A research report of the top 100 Chinese real estate firms was recently released in Beijing, providing industry insiders and investors with a general outlook of the industry.

The China Real Estate Top 10 Research Team conducted the research, a joint programme established by the Enterprise Research Institute of Development Research Centre of the State Council of China, the Institute of Real Estate Studies of the Tsinghua University and the China Index Academy.

The study has been conducted for three consecutive years, beginning from 2004.

The report will have a strong impact on domestic financial institutions and local governments when they decide to lend loans or sell land to these companies.

The 2006 China Top 100 Real Estate Firms Research started in October 2005.

In addition to enterprise scale, development potential, profitability and comprehensive strength, which are the major features studied in 2004 and 2005, an enterprise's financial liquidity and social responsibility are also considered in this year's report.

The results have become one of the important standards for judging the operational strength of Chinese real estate enterprises.

About 50 international financial institutions, including Merrill Lynch, regard this report as an important frame of reference to help them choose investment partners in China.

General outlook

Among the top 100 real estate firms, 29 are located in East China, 29 in North China and 26 in South China.

Compared with the previous year, the number of top 100 real estate firms dropped by 10 in East China, indicating an adjustment of the overheating housing market in the region. However, two more firms were added in North China, and eight more in South China.

Combined sales revenues of real estate firms among the top 100 in the three regions reached 188.34 billion yuan (US$23.4 billion), accounting for 14.26 per cent of the nation's total.

The top enterprises in North China, East China and South China take up 5.78 per cent, 4.51 per cent and 3.97 per cent of the country's market share respectively.

Along with their growing scale, the market share of the top 100 firms as a whole is on the rise.

The total assets scale of the top 100 real estate firms has increased, with the emergence of a number of flagship enterprises.

Among the top 100, seven companies boast assets of more than 20 billion yuan (US$2.48 billion). The combined assets of these seven firms total 203.42 billion yuan (US$25.27 billion), which accounts for 33.45 per cent of the total assets of the top 100.

Through mergers and acquisition, the Beijing Capital Development Holdings Co Ltd has become the largest-scale enterprise, with assets totalling more than 50 billion yuan (US$6.21 billion).

Combined sales revenues of the top 10 firms, in terms of comprehensive strength, reached 68.66 billion yuan (US$8.53 billion) last year, accounting for 5.2 per cent of the nation's market share.

In 2004 and 2003, sales revenues of the top 10 firms stood at 50.55 billion yuan (US$6.3 billion) and 35.68 billion yuan (US$4.44 billion) respectively, taking up 4.87 per cent and 4.65 per cent of the industry's total sales revenues.

Total sales revenues of the top 10 increased 35.84 per cent and 92.45 per cent from 2004 and 2003, a trend showing the increasing influence the top 10 enterprises have on the Chinese real estate market.

Predicting a sustained growth of the industry, most of the real estate firms are actively reserving land resources for future development.

Last year, reserved land area of the top 100 firms reached 402.11 million square metres, with 43 enterprises each having a reserved land area between 1 million and 5 million square metres. Nine enterprises each have a reserved land area of more than 10 million square metres, up from 2003 when there were only five such companies.

Take China Vanke Co Ltd as an example. The company's newly built floor space was 2.6 million square metres last year. At present, it has a reserved land area of more than 10 million square metres, proving that its reserves can sustain development for three years, if the existing developing scale is maintained.

Based on the sufficient land reserves at hand, the top 100 firms reported they are planning to develop projects with a total floor space of 283.13 million square metres in the next few years. Seven companies each have plans for more than 10 million square metres, and another 36 said they have planned floor space between 1 million and 5 million square metres.

Based on their competence in risk control, the top 100 real estate firms showed an incredible profit-making aptitude in 2005.

The average annual return on total assets, return on equity and sales profit rate of the top 100 enterprises during the 2003-05 period were 7.83 per cent, 18.68 per cent and 17.4 per cent respectively, according to the research report.

In 2005, there were 33 firms among the top 100 with a return on total assets of less than 5 per cent. However, 20 enterprises realized a return on equity between 10 and 20 per cent and 38 companies achieved a sales profit rate between 10 and 20 per cent.

The research report also indicates the net profit of the enterprises is rising steadily.

In 2005, 58 per cent of the top 100 realized a net profit of more than 100 million yuan (US$12.43 million), whereas the ratio was 48 per cent in 2004 and 34 per cent in 2003.

On the other hand, the proportion of enterprises with a net profit of less than 100 million yuan (US$12.43 million) was reduced to 42 per cent last year, down from 52 per cent in 2004 and 66 per cent in 2003.

