Sunac Buys Land in Beijing, Shanghai for $1.83 Billion

Sunac China Holdings, one of the country’s biggest property developers, agreed to pay rival Oceanside Holdings 12.5 billion yuan ($1.83 billion) for two parcels of land in Beijing and Shanghai.

The cash deal will be one of Sunac’s biggest acquisitions in years. The company’s Sunac Real Estate unit will acquire 100% of Oceanwide Construction Holdings, a unit of Shenzhen-listed Oceanside.

Oceanwide Construction’s main assets include 752,000 square meters of land in northeast Beijing’s Central Business District and 120,300 square meters in Shanghai’s Huangpu District. Both plots are for residential and commercial development, the companies said Monday.

Hong Kong-listed Sunac said the deal will further expand the company’s land reserve and market share in Beijing and Shanghai urban areas.

Last year Sunac paid 43.84 billion yuan for 13 theme parks and related developments from debt-ridden conglomerate Wanda Group. In October, Sunac paid a further 6.28 billion yuan for 100% of Wanda Cultural Management to help with planning, design and construction management for the 13 theme parks.

Sunac stopped purchasing land directly in local government auctions in mid-2016 after Chairman Sun Hongbin warned of the risks of excessively high land prices. Sunac has since turned to mergers and acquisitions to build its land and project reserves to better control costs. Company executives including Sun have reiterated that Sunac would focus on reducing debt in coming years.

According to Hua Chuang Securities, Sunac obtained 75% of its land reserves from mergers and acquisitions in 2017, up from 14% in 2014. Meanwhile, the ratio of the company’s land purchase costs to average sales prices declined from 0.45 to 0.23.

Sunac’s prudent approach to land acquisition reduced risks for its cash chain and will support sales growth of more than 25% annually between 2019 and 2021, Investment bank China International Capital Corp. said in a report.

Oceanwide bought the Shanghai plot in 2002 and has yet to complete demolition on part of the land, according to media reports. Rising real estate prices in Shanghai have increased developers’ costs for demolition, while the government’s controls on new residential housing have narrowed developers’ profit margin, a Shanghai property market analyst said.

Oceanwide said in a statement that the land sales will help the company reduce debt and alleviate pressure on its capital chain. Housing market controls in Beijing and Shanghai slowed the company’s ability to cash in from such projects, Oceanwide said.

Oceanwide posted net profit of 696 million yuan in the third quarter, down 27.3% from the same period a year ago. The company’s short-term debt rose 37.5% during the quarter. For the first 11 months of 2018, Oceanwide reported a net loss of more than 10 million yuan, compared with a net profit of 3 million yuan in 2017.

Analysts project a further slowdown of investment and sales in China’s property market this year amid the cooling economy. Although the government’s credit-easing measures are expected to improve liquidity for developers, the central government will be unlikely to ease nationwide property policies significantly, analysts said.

Contact reporter Han Wei (weihan@caixin.com)