Behind China’s Latest Property Boom: Doormen and Gardeners - Jonathan Cartu Industrial & Residential Real Estate Firm
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Behind China’s Latest Property Boom: Doormen and Gardeners

Behind China’s Latest Property Boom: Doormen and Gardeners


Investors have seized on another way to profit from China’s huge housing market: snapping up stocks in the companies that take care of apartment complexes and help residents with child care, groceries and repairs.

The rally in property-management companies contrasts with difficulties in China’s far bigger real-estate-development industry, which has suffered as the pandemic disrupts sales and authorities take a tougher stance on debt. Measured by floor space, residential sales in the first eight months of 2020 were down 2.5% from a year earlier, official figures show.

A Refinitiv index of real-estate-services stocks listed in Hong Kong has gained nearly 66% this year through Tuesday, while a broader real-estate index that includes many mainland Chinese developers as well as some Hong Kong property companies has tumbled 16%.

Leif Chang, an analyst at Nomura, said sentiment toward property managers had been buoyed by better-than-expected earnings and their tapping new sources of income—reducing reliance on their parent companies, the big developers. The coronavirus pandemic also increased demand for stocks with records of fast growth, he said.

Investors worry about developers’ debts, and whether authorities might impose restrictions such as controls on prices or sales, said Lung Siufung, an analyst with CCB International Securities. “The service providers are largely immune from such risks,” he said.

Property-services companies’ rising stock prices reflect not just their growing sales and profits, but investors’ willingness to pay higher multiples: The stocks now trade at roughly 20 to 30 times expected earnings, up from 10 to 20 times a year ago, said Mr. Lung.

Shares in Country Garden Service Holdings Ltd., China’s largest property-management company by market value, have surged 97% in the year through Tuesday, lifting its market capitalization to the equivalent of $18.4 billion.

China’s property managers oversee a gross floor area exceeding 9,200 square miles—bigger than New Jersey—according to a listing prospectus for Evergrande Property Services Group Ltd. They offer “butler services”—essentially doormen and doorwomen—as well as cleaning, security and gardening for common areas of apartments, offices, theme parks, schools and other buildings.

For developers, they sometimes manage construction sites and sales offices. They have also branched into newer areas, such as providing charging stations for electric cars, helping property owners resell apartments, selling advertising space in lobbies and elevators and organizing cultural activities like art classes for children.

Larger property managers have recently been able to grow sales by 40% to 50% a year, said Raymond Cheng, an analyst at CGS-CIMB Securities. He said they benefited as their parent companies completed new homes, giving them a bigger portfolio to service.

In addition, they are pushing into businesses with higher profit margins, such as organizing group purchases of groceries, Mr. Cheng added. “The sector has really evolved,” he said.

Mr. Cheng and others also expect a wave of deals to fuel growth.

“We think the biggest driver for this sector is mergers and acquisitions,” said William Shek, the chief distribution officer of Zeal Asset Management Ltd., a Hong Kong-based hedge-fund manager. Mr. Shek said the 100 biggest companies make up less than half the market, leaving lots of room for quick growth through consolidation.

The positive reception for property-management companies is welcome for indebted real-estate company

China Evergrande Group,


EGRNF -48.37%

which recently suffered violent swings in the prices of its stock and bonds. Evergrande is preparing to list its Evergrande Property Services subsidiary in Hong Kong, where it would join several competitors backed by other Chinese real-estate groups.

Evergrande isn’t the only developer rushing to cash in on a hot market. Subsidiaries of

Sino-Ocean Group Holding Ltd.

,

Sunac China Holdings Ltd.

and

Shimao Group Holdings Ltd.

are among others that have also filed listing prospectuses in the city.

Nomura’s Mr. Chang said Evergrande is likely to sell some existing shares when the unit goes public, and could raise about 20 billion Hong Kong dollars, the equivalent of $2.6 billion, improving its debt ratios. Evergrande didn’t respond to a request for comment.

Write to Xie Yu at [email protected]

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