China’s Largest Developers, Vanke and Wanda, Team Up

(WSJ) China’s largest property developers, China Vanke Co. and Dalian Wanda Group, are looking to combine forces in the country’s property market, as a slowing economy and narrower profit margins prod builders to pool resources with rivals.

Vanke, the country’s largest residential property developer by sales, and Wanda, the country’s largest mall builder by volume, said Thursday they have signed a preliminary framework agreement to explore business opportunities together. As part of that, the companies are setting up a joint team to look at buying land and developing projects, with Vanke developing the residential portion and Wanda the commercial side, both firms said in a joint statement issued from Beijing.

Existing projects currently under development separately may be brought into the cooperation on a case-by-case basis, the statement said.

If the combination comes to pass, it would bring together two giants in a property sector that is grappling with a glut in housing and commercial space. Smaller property developers have been doing joint ventures with their peers in recent years, in part to share the costs of loans and risks, as policy makers tightened up financing channels for builders in a bid to rein in speculation.

“Ever since the Chinese property market entered a phase where demand and supply reached equilibrium, developers needed a new line of thinking and a new model,” Wang Jianlin, the billionaire who controls Beijing-based Wanda, said in the statement. Mr. Wang said the partnership will help Wanda “accelerate its asset-light strategy”—meaning it is looking to own fewer properties.

Wanda Group, whose annual income in 2014 reached 242.5 billion yuan ($38.8 billion), is known for its 109 Wanda plazas across China. It has two property units listed on the Hong Kong stock exchange, Dalian Wanda Commercial Properties . Co. Ltd., and Wanda Hotel Development Company Ltd.

Shenzhen-based Vanke, whose annual property sales reached 212 billion yuan in 2014, operates in more than 60 Chinese cities, and is listed in both the Shenzhen and Hong Kong stock markets. Its chairman, Yu Liang, said in the statement that with the growth of e-commerce and demographic changes “the traditional housing and commercial property businesses will find it harder to satisfy customers’ needs.”

Chinese property developers have been battling a real-estate downturn that started in 2014. Housing sales fell 7.8% last year, dragging down construction starts and slowing growth in real-estate investment. While there have been some nascent signs of improvement in housing sales last month, property developers are still wary about taking on new projects, especially in smaller cities that saw heavy overbuilding.

Source: Wall Street Journal by Esther Fung