- Hong Kong-listed property managers spent more than US$424 million on mergers and acquisitions last year, up from US$141.5 million in 2015
- DBS Bank expects China Resources Land, Shimao Property, Central China Real Estate and R&F Properties to spin off their property management arms
China's 450 billion yuan (US$63.6 billion) property management market is likely to see some consolidation, as the mainland's real estate companies look for alternative sources of growth amid declining profit in the wake of the government's cooling measures, according to DBS Bank.
Danielle Wang, head of China property team at DBS Bank (Hong Kong), said there was ample scope for mergers and acquisitions in a fragmented market that has more than 100,000 companies, adding that the top 100 companies account for less than 40 per cent of the market.
Hong Kong-listed property managers spent more than 3 billion yuan (US$424 million) on M&A last year, up from just under 1 billion yuan in 2015, DBS said. The Singapore-based bank, however, did not have projections for this year.
"I am very optimistic about the industry," said Wang, who expects the market size to double to 900 billion yuan a year in the next 15 years, up from 450 billion yuan currently.
In August, China Evergrande became the first major mainland developer to report a 45 per cent plunge in first-half profit as cooling hit sales. It was the first profit drop for China's third largest real estate company since the first half of 2016.
A month earlier, China's top 10 builders all recorded a month-on-month fall in contracted sales and a cumulative drop of 80 billion yuan.
Why Hong Kong residential property management fees are Asia's highest
The industry has the potential to grow sustainably because there are some 3.8 billion square metres of sold yet uncompleted gross floor area, Wang said. Management fees for properties, including offices, and residential and commercial space are also expected to increase.
Wang said China Resources Land, Shimao Property, Central China Real Estate and R&F Properties were the most likely candidates to spin off their property management arms and list them on the stock exchange.
These companies had more than 20 million square metres of contracted GFA and 10 million square metres of GFA under management. They also had over HK$50 million (US$6.4 million) of net profit in the last financial year. According to DBS, these factors were key to identifying IPO candidates that would attract "meaningful investor interest".
Country Garden Services, a subsidiary of mainland developer Country Garden Holdings, which listed in July, is the top ranked property manager in terms of growth, managing 584 million square metres of contracted GFA
"Its ranking matches its high valuation," said Wang, who added that the US$7.7 billion company invests a lot of money into technological advancement, boosting its value-added services.
Will property management become Chinese developers' new cash cow?
She said that value-added services for property owners, which contributed to about 45 per cent of net profit of the top 100 property managers, will drive the development of the technology-driven industry.
"Companies are just starting to explore this area," said Wang, who said they will test run advertising, retirement care and medical services in the coming years.
Residential property management, where nearly half of the revenue is generated, remains the main battlefield for the top firms in the sector, she said.
Property management companies bid for third party and secondary market projects to expand their business, she said, while developers utilise the branding of reputable property management companies to promote their new projects.
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