Increased profits strengthened the enterprises' financial liquidity. The average asset liability ratio was 63.84 per cent, 65.67 per cent and 66.35 per cent in 2005, 2004, and 2003 respectively, showing the firms' increasing abilities to pay back loans and to resist financial risks.

As a pillar industry in China's economy, the real estate sector pays more taxes to the State.

The total amount of taxes paid by the top 100 real estate firms reached 19.07 billion yuan (US$2.37 billion) in 2005, according to the research report.

Half of the enterprises each paid more than 100 million yuan (US$12.43 million) in taxes. In addition, there are two companies with a tax payment of more than 1 billion yuan (US$124.3 million) each. Taxes paid by China Vanke Co Ltd even reached 1.4 billion yuan (US$174 million).

Top 10 ratings

According to their indices in scale, growth potential and profitability, the China Real Estate Top 10 Research Team rated the specific top 10s for the top 100 Chinese real estate companies.

China Vanke Co Ltd and China Overseas Land & Investment Ltd stood side by side in the first place of the comprehensive strength rating, followed by Hopson Development Holding Ltd, Beijing Capital Development Holdings Co Ltd, Poly Real Estate (Group) Co Ltd, Guangzhou Henda Group, Dahua (Group) Co Ltd, GreenTown Real Estate Group Co Ltd and China Merchants Property Development Co Ltd and Forte (Group) Co Ltd.

In comprehensive strength, the top 10 firms have some common traits, along with exploring operational modes with their own unique characteristics.

For example, China Vanke focuses its core business on housing development for the common people. Through co-operation with other partners, it has increased its land reserves and increased its marketability.

China Overseas Land & Investment Ltd targets high-end customers in the cities. Its competitiveness comes from continuous innovations and brand building.

Forte Group, however, focuses its operations in Beijing and Wuhan, while China Merchants Property Development Co Ltd has launched 18 projects in nine big cities in China, with a business scope covering high-end office buildings and residential projects geared toward various consumer groups.

Guangzhou Henda has placed its operational emphasis on forging strategic partnerships with other famous-brand companies, as well as controlling costs.

Increasing land reserves through purchasing, government land auctions and co-operation with partners are the common features of the top 10 firms.

Through purchasing and participating in government land auctions, Poly Real Estate's land reserves reached 10 million square metres last year.

With respect to the assets scale, Beijing Capital Development Holdings Co Ltd ranked first on the top 10 list, with assets totalling more than 50 billion yuan (US$6.22 billion), followed by China Vanke, Shanghai Industrial Real Estate, China Overseas land & Investment and Shandong Luneng Estate.

The 10 largest enterprises have combined assets of 186.6 billion yuan (US$23.2 billion), accounting for 38.1 per cent of the total of the top 100 firms.

Their combined sales revenues hit 49.94 billion yuan (US$6.21 billion), taking up 31.63 per cent of the top 100's total.

In addition, their total floor space under construction stands at 29.17 million square metres, which accounts for 33.76 per cent of the total amount of the top 100, and 2.07 per cent of that of the entire industry.

In terms of profitability, China Overseas Land & Investment sits atop the list with a net profit of 1.6 billion yuan (US$198.7 million).

Also among the top 10 are Hopson Development Holdings Ltd, China Vanke, Beijing Capital Land, Forte Group, SOHO China and Nanjing Chixia Development Co Ltd.

The total net profits of the top 10 profitable enterprises reached 6.7 billion yuan (US$832.2 million) in 2005.

Among the 10 most lucrative firms, China Overseas Land & Development, China Vanke, Hopson Development and Poly Real Estate saw their net profits surpassing the 1 billion yuan (US$124.3 million) mark last year. In addition, there are two companies with net profits between 500 million yuan (US$62.12 million) and 1 billion yuan (US$124.3 million), and four companies between 100 million yuan (US$12.43 million) and 500 million yuan (US$62.12 million).

However, the top 10 firms witnessed a decrease in return on equity during the past three years. The ratio in 2005 decreased by 19.27 per cent from 2004, whereas the ratio in 2004 dropped 4.22 per cent from 2003.

A downward trend like this can be mainly attributed to the decrease of the asset liability ratio, meaning that the net profit growth lags behind the even faster pace of net assets increase, according to the research report. In other words, the reduced liability and increased assets indicates the top 10 firms have become less dependent on bank loans, and thus have more channels for fund raising and are more capable in risk control.

With respect to growth potential, Shanghai Industrial Real Estate ranked first on the top 10 list, with 10 million square metres of reserved land and 10 million square metres of floor space under planning.

