China Real Estate Industry Report (Merger and Reorganization), 2006-2007
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In 2005, the national real estate investment accumulated to RMB 1575.93 billion, increasing by 19.8% compared with 2004, but the growth rate decreased by 8.3%. Of these, state-owned and state-owned holding enterprises invested RMB 263.625 billion, a year-on-year decrease of 6.8%, and the proportion in the total investment decreased from 21.5% of 2004 to 16.7% of 2005. In Jan-Sep 2006, the national investment on real estate development totaled at RMB 1290.24 billion, up 24% over the same period of 2005, and the growth rate rose 1.7%; the real estate investment shared 23.1% of total fixed assets investment, growing by 0.1% compared to the same period of 2005. In addition, the total real estate investment in eastern, central and western regions were respectively RMB 829.782 billion, RMB 228.595 billion and RMB 231.862 billion, each accounting for 64.31%, 17.71% and 17.97% of the total. In Q3 2006, the real estate sales price in 70 large-medium cities rose by 5.5% comparing with the same period of 2005, rental price up 1.1%, land transaction price up 4.9% and property service price slightly up 0.1%. 

Growth of real estate investment in China, 2001-2005 (%)

Regional Investment in Real Estate Industry, Jan-Sep 2006


With the implementation and fulfillment of macro-control policies, the overinvestment in real estate has been under the control in some degree. However, such problems as excessive investment scale in real estate, sharp rise in commercial housing price, irrational supply structure and disordered market still exist in some regions.

In order to control the overheating real estate industry, the central government carries out the macro-control measures featured by "administrating the lands and tightening the credits", and in this way, the government can firmly hold the land and capitals in its hand. Henceforth, the integration ability of land and capitals has become the important embodiment of the competitiveness of real estate enterprises. On Apr 28, 2006, the People's bank of China raised the lending rate by 0.27%. The benchmark rate on over-five-year housing loan rose also from 6.12% to 6.39%. This was the second interest increase of the central bank since the first interest increase over one year ago, and this interest increase aimed to restrict the investment demand and further stabilize the price of real estate. On May 17, 2006, Premier Wen Jiabao presided over a standing conference, and put forward six measures to accelerate the healthy development of real estate industry, which focused on to better control real estate, adjust housing structure, guide consumption reform, reduce the real estate bubble, maintain the sustainable development of real estate industry and to ensure the financial order.     

In 2006, the sales revenue of top 10 Chinese real estate enterprises shared only 5.2% of total market amount. And the scale of real estate enterprise represents the ability of controlling the market, which not only includes the ability to gain lands but also the ability to finance and operate capitals. From the development of overseas companies specializing in real estate, when a company achieves a certain business scale and is able to operate the market steadily, the expansion via M & A and cooperation will be rather feasible.

It is a sound approach for real estate enterprises to strengthen their presence by scale development. Meanwhile, being strong in operation and management, large-scale real estate enterprises can establish their own brands in the market in an easier way. Moreover, they take absolute advantages in various financing means over small-size enterprises. From the view of bank loans, it is much easier for large-scale real estate enterprises to obtain the commercial loans, and the large number of commitment loans is the powerful back of the enterprises. The well-developed large-scale real estate enterprises can finance through listing, and moreover, the overseas funds also prefer the large and strong real estate enterprises. Comprehensively, only the large-scale real estate enterprises are able to fully perform themselves in security market, no matter by equity financing or by debt financing, because they are more prestigious and attractive and can be accepted by investors. 

Under the influences of state macro-control policies, the real estate market will appear two trends, the first is that some medium-small real estate enterprises with lands but not strong in capital are anxious to develop the land, they need to be merged by large enterprises with abundant assets. The second is that some strong real estate enterprises spare no effort to purchase and merge the medium-small enterprises with land resources and the excellent land projects for their healthy development, and then to realize the continuous scale expansion. The M&A for the markets will accelerate the integration and enhance the concentration, so the real estate enterprises will compete in quality, brand and capital.

The scale development of real estate enterprises has three trends. One is horizontal reorganization, i.e. establishing large-sized enterprises groups. It aims to combine the enterprises with the same business together and then to establish large-sized group enterprise engaging in specialized production, and thus reduce the additional costs caused by interior competition and enlarge the enterprise scale through concentration of production capacity, then make it achieve the scale economy and finally reduce the costs of the products.

