China Merchants Shekou Buys Five Shanghai Sites for $1.3B

China Merchants Shekou Industrial Zone Holdings is doubling down on its expansion in Shanghai, spending RMB 8.74 billion ($1.3 billion) this past week to pick up stakes in five sites in China’s commercial capital.

In Shanghai’s second land auction of the year, which ended last Thursday, China Merchants Shekou ranked second only to fellow SOE Huafa Group in its thirst for sites, with Huafa walking away with the “land king” crown after spending RMB 11.04 billion on four projects.

In June, China Merchants Shekou was the largest buyer in Shanghai’s first land auction of 2022, committing RMB 11.7 billion to four sites that it bid on independently or with other developers, according to data from China Real Estate Information Corporation.

Huafa’s total was equal to about 15 percent of the RMB 78 billion that developers spent last week buying 34 Shanghai sites that measured a total of 1.2 million square metres (12.9 million square feet). Another state-owned enterprise, Poly Developments & Holdings Group, came in third place. A third land auction, which will be Shanghai’s last round this year, is expected to take place in the fourth quarter.

Qingpu Picks Up

In this latest land sale, China Merchants Shekou, a division of the Shenzhen-based China Merchants Group, again turned its attention to Qingpu district in Shanghai’s western suburbs.

After spending RMB 1.9 billion to pick up a residential site on Huizhuo Road site in Qingpu’s Xujing Town in June at a 9.1 percent premium to the auction reserve, China Merchants Shekou bought two more sites in Qingpu last week.

Together with Nanchang Municipal Public Real Estate Group, China Merchants Shekou won the bid for the B6-01 land parcel to the north of Shuanglian Road in Xujing Town for RMB 4.48 billion last Wednesday, according to a statement on Shanghai’s land transaction disclosure website. The closing price reflects a 9 percent premium to the auction reserve.

The site is located in an extension of the Hongqiao central business district and is close to the planned Xuying Road station on Shanghai’s metro line 17. With a total plot size of 77,074 square metres and a planned floor area of 131,000 square metres, the residential site will provide space for more than 1,500 apartment units and a kindergarten. The floor price for the plot is RMB 34,200 per square metre, and the suggested new home price is RMB 64,000 per square metre.

On the same day, China Merchants Shekou and Xiangyu Real Estate together won the tender for the 45-12 and 45-14 land parcels located to the north of the Huqingping Expressway, also in Xujing Town,  for RMB 3.86 billion, according to another land transaction statement. The two paid a premium of 1.44 percent above the required minimum.

The 45-12 parcel is planned for public rental housing, with the accompanying 45-14 parcel for development of public facilities including a grocery market. The developer paid the equivalent of RMB 30,564 per square metre for the project. Under the terms of the land tender, the joint venture will also be required to develop an integrated sports complex and a kindergarten on two adjacent land parcels that must be handed over to the government at no charge after completion.

SOE Developer Expands Pipeline

Despite narrowing profit margins amid a market downturn, COVID-19 and weak consumption, China Merchants Shekou has been aggressively acquiring land this year, often at a high premium.

In May, the developer bought an industrial park site in Suzhou for RMB 3.6 billion with a 15 percent premium. In June, it bought a residential site in Hangzhou, in partnership with Zhejiang Communications Investment Group, for RMB 1.6 billion with a 12 percent premium.

China Merchants Shekou’s spending on land acquisition in the first half totalled RMB 23.5 billion, ranking seventh among all Chinese developers, according to data from China Index Academy released in July.

During the first half of 2022, the company ranked sixth among all developers in China for contracted sales, having moved up the ranks from the ninth place position a year earlier as state-run developers continue to take a larger slice of China’s housing market.

Thinner margins halved the company’s net profit in the first six months of the year. China Merchants Shekou said in a filing with the Shenzhen Stock Exchange on 15 July that it estimated its net profit for the first half declined by an estimated 50.6 percent to 64.7 percent year-on-year to a range of RMB 1.5 billion to RMB 2.1 billion.

That drop in profit came after the company had recorded a one-time gain of RMB 1.46 billion from the disposal of two industrial parks as part of a REIT listing in the first half of 2021, bringing its profitability up four-fold from the first half of the previous year.