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Country Garden targets 1 million rental apartments, acquisition of smaller peers

Country Garden Holdings Co. Ltd., China's largest property developer by sales, said the company is aiming to build 1 million rental apartment units in China in the next three years.

The Chinese government has been strongly encouraging the development of rental apartments since late 2016 as a way to increase new housing supply in the big cities and curb overheated home prices.

Wu Bijun, Country Garden's CFO, told reporters at a media briefing Feb. 2 that the company's rental housing construction plan is a response to the government's call for more of such developments.

While admitting it is not easy to make a profit from the residential leasing market because of low yields, she said the central government is determined to support the development of the sector.

"The government is reviewing how it can provide beneficial policies for the sector, including making financing avenues [easier to obtain,]" Wu said, adding that since some Chinese cities now allow the development of rental housing projects on rural collectively owned sites, land costs could be cheap enough to an extent to be "ignored" as a burden the company needs to shoulder.

Additionally, Country Garden raised a significant HK$23.4 billion from a placement of 460 million shares and the issuance of convertible bonds in Hong Kong earlier in January.

To eliminate market concerns, Wu stressed the company has sufficient cash on hand after a strong sales performance last year, with its cash collection ratio reaching 90%. The cash collection ratio of a property transaction refers to the difference between the monetary figures stated on a contract and the actual amount transferred to the developer.

The company achieved contracted home sales of 550.80 billion yuan for full year 2017, up from 308.84 billion yuan recorded in the previous year.

Wu said the reason for the share placement and bond issuance is for the company to make sure it has adequate cashflow for the potential acquisition of cash-strapped smaller developers, and land and property projects that they own.

"As China escalates its deleveraging reforms, the domestic credit environment is tightening quickly. We expect many mid- and small-sized companies may face liquidity problems in 2018," Wu said.

In this way, Country Garden would be able to secure its land bank at a lower cost, which is part of its land acquisition strategy for 2018, Wu added.

As of Feb. 1, US$1 was equivalent to 6.30 yuan.