Another is vertical reorganization, i.e. establishing cross-industry enterprise groups. Making use of the high connection degree and the extended industrial chain of real estate industry, it can integrate the enterprises with related businesses together to form the cross-industry enterprise groups and establish the design-development-production-distribution-property management system. This system not only can ensure the enterprises with stable market demands, smooth supply and demand channels and reduction of the risks, but also can provide organizational guarantee for system innovation, which helps to establish new production system in accordance with the demands of modern industry, to form the new pattern of serial development, scale production and supporting supply, and to create advantages for the real estate enterprises to implement the differentiated strategy.

The last one is the mixed reorganization, i.e. realizing the poly-angular operation. As a high-risk industry, real estate industry almost experiences a downturn-midseason-downturn process every five years. Thus, the real estate enterprises can extend to other industries through mixed reorganization, and make use of different development cycle of the industries to achieve the mutual complementarities and then reduce the investment risks.  

Comparison of Merger and Reorganization Pattern of Real Estate Enterprises


 

1 Development of Overseas Real Estate Industry
1.1 Status Quo of Real Estate in North America
1.1.1 U.S.A.
1.1.2 Canada
1.2 Status Quo of Real Estate in Europe
1.2.1 France
1.2.2 Spain
1.2.3 UK
1.3 Status Quo of Real Estate in Asia
1.3.1 Japan
1.3.2 South Korea
1.3.3 Singapore 
1.4 Successful Experience in Overseas Real Estate Development
1.4.1 Management 
1.4.2 Relationship between land price and housing price
1.4. 3 Market control
1.4.4 Operation patterns
1.4.5 Loan structure

2 Status Quo of Real Estate in China
2.1Overview
2.1.1 Development status
2.1.2 Development trend 
2.2 Investment in China Real Estate in 2006     
2.2.1 Accelerating investment
2.2.2 Regional investing discrepancy 
2.2.3 Investment in various kinds of real estate
2.2.4 Investment Structure
2.3 Development Status of China Real Estate in 2006
2.3.1 Land development area
2.3.2 Construction and completion area of commercial housing 
2.4 Real Estate Sales in 2006
2.5 Existing Problems in China Real Estate Industry
2.6 Development Prospect of China Real Estate Industry

3 Factors of influencing real estate development
3.1 Related Industries 
3.1.1 Steel industry 
3.1.2 Cement industry
3.2 Investment Environment of China Real Estate Industry
3.2.1 Influences of WTO 
3.2.2 New real estate policies
3.2.3 Influences of financial policies 
3.2.4 Influences of land policies
3.3 Risks in Real Estate Development
3.3.1 Competition pattern
3.3.2 Analysis on entry/exit barriers 

4 Status Quo of Merger and Reorganization of China Real Estate Enterprises
4.1 Causes
4.2 Characteristics and Trends
4.3 Obstacles 
4.4 Typical Cases 
4.4.1 China Res Land purchasing Shenzhen Vanke 
4.4.2 Shenzhen Vanke Mergers Chaokai and Narada
4.4.3 Hopson Development purchasing Zhujiang Development 
4.4.4 Road King Infrastructure purchasing Shunchi 
4.4.4 Merger of Chengkai and Tianhong 
4.4.6 China Res Land purchasing Huayuan 

5 Investments of Foreign Capitals in China Real Estate Industry 
5.1 Analysis on Entry of Foreign Capitals 
5.2 Cases 
5.2.1 Investment, Merger and Reorganization of Morgan Stanley Real Estate in China 
5.2.2 ING Reorganizes Forte Land
5.2.3 Investment of Scarborough Group in China 
5.2.4 Singapore CapitaLand
5.2.5 Keppel Land International Ltd

