenue rankings as per statistics from the report: RMB50bn+ (Vanke is the only developer to achieve this sales level); RMB30-50bn (five companies including Poly Real Estate Group and Evergrande Real Estate Group); RMB10-30bn (16 companies including China Resources Land and Longfor Properties). The rankings assess state-owned and publicly traded companies that lead in terms of land reserves, floor space under construction and floor space sold. The so-called “capital+professionalism” model has become an important factor in trend setting in the real estate market.

An analyst noted that ranking competition is actually competition concerning corporate strength, and capital strength is the core. The analyst states, “Given increasingly fierce competition and strict regulation, China’s real estate industry is shifting to a model of ‘capital+professionalism’. Real estate developers must assure sufficient financial strength.” Reportedly, 39 Chinese real estate companies will go public through an IPO or backdoor listing, including Evergrande Real Estate Group, Rongqiao Group and Landsea. Beyond land holdings, capitalization is another determinant of a company’s standing among competitors.

Hong Kong’s media reported that the Evergrande Real Estate offering for Hong Kong listing has received warm response from Chinese investors such as Li Ka-shing, Cheng Yu-tung and Joseph Lau Luen-hung, who will invest hundreds of millions of USD. Li Ka-shing may subscribe to more than US$100m worth of shares issued by Evergrande through his Cheung Kong (Holdings). Emperor Group chairman Albert Yeung and C C Land Holdings chairman Cheung Chung-kiu also expressed interest Evergrande shares.

Evergrande has attracted many investors since officially kicking off its large-scale road show this Monday, with its international placement more than twice oversubscribed on the first day. The group will immediately launch road shows in New York and Boston, while continuing its IPO in Hong Kong. Evergrande Real Estate Group has drawn attention due to its large land reserves. The research division of Goldman Sachs, an underwriter for Evergrande Real Estate Group, confirmed that Evergrande Real Estate Group ranked first in land reserves compared with other mainland property developers listed in Hong Kong or the mainland. According to estimates by Goldman Sachs, land prices for Evergrande Real Estate Group’s projects represent a mere 9% of the average selling price for its completed property, demonstrating the group’s extraordinarily low land costs when compared with its competitors.

Recovery of China’s real estate market also proved to be beneficial to Evergrande Real Estate Group’s IPO. The research division of Credit Suisse, the group’s other underwriter, recently conducted an analysis on transactions in the mainland real estate market between October 12 and October 18, revealing that major provinces and cities experienced increases in property transactions and investments last week. Sun Hung Kai Financial pointed out that Evergrande is undervalued as the group’s maximum issue price only equals approximately 6.6 times its underwriters’ P/E Ratio forecast for 2010.

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Kevin Fax: +86-10-5895-1005 Email: Kevinmts@sina.com

Source: Sina Leju

Kevin, +86-10-5895-1005 (Fax), Kevinmts at sina.com