Ningbo Developer Acquired for RMB 950M as Market Consolidates

Shenzhen-listed developer Yinyi Real Estate (SZSE: 000981) announced this week that it plans to purchase a 70 percent stake in one of its local Ningbo competitors for as much as RMB 950 million (US$151.9 million), as Zhejiang province’s property industry continues to bear the brunt of China’s housing slide.

The acquisition of privately owned Ningbo Futian Properties comes as China’s real slowing real estate market pressures weaker firms and creates acquisition opportunities for more cashed up investors.

According to Yinyi’s announcement, its acquisition of privately held Ningbo Futian will allow the larger firm to add 45,509 square metres to its land bank, as well as acquiring 107,139 square metres of existing assets.

While no reason was given for the sale of Ningbo Futian, the statement from Yinyi indicated that the smaller developer had not brought in any revenue in 2014 to date, compiling a loss of RMB 275,295 by the end of April. In 2013 Futian Properties is said to have lost RMB 2,650,440.

Yinyi, which is also based in Ningbo, is said to be among China’s top 100 developers in terms of sales, and had revenues last year of RMB 4.6 billion, according to company financial statements.

Ningbo Futian Properties is a subsidiary of Ningbo Futian Group, which started as a garment maker and later branched out into real estate and other investments. According to Ningbo Futian’s website, the parent company’s total assets are RMB 860 million.

Futian’s real estate division is described as developing logistics warehouses as well as residential projects.

Consolidation Prophesies Fulfilled

Futian’s decision to sell its real estate assets to Yinyi appears to validate predictions made late last month by the CEO of China’s largest real estate developer by sales, after the owners of Hangzhou-based Greentown sold our their stake in the company to Sunac Holdings.

Commenting on the headwinds facing the industry’s smaller companies, China Vanke’s Yu Liang predicted that more than 75,000 Chinese real estate companies would disappear in the next 15 years. Yu’s prophesy was that in most cases consolidation would happen through companies simply giving up, or being acquired by associates.

“It’s not going to be big fish eating small fish,” said in a press interview. “It will more be in the form of co-operation rather than takeover.”

Yu anticipated that within 15 years China will see 50 to 60 percent of the market dominated by the top 100 developers.

Hangzhou, where Greentown is based, is the capital of Zhejiang province and Ningbo, where Futian and Yinyi are based is the province’s second-largest city.

During this year, Hangzhou has become a centre for developer discounting, and Ningbo made it onto the world map by being the home of Zhejiang Xingrun Real Estate, whose collapse for many signalled the start of China’s current real estate crisis.