6 Principal Parts of Merger and Reorganization in China Real Estate Enterprises
6.1 Shenzhen Vanke
6.1.1 Company profile 
6.1.2 Operational status 
6.1.3 Development strategies and merger & reorganization trends
6.2 China Overseas Land & Investment Ltd 
6.2.1 Company profile
6.2.2 Operational status
6.2.3 Strategy development 
6.3 Hopson Development Holding Limited
6.3.1 Company profile
6.3.2 Operational conditions in 2006
6.3.3 Future development
6.4 Shanghai Forte Land Co. Ltd.
6.4.1 Company profile
6.4.2 Operational conditions in 2006
6.4.3 Future development
6.5 China Res Land 
6.5.1Company profile
6.5.2 Operational conditions
6.6 R&F Properties Group
6.6.1 Company profile
6.6.2 Operational conditions in 2006
6.6.3 Future development
6.7 China Merchants Property
6.6.1 Company profile
6.6.2 Operational conditions in 2006
6.8 Poly Real Estate
6.8.1 Company profile
6.8.2 Operational conditions in 2006
6.8.3 Future development

7 Merger & Reorganization Trend and Suggestions in China Real Estate Industry
7.1 Regional opportunities
7.1.1 Yangtze Delta Region
7.1.2 Pearl River Delta Region
7.1.3 Ring-Bohai economic circle
7.1.4 Northeastern region
7.1.5 Southwestern region
7.1.6 Northwestern region
7.2 Scale and Professional Merger and Reorganization 
7.3 Risks and Suggestions
7.3.1 Risks 
7.3.2 Suggestions
China urban population ratio
Construction area of commercial buildings, Jan-Aug 2005 VS 2006
Completion area of commercial buildings, Jan-Aug 2005 VS 2006
Annual achievement abstract of Morgan Stanley
Equity structure of China Merchants Property
Proportion of regional sales revenues against total, 2006
Proportion of real estate industry in whole industry of US
Growth rate in real estate investment 
Regional real estate investment during Jan-Sep 2006
Real estate investment by province/city, Jan-Sep 2006
Regional investment amount in 2005
Real estate investment amount of by purpose
Capital resource structure for real estate development, Jan-Feb 2006
Land development in 2005 and Jan-Sep 2006
Real estate price indexes in 70 large-medium cities in China, Q3 2006
Steel output, Jan-Sep 2006
Energy consumption of steel production, Jan-Sep 2006
Prices of various kinds of cements in first three quarters of 2006
Status of cement industry in 2005 and structural adjustment goals in 2010 
Housing construction in China by region, 1H 2006
Financial results of Chaowan Center, 2005
Main developable projects of Chaowan Center
Related projects of Narada purchased by Vanke
Trading price of Vanke purchasing Narada  
Financial results of Beijing Tianhong Baoye Real Estate Co., Ltd, Q3 2006 
Scale of foreign capitals flowing into real estate development market
Real estate investment by registered type, 2004
Investment of some foreign capital funds in China, 2004
Assets of Morgan Stanley, 2005
Financial results of CapitaLand in 2004 and 2005
Recent purchases of CapitaLand in China 
Sales revenue of Keppel Land International Ltd Q3 2006
Assets of Keppel Land International Ltd
Financing of Vanke 
Sales of Vanke in Q1-Q3 of 2006
Financial results of Vanke, Q3 2006
Financial results of China Overseas Land & Investment Ltd, 2006
Operation of Hopson Development, 2005
Financial results of Hopson Development, 2006
Sales revenue of Hopson Development by business, 2006
Regional achievements of Hopson Development, 1H 2006 
Financial results of Shanghai Forte Land Co. Ltd
Land storage of Shanghai Forte Land Co. Ltd
Financial results of China Res Land
Sales of China Res Land by city, 1H 2006
Land storage of China Res Land
Project budget of China Res Land, 2H 2006
Financial results of R&F Properties Group, 2006
Development of main operational properties of R&F Properties Group
Properties of R&F Properties Group completed in 1H 2006
Expected completed properties of R&F Properties Group in second half of 2006
New purchased lands of R&F Properties Group, 1H 2006
Land storage of R&F Properties Group
Stock amount of top 10 shareholders of China Merchants Property, 2006
Return on equity of China Merchants Property, 2006
Main financial indexes of China Merchants Property, 2006
Prime businesses of China Merchants Property by industry, 2006
Top 10 shareholders of Poly Real Estate in Sep, 2006
Main financial indexes of Poly Real Estate
Income constitution of Poly Real Estate, 2006
Regional income conditions of Poly Real Estate in first half of 2006 and 2005
Regional distribution of top 100 real estate enterprises in China

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