Nowhere on Earth is wealth being created faster than in China’s mainland property market.
The collective net worth of the country’s richest developers has rocketed since the start of the year, adding $44.3bn to the fortunes of seven real estate tycoons.
As China’s regulators move to tame a frenzied property market, investors are betting that the largest companies will squeeze out smaller competitors and extend their dominance in a consolidating industry.
“It’s like a self-reinforcing theme – the more property stocks rally, the more buyers are confident on the consolidation theme that’s benefiting the largest players,” Alan Jin, property analyst at Mizuho Securities Asia said by phone.
Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas SA, said that overseas funds are also improving the appeal of some long-dismissed companies that pay record-high dividends. “The story becomes very compelling,” Lee said.
Investors are betting those large developers – many of whom maintain cross investments or have a history of trading assets – will continue to wrest market share from smaller businesses.
Hui Ka Yan’s Hong Kong-listed China Evergrande Group, the country’s largest developer, has risen 534% this year and reported that its revenue more than doubled through June.
Sun’s Sunac China Holdings, a residential and commercial developer based in Tianjin, increased revenue 25.9% and is up 501%. China Evergrande Chairman Hui Ka Yan and Sunac’s Sun Hongbin have collected the vast majority of the year’s gains, adding $42.5bn between them.
Kaisa Group Holdings, which operates in more than 50 cities, has risen 222%, after rebounding from a corruption controversy that threatened to bankrupt the business and halted trading of its shares from April 2015 until this March.
The rise has added $648mn to the fortune of Chairman Kwok Ying Shing, 52, who owns 24% of the company and has a net worth of $948mn, according to the Bloomberg billionaires Index. Kwok also owns 8% of watch retailer Hengdeli Holdings and electronic components maker Mega Medical Technology respectively. His brother, Kwok Ying Chi, a former director of the company, has a 14% stake valued at $756mn.
A representative for Kaisa declined to comment on the brothers’ net worth.
The valuations are also helped by a limited public float for company shares, as well as cross dealing among the tycoons. Kaisa shares, which quadrupled in September, reached an all-time high the day after a group led by the wife of property mogul Joseph Lau bought about $600mn worth of Kaisa bonds, her second investment in the business this year. The Lau family has also accumulated a 7% stake in China Evergrande.
Hui’s $33.4bn gain this year puts him just $5.2bn behind Alibaba Group Holding Ltd founder Jack Ma, Asia’s richest person with $46bn, according to the Bloomberg index, a daily ranking of the world’s 500 richest people. Lau has added $908mn this year and has a $8.9bn net worth. “Limited liquidity of the stock is part of the reasons for stock surge,” said Philip Tse, vice president of Bank of Communication International Holdings, “but the fundamentals of the mainland real estate companies are still performing well with increase both on sales and margins.”
A UBS Wealth Management report released this month said it expects 20% earnings growth for large listed developers in next 12-18 months. Still, the rally has begun to show some signs of weakness as China’s leaders have pledged to snuff out asset bubbles, with President Xi Jinping renewing a call earlier this month that homes are for living in and “not for speculation.”
The Bloomberg China Real Estate Owners and Developers Valuation Peers index slipped 9.6% from its peak on September 21. The index, which tracks 22 mainland developers, is up 106% this year. “Not all rallies are sustainable,” said BNP’s Lee. “The next phase of the rally should be very selective, favoring those who can truly gain market share.”
A construction site is seen in Shenyang. As China’s regulators move to tame a frenzied property market, investors are betting that the largest companies will squeeze out smaller competitors and extend their dominance in a consolidating industry.