Vanke to set up commercial property arm

Developer seeks to diversify amid slump in residential market

Leading Chinese real estate company China Vanke Co will set up a commercial property arm at the end of March, Shanghai-based newspaper China Business News (CBN) reported Monday.

Ding Changfeng, head of Vanke's commercial property business, said the company will build a commercial property brand and establish a series of unified standards for the business, according to the report.

Meanwhile, the staff who work for commercial property business will be organized into one team rather than being scattered across different branch offices, he noted.

Vanke, which has focused on residential property development, reported sales revenue of 215.13 billion yuan ($34.6 billion) for 2014, a 25.9 percent year-on-year growth, according to a filing to the Shenzhen Stock Exchange in early January.

The new figures also show that Vanke has lost its leadership position in the market to Greenland Group, Beijing Times newspaper reported on January 9.

The Chinese home market is cooling down. A report by China's National Bureau of Statistics, which monitors 70 large and medium-sized cities, Sunday showed that 66 cities saw their new home prices drop in December 2014 from the previous month.

Moreover, Ding also admitted that it is not easy to find suitable land solely for residential use, the report said.

Expansion into commercial realty will help the company in its listing, Li Zhanjun, research director of the Shanghai-based E-house China R&D Institute, told the Global Times Monday.

Ding was quoted by the CBN as saying that he has consulted several investment banks for advise on Vanke's commercial property arm with a potential future listing in mind.

Commercial property business is not as profitable as it used to be in the previous years, but there is still some opportunity for Vanke, Hui Jianqiang, research director with real estate information provider Beijing Zhongfangyanxie Technology Service, told the Global Times Monday.

The total transaction revenue of the Chinese commercial property market stood at 106 billion yuan in 2014, down 27 percent from 2013, the Xinhua News Agency reported on Thursday, citing a research report from real estate consultancy Jones Lang LaSalle.

Vanke started building commercial property, such as shopping markets, as part of its residential communities three years ago, and it may continue the trend, Hui said.

Li agreed with Hui and said that Vanke's combination of commercial realty with residential communities reduces its exposure to the problems faced by the off-line retail sector under the impact of e-commerce boom.

"The risk could be less than that of Wanda Plaza," said Li, noting Wanda has commercial properties in downtown areas which are hit by the slump in the retail industry.

There is an oversupply of commercial properties in city centers, while a growing number of people are moving to suburbs which offer a new potential market, according to Hui.

Vanke has 25 shopping centers across China, including those in operation, under construction and in planning, the CBN report said, noting the total investment reached 20 billion yuan.

According to the report, Yu Liang, president of Vanke, said in September 2014 on the occasion of the company's 30th anniversary, that Vanke will pursue a asset-light business model in commercial property development.

The asset-light business model appears to be popular in the industry.

Hong Kong-listed Dalian Wanda Commercial Properties Co also said it will rely less on asset ownership in the future.

Less reliance on ownership means that property developers are reducing or winding up investment in projects, though they are still involved in construction and operation of properties.

Vanke has started cooperation with international investors on commercial property development.

The company and global private equity firm Carlyle Group has reportedly signed a memorandum of understanding in August 2014, planning to set up a joint venture which will acquire some of Vanke's commercial properties through asset or share acquisitions.

Only with global investment, can Vanke find a future path for its commercial property business and Vanke is in discussion with many international investors, Ding was quoted by the report.

Vanke cannot be reached for comment by press time.