Beijing Sunshine100 Real Estate Co Ltd, Coastal Greenland Ltd, Shandong Luneng Estate and Jiangsu Xincheng Real Estate are also on the list.

Last year, the revenues of these companies from their staple businesses rose 49.58 per cent on average from the previous year, 31 percentage points higher than the average rate of the other 90 companies.

In addition, their net profits increased 56.01 per cent annually throughout the past three years, which is 27 percentage points higher than the average rate of the others.

Sales revenues of these 10 fast growing companies grew 58.36 per cent annually from 2003 to 2005, nine percentage points higher than the rate of the rest.

Star enterprises

While it didn't make the top 10 lists regarding profitability, assets scale, growth potential and comprehensive strength, a number of the top 100 Chinese real estate firms were also rated as star enterprises by the China Real Estate Research Team, for their unique achievements in operations, brand building, strategic development and marketing.

Some of the most lucrative and creative star real estate companies are developing niche products.

Living a healthy lifestyle is very popular at the moment, so real estate developers have adjusted their marketing strategies and launched a series of environmentally friendly and energy-saving housing projects.

Focusing on the "green, healthy, energy-saving and environmental-friendly" aspects, housing projects developed by Canada LVC International Investments Inc, Beijing Yongtai Real Estate Development Co Ltd and Xiamen Yuzhou Group Co Ltd enjoy great success in the market.

Other developers such as Wuhan Baibuting Group, Shanghai Kaidi Enterprise (Group) Co Ltd, CIFI Group Co Ltd, Beijing Qianyuan Real Estate and Zhejiang Hongrun Holding Co Ltd place special emphasis on market segmentation.

Their tailor-made products have satisfied the demands of targeted customer groups, and increased their market shares significantly.

Researchers found that successful developers attached high importance to local market developments, where they build up their brands and stand creatively at the forefront of the local real estate industry.

Fujian Zhenro Group Co Ltd, Henan Xinyuan Real Estate Co Ltd and Guangxi Orientland Hangyang Group Co Ltd are all such local real estate stars.

With sales accounting for 3 to 5 per cent of their respective local market shares, they are in an advantageous position in market competition.

Ample land reserves are yet another factor for their success, and also ensures their sustainable growth.

Guangxi Orientland Hangyang Co Ltd has a land reserve of more than 5 million square metres, for instance.

Henan Xinyuan Real Estate Co Ltd and Fujian Zhenro Group Co Ltd have also kept land available for house construction, with land reserves exceeding 3 million square metres.

The research report said another trend of the real estate sector is that, while more players from other fields are joining in the industry, even more house developers are extending their operations to a wide range of industries.

On the one hand, hefty profits in the industry attracted other industrial players, including Guangzhou-based Paragon Group, Shanghai Dazhong, Chongqing Loncin and Jilin Yatai, to scramble for the real estate market shares.

Through setting up subsidiaries or teaming up with existing developers, the companies with reliable reputations in other fields have set out to explore the real estate business.

They have capitalized on intangible property, recognized brands, and performed strongly in the real estate industry.

At this breakneck speed, some of the newcomers have succeeded in ranking among top developers, according to the research report.

On the other hand, house builders began to extend their business chains to related industries.

Shenzhen-based Futong Real Estate, Zhejiang-based Golden Shining Real Estate Group, Wuhan Universe Industry Group and Fujian Guanya Group Co Ltd adopted this diversified business strategy.

Backed by their core business - real estate development, they have expanded their businesses to include construction materials, decorations and property management.

The developers, labelled as comprehensive real estate companies, are capable of providing a package of services and products to meet the needs of their customers.

Some developers have gone even further. They explored opportunities in different sectors, such as biological technology, energy and information industry.

Shanghai Sanxiang Group Co Ltd, Powerlong Group Development Co Ltd, Shenzhen Fuchun Oriental Group, and Chonqing Yuneng Industry Group Co Ltd are such versatile players in various industries.

Covering different fields, these companies have more options to hedge particular industrial risks.

Thus they have gained a more balanced growth through integrating diverse operations.

Despite a dropping share in the top 100 list, State-owned developers still play a pivotal role in the industry.

With a longstanding reputation and professional staff, they have increased their competitiveness in the real estate market.

Based on a market-oriented strategy, they have optimized their resources and maintained a leading position in the real estate market.

Xiamen C&D Real Estate Corporation Ltd, Shanghai Urban Construction Group Co Ltd and Shanghai Zhongjian Real Estate Group Co Ltd were cited as examples of an impressive performance among the State-owned developers.

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