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| Industrial Real Estate: “Oasis” under Macro Control |
June 12, 2007 |
| In the new round of industrial integration and macro control, while residential and commercial real estate project will suffer, listed companies engaged in industrial real estate will be worth investing in. In recent years, China tightened its macro control over industrial land use, which is most evident in this year’s requirement that all industrial land be granted only through bidding, listing and auction. Relevant regulations and circulars will deter local governments from low-price land transfer, and make the granting of land more regulated and market-oriented. This, on the one hand, will offer opportunities for capable and willing enterprises to engage in industrial real estate development; on the other hand, the scarcity of industrial land resources will drive up industrial land prices, which will lead to evidently incremented values of listed companies possessing large quantities of industrial land. Emerging Investment Value With the Government’s macro control over the real estate industry, residential and commercial projects will take a certain extent of impact, yet industrial properties are worth special attention, because of its unique method of operation. Listed companies engaged in industrial properties will be worth investing in. Before the new policy, strong demand had long been dramatically driving up the average price of land for residential and commercial use. Prices of industrial land, in contrast, had remained largely stable, because the bulk of industrial land was granted by agreement. This had stabilized supply of industrial land, facilitated the development of industrial projects and contributed to regional economic development. However, the granting of land through agreement and its low prices also bring some problems. In order to attract investment and boost local economy, some local governments grant land for extremely low prices or for free, which resulted in “enclosure movements”. Some developers would find ways to change the purpose of the acquired land, i.e. turn it into commercial land, in order to reap highly incremented value. Relatively Stable ROI Like commercial real property, industrial real property can secure a relatively stable return on investment, yet with lower costs. This might explain its rapid development. Currently in provincial and national development zones, profit and loss are generally the responsibility of developing enterprises. To conform to the overall plan and environmental standards, the management of a development zone usually signs a long-term partnership agreement with one of the enterprises in the zone. This kind of agreement, though not necessarily exclusive, grants the signing enterprise certain priorities in land development, public utilities and road construction. Thus the development of industrial parks is regionally specific and is posing higher barriers to entry. Therefore, considering the development model of industrial real estates and the features of listed Chinese real estate firms, we mainly looked into companies emerged from and mainly engaged in the development of industrial zones, including primary land development, real estate development, industrial property leasing, supportive facilities and services, etc. In terms of the operation, financial data show that industrial real estate firms have fewer inventories, less deposit received and mediocre profitability; yet their asset turnover rate, solvency and cash flow are advantageous. Industrial real estate companies have long been considered as service providers in industrial zones; with the development of industrial zones, developers are gradually engaged in both services and properties. Considering the development and profit model of industrial real estates, as well as the overall valuation of real estates, we suggest that investors focus on listed companies including Tianjin Xinmao Technology Co., Ltd. （000836）, Beijing Airport High-Tech Park Co.,Ltd.（600463）, TianJin Hi-Tech Development Co.,Ltd.（600082）, Jiangsu Dagang Co.,Ltd.（002077）, Shanghai Zhangjiang Hi-tech Park Development Co., Ltd（600895）, and Winsan (Shanghai) Industrial Corporation Ltd.（600767） Yang Xingfeng, Niu Jizhong at Tian Xiang Investment Consulting Co. http://news.xinhuanet.com/house/2007-06/12/content_6229216.htm |
China Industrial Real Estate Club Address: Room 803-811 Oriental Plaza No.1500 Century Avenue Pudong 200122 Shanghai China Tel: +86 21 68407631 Fax:+86 21 68407632 Email:info@cireclub.com Web: www.cireclub.com Summit Web: www.ciresummit.com |