Xu Jiayin introduced his Evergrande Spring water earlier this year
One of China’s biggest real estate developers decided to trade in bricks and mortar for paper and ink recently, when Evergrande Real Estate Group announced that it would invest HK$950 million ($122.5 million) to acquire a Hong Kong magazine company.
The acquisition of New Media Group Holdings is the fifth new venture announced by the group belonging to billionaire Xu Jiayin (Hui Ka Yan in his native Cantonese) in the last year, and illustrates the lengths that some of China’s property companies are going to in search of the high profits that they once enjoyed from building and selling new homes on the mainland.
With China’s real estate market mired in a six-month long slump, the country’s developers have been investing in overseas development projects, branching out into new real estate sectors domestically, and even trying out entire new industries, as in Evergrande’s case.
Whether or not Evergrande’s latest acquisition pays off depends in part on the company’s ability to execute effectively in the five new industries it has chosen to enter in the last 11 months.
What to Do Now That China Real Estate’s Golden Age is Over
After more than a decade of outstanding growth, China’s real estate prices have fallen on a month to month basis since May of this year, and in September prices moved into negative territory compared to the same period in 2013.
The price slide has been accompanied by a slowdown in sales that has hit real estate companies hard, with more than half of China’s 202 listed developers reporting falling rates of net profit growth during the first six months of 2014, compared to the same period last year.
The downturn has made many industry leaders admit that the industry’s best years are over, with the CEO of the country’s biggest developer, China Vanke, declaring in May that the “golden age” of China real estate had passed.
Downturn Driving Diversification
The response to this downturn among China’s smarter developers has been to look for opportunities to maintain their profits by diversifying away from their traditional business of residential development into other business lines.
Vanke has responded to the downturn by investing in logistics real estate and shopping malls in China, as well as partnering with US developers for projects in San Francisco and New York. Dalian Wanda has been more aggressive than Vanke in its move overseas, snatching up projects in Australia, Southeast Asia, the US and Europe over the last few years.
Evergrande Now China’s Most Daringly Diversified Developer
While Wanda has moved into more countries, and Vanke has diversified into different real estate sectors, Evergrande has been the only developer to move its money into publishing, solar power projects, hospital development, bottled water, and agricultural processing all within 2014.
Before this latest announcement of the deal for New Media Group Holdings Limited, Evergrande in December had unveiled a plan to cooperate with a hospital affiliated with Harvard to roll out private health care facilities in China.
Then in January the real estate group introduced its own brand of bottled water, Evergrande Spring.
After taking a few months off from the new business spree, in September Evergrande revealed plans to invest more than RMB 100 billion ($16.2 billion) in the agricultural processing sector in the next few years, including getting involved in the grain and cooking oil businesses.
In October the company then launched its own baby formula brand in China after acquiring a New Zealand dairy firm earlier in the year. In the same month, Xu’s group ventured into the crowded solar energy market by investing a total of HK$ 1.2 billion ($154 million) in a US solar company and another Hong Kong-listed firm.
Now, seemingly undaunted by the challenges facing magazine publishing globally, Xu will get an opportunity to try out the media business.
Evergrande May Not Yet Be Done for 2014
Despite the dizzying pace of acquisition, Evergrande’s buying spree may not be over yet.
Earlier this month the news came out that Xu was the secret buyer of a $33.4 million dollar mansion in a posh suburb of Sydney, and the Sydney Morning Herald has reported that the property tycoon had taken a private Airbus A319 into Australia to look at real estate development projects along the country’s Gold Coast.
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