While China has recently been working to move non-real estate related state-owned enterprises out of the property market, it seems that everybody else, whether they make widgets or software are trying to get a piece of the real estate action.
In a press release dated April 7th, NASDAQ-listed software developer Ninetowns announced the acquisition of land for a mixed-use commercial and residential development in Anhui province. The company indicated that they,
“had the winning bid in a land auction held on March 30, 2011 in Huainan, Anhui Province, China and received the right to acquire land use rights for a piece of undeveloped land consisting of approximately 141,000 square meters at a price of RMB1,830 per square meter, for a total consideration of approximately RMB258 million (US$39 million).
Ninetowns intends to develop a mixed-use real estate project tentatively named “Smarter Town” on such land. According to the terms and conditions of the auction, the Company is committed to (i) design, develop, construct, market and sell certain retail and residential units, (ii) design and construct an “Internet of Things” exhibition park, and (iii) design and construct a community hospital.”[wpgmappity id=”3″]
The question that this brings up for investors is that if they wanted to invest in China’s real estate market, they presumably would have bought shares in real estate developer rather than in a software company.
While there are many opinions on the potential for profits from investing in real estate in China’s developing cities, there seems to be a growing trend among China’s publicly listed companies from a variety of sectors to begin not just dabbling in real estate but to start taking on very large scale projects using funds raised from the public.
As long as profits continue to flow from these investments few are likely to complain about these corporate decisions. However, given the large amount of risk involved in investing in these emerging cities, particulary for companies inexperienced with real estate investments, projects such as Ninetowns’ also may very well be the substance of future scandals and investigations into misuse of shareholder investments.
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