China's Property Developers
Rush to Grab Limited Land

HONG KONG -- The Chinese real-estate market has been souped up for years. But lately it has been going into overdrive.

Chinese property developers are racing to fill their war chests -- and empty them again -- as competition for the best remaining land intensifies and real-estate prices soar in China's booming cities. Even as the Chinese government moves to restrict bank lending to property developers, companies are finding ample sources of capital through bond issuance and stock listings in Hong Kong and Shanghai.

The capital infusion is sparking an industry consolidation as the more powerful developers devour their smaller rivals. For example, Beijing-based SOHO China spent $300 million of its recently raised $1.65 billion on two high-end properties in Beijing and in the process swallowed the two developers that owned them -- Beijing Yeli Real Properties Development Co. and Beijing Millennium Real Properties Development Co.

So far this year, mainland property companies have raised $12.9 billion in initial and follow-on stock offerings in Hong Kong, Shanghai and Shenzhen. That is nearly triple the amount raised a year earlier. It is more than 12% of the total $103.8 billion drummed up in all Chinese company listings on the three markets this year, nearly double the 6.4% proportion of last year, according to data tracker Dealogic.

Some experts are concerned the market is overheating. "We like to see more disciplined growth," said Bei Fu, an associate director of corporate ratings at Standard & Poor's in Hong Kong. She said many real-estate investors feel now is their chance to become national players. "The next three to five years -- that's their window, their do-or-die time."

The developers are lured by the ready capital of China's eager stock investors but also are racing to stay ahead of the government's efforts to curb the market. Beijing has tightened bank lending this year and also restricted land purchases across the nation to cash-only transactions. That rule closed a door to smaller developers that were loading up on debt to purchase land beyond their means, further inflating property prices.

Most of the government's administrative measures appear to be clearing out the little guys in favor of their better-capitalized rivals. The new mindset that is quickly gaining currency among China's developers: Bigger is better.

Many of the country's jam-packed field of 50,000 or so developers are tiny operators that own a patch of land or two but have little capital with which to develop it. Some of these companies run out of money during construction, leaving properties for regional developers to pounce on as they aspire to transform themselves, overnight, into dominant brands. SOHO China is a prime example of a company taking advantage of market consolidation. Although it has confined its purchases so far to the nation's booming capital, Chief Executive Officer Zhang Xin said in a recent interview that the developer was "actively looking" for potential acquisitions in other cities.

In September and October, two developers -- Beijing-based Sino-Ocean Land and Guangzhou-based China Aoyuan Property Group -- joined the crowd, raising an additional $2 billion in Hong Kong public listings alongside SOHO China's. Last week, Zhongan Real Estate Development, based in the coastal province of Zhejiang, beside Shanghai, added to the parade of IPOs. Zhongan raised $464 million on the Hong Kong Stock Exchange in one of the smaller offerings this year.

Next, a whole train of mainland developers that are listed on the Hong Kong exchange are looking into follow-on listings in Shanghai. They include Guangzhou R&F Properties, Beijing Capital Land and Shanghai Forte Land. Some of Hong Kong's deep-pocketed real-estate giants are getting in on the action as well, with Sun Hung Kai Properties making a $1.4 billion share placement late last month to bolster its mainland-China property development.

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