A combination of factors including property cooling measures and competition for land are forcing smaller developers out of the industry.
Citigroup Inc expects a huge wave of consolidation within China’s real estate industry as big property developers swallow up rivals as well as their land at a record pace, reported Bloomberg.
The local governments’ property cooling measures, tight credit and competition for land may be forcing smaller developers to leave the industry.
Based on Bloomberg data, a record 96.7 billion yuan (S$19.7 billion) was spent by developers on acquiring competitors or their assets in the second quarter. The 55.1 billion yuan (S$11.22 billion) acquisition by China Vanke Co of Guangdong International Trust Investment Corp’s real estate assets emerged as the country’s biggest land deal.
The buying frenzy comes as the country’s 10 biggest developers are poised to raise their joint share of sales from last year’s 20 percent to 28 percent in 2017.
In fact, aggressive firms like Sunac China Holdings Ltd, Country Garden Holdings Co and China Evergrande Group are expected to push that share to as much as 35 percent before 2020, said Citigroup analysts Marco Sze and Oscar Choi.
“Slimmer profits on home sales and ever-climbing land prices will keep squeezing smaller developers out of the industry,” said Le Jiadong, an analyst at Shanghai-based Guangfa Securities Co.
“Even amid buoyant sales in lower-tier cities, some small builders are choosing to sell their entire assets – and leading players are seizing the chance for further landbank acquisitions.”
Developers’ acquisition of rivals or their assets for this year is on track to surpass the 188 billion yuan (S$38 billion) registered in 2016.