LVGEM (China) real estate (00095) currently takes root in the Pearl River Delta region, and focuses on Shenzhen as the core of development. The Group originally scheduled to sell two new projects in Shenzhen in the fourth quarter of this year, but it hit the “930 control policy”, the Group decided to postpone the sale of the project.
LVGEM Chief Executive Officer Tang Shouchun (left) said that next year the company will relaunch the sale of Shenzhen projects. On the right is Executive Director Deng Chengying. (Photo by Yuan Zhihao)
Tang Shouchun, executive director and chief executive, said the property market sentiment was “quiet for a short time” and the company would consider a re-launch next year. In addition, the Group expects to increase the proportion of commercial property account for half of the profits in the long term, while continuing to seek investment in oversea assets.
Shenzhen Futian’s “Mangrove Luxury Garden” and “Hongwan Garden” projects were originally scheduled for launch this year to improve the Group’s contract sales, but the Shenzhen local government intervened, the company decided to wait and see the market conditions and delayed the sale of new project. Deng Cheng-ying, executive director, said the market reaction after the introduction of the policy was “relatively quiet”, the company believed that it should first fully understand the policy and then consider relaunching sale.
In October Shenzhen added “spice” for property market, increasing the proportion of down payment substantially. Down payment proportion was increased to 50% for home buyers with no house ownership but with mortgage record; the proportion was up to 70% for 2nd home buyers; for home buyers without Shenzhen hukou, they need to have paid for social welfare for five years (was three years previously), and could only purchase one suite.
Tang Shouchun pointed out it was a rational choice for real estate company to reschedule timing of sale. Since the company’s current cash flow is abundant, delayed sales do not affect the company’s capital position. He added that the demand for “getting on the bus” in Shenzhen was very strong. “Even if it is quiet, it is still frenzied compared with other cities in the Mainland.” He said the Group remained optimistic about the Shenzhen market. The market sentiment is only “temporary quiet”, the company will consider re-launch projects in the first half of next year.
LVGEM’s main source of land bank was from the parent company’s 12 million square meters of urban renewal projects. It was expected to be sufficient for development for the next five to eight years. In the future, means of acquiring land depends on the parent company’s injection, followed by mergers and acquisitions of project company, and the company does not rule out land auction as a way to increase a small amount of land bank.
It was expected that commercial real estate will account for 50%
As of the end of June this year, commercial property investment and operation accounted for about 10% of LVGEM’s pre-tax operating profit. Tang Shouchun said the group targeted to have residential and commercial real estate development both, to bring stability to the company income, “with the launch of urban renewal project in the future, and projects are mostly located in Shenzhen’s core areas, we will retain the commercial parts.” He expects commercial real estate assets and earnings to increase to 30 to 50% in four to eight years.
Last month, the company announced an issuance of 100 million US dollars in convertible bonds. Tang Shouchun said that the current foreign debt accounted for only about 6%, in the next one to two years it will be controlled at 10% level. But it does not rule out if there is better investment opportunities abroad or the company might adjustment foreign debt ratio.
Continued to identify overseas investment projects
In March this year, LVGEM acquired Hong Kong’s Lau Fau Shan Deep Bay Road project, and proposed a construction of 116 low-density villa. Also in Hong Kong last month the company completed the acquisition of Zhuhai Science and Technology Park project transactions, Tang Shouchun pointed out next year the company plans to increase efforts to identify small and medium-sized projects for investment in Hong Kong and the United States.
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