Date
16 December 2017
Chinese developers are beefing up their land banks to take advantage of the housing boom. Photo: Xinhua
Chinese developers are beefing up their land banks to take advantage of the housing boom. Photo: Xinhua

Chinese property developers flush with cash

Trading on the shares of Future Land Development Holdings (01030.HK) has been suspended, pending the release of an announcement related to a possible arrangementto go private.

The counter has spiked 160 percent over last 12 months, so why would major shareholders now want to buy back the company?

The Shanghai-based property developer reported contracted sales of 65 billion yuan (US$9.57 billion) in 2016, up 104 percent from the previous year.

With contracted sales hitting 49 billion yuan in the first half of this year, the firm is on track to achieve the 100 billion yuan mark for the full year.

Meanwhile, the company’s market cap remains at HK$15.9 billion even after a 158 percent jump in its share price over last 12 months. That represents a price-to-sales ratio of 0.13 times.

A developer’s land bank is one of the most important factors that determine its revenue potential. Having acquired 40 land plots mainly in first and second-tier cities last year, the firm’s land bank is enough for five years of development.

Assuming China’s property market will stay healthy in the next few years, Future Land is expected to continue to register strong sales and make a lot of money. That is perhaps why key shareholders believe the counter is still undervalued.

Quite a few developers, some much larger than Future Land, have borrowed aggressively to accumulate land plots over the last couple of years. And they have made a huge fortune amid the housing boom.

In fact, Evergrande (03333.HK), Sunac China (01918.HK) and Country Garden (02007.HK) have all seen their share prices more than double in the last 12 months.

Sunac China was sitting on a cash pile of 90 billion yuan as of June and expected to generate more income following the delivery of flats to customers. 

So it is not surprising for founder Sun Hongbin to splash more than 100 billion yuan on a slew of acquisitions this year.

The party may go on, but the authorities can always tighten its policy further if housing prices go out of control. These property tycoons better keep that in mind.

This article appeared in the Hong Kong Economic Journal on July 12

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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