Three Chinese real-estate firms — Evergrande (03333.HK), Vanke (02202. HK), and Country Garden (02007.HK) — notched record sales of more than 300 billion yuan each last year, according to the China Index Academy, a well-known property research institute.
All the three top three players, incidentally, are based in Guangdong province.
Now, how has this come about? Why are Guangdong players so strong?
Well, here are a few possible explanations.
First, Pearl River Delta region has been the gateway for China’s opening-up, and the housing market in the region has been the first to adopt free market rules. This helped nurture a clutch of private property firms and fuel their growth.
Vanke, Country Garden and Evergrande were established in 1987, 1992 and 1996 respectively. The developers were able to accumulate capital and experience and scale up from their early days. A first-mover advantage enabled them to later expand into the nationwide market quickly.
Also, “home advantage” is obvious in China’s housing market. Guangdong remains the nation’s most developed province with lots of wealthy home buyers, a situation that proves advantageous to local players. Country Garden, for instance, derives nearly 30 percent of its revenue from the Pearl River Delta region.
Proximity to Hong Kong might be another edge Guangdong players enjoy.
Founders of the Guangdong-based property developers had witnessed the take-off of Hong Kong’s property market in the 1970s, which created several property tycoons. After seeing what happened across the border, mainland entrepreneurs gained more confidence about the prospects for their own market.
Vanke founder Wang Shi once frankly admitted that his company had tried to copy Hong Kong developers Cheung Kong Property Holdings (01113.HK) and Sun Hung Kai Properties (00016.HK) in the early days. He even took his team to visit the firms in Hong Kong, helping them learn tricks like building land-banks during downturn at lower costs, and quick asset turnover business approach.
Also, property developers in Guangdong province have better access, compared to their peers in other mainland regions, to the Hong Kong capital market for financing.
Vanke overhauled its shareholding structure and became a private company in 1988, with help from Sun Hung Kai Securities which was founded by the renowned “Godfather of the Stock Market” Fung King Key.
In fact, there were four Hong Kong shareholders out of Vanke’s five founding shareholders. Liu Yuansheng, who spent 3.6 million yuan in buying Vanke shares back then, is still the largest individual shareholder, with a stake now worth nearly 3 billion yuan.
In a separate case, when Evergrande was mired in a debt crisis after the 2008 financial crisis and its IPO plan hit a wall, it was a Hong Kong billionaire and a group of other investors that saved the company.
This article appeared in the Hong Kong Economic Journal on Jan. 9
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]