Dongguan in South China's Guangdong Province has been considered as the "world's factory" for decades due to its immense industrial bases that produce everything from clothing to electronics. According to recent media reports, however, several financially strained manufacturers in the city have abandoned their production lines to target a new business opportunity - real estate.
Daniel Luo said he made a good decision two years ago when he invested about 2 million yuan ($299,459) in an e-commerce industrial park in southern Dongguan in South China's Guangdong Province.
Luo, the general manager of Dongguan JD Leather Goods Co, teamed up with four local businessmen to purchase the 20,016-square-meter industrial property. The partners, who had all been in the manufacturing business prior to the deal, renovated the property into a new e-commerce park with more than 100 offices available to lease.
"Because land prices here have risen about 20 to 30 percent [year-on-year] in recent months, the rental fees would also increase," Luo told the Global Times on Sunday, noting that establishing the park is a profitable deal.
Dongguan, known as the "world's factory," is home to thousands of original equipment manufacturers and original design manufacturers. However, the manufacturing hub has suffered a spike in factory shutdowns since 2014 due to the economic downturn, according to media reports.
In total, 268 large enterprises - those with annual revenue above 20 million yuan - closed or went bankrupt in 2015 due to the economic slowdown, Xu Jianhua, the city's Party chief, said at a local press conference in February.
Many local enterprises have been getting into new businesses to stay afloat. Some have moved into new industries, such as the real estate, which has grown especially popular because property prices have surged since the beginning of 2016.
One factory owner, surnamed Tang, recently purchased four investment properties because his lighting component production lines were hardly generating any profit, the Hong Kong-based news website on.cc reported on August 20. "Declining orders and rising labor costs forced me to shut down my factory, but luckily I had bought several properties," he was quoted as saying.
Booming housing market
About 40 kilometers from Shenzhen, Dongguan has a geographic advantage to attract more home buyers, Lu Jing, deputy chief of the research office at the China Index Academy, told the Global Times.
"Considering the stricter restrictions on home purchase in Shenzhen, in addition to the surging home prices there, more buyers have flocked to nearby cities like Dongguan," she said.
The Shenzhen government announced on March 26 that it had raised the minimum down payment for mortgages on second homes to 40 percent from 30 percent. It also created a more stringent definition for local residents who qualify for unrestricted home purchases.
"The implementation of these policies to curb housing demand has boosted the housing markets in neighboring cities," Lu said.
In the first half of 2016, the total investment in Dongguan's housing market jumped 19.5 percent year-on-year to 29.6 billion yuan, according to the local bureau of statistics.
Meanwhile, the value of sold commercial properties soared 80 percent from the same period in 2015 to 74.6 billion yuan.
Consequently, local property developers have been at each other's throats to secure land rights at auction over the last few months.
On August 4, Beijing-based PKU Resources won a 9,570.57-square-meter commercial and residential property in Dongguan's Zhangmutou district for a bid of 13,298 yuan per square meter, according to domestic news portal qq.com.
The deal was ranked as Dongguan's second highest in terms of the bid, just behind China Vanke, which won a land auction in the city with a bid of 15,243 yuan per square meter in 2007.
Guangdong-based real estate developer Country Garden announced that it had bought a 323,493-square-meter property in Dongguan for 1.3 billion yuan from Chuang's Consortium International Ltd and Chuang's China Investments, according to a company filing published Sunday night on the website of Hong Kong Exchanges and Clearing Limited.
Dongguan has been stepping efforts to destock unsold properties over the last few years, and its property inventory volume has largely come down in the first half of 2016, yet demand continues to grow, driving up home prices, Yan Yuejin, research director at E-house China R&D Institute, told the Global Times on Monday.
The average transaction price for property in Dongguan reached 14,794 yuan per square meter in July, up about 38.2 percent compared with that in July 2015, according to the data from E-house.
Following the rising land and home prices in the city, the monthly rental fee in the e-commerce park is estimated to increase by about 200,000 yuan in 2017 from this year's 560,000 yuan, noted Luo, the general manager of the leather company.
More property buyers?
Not all manufacturers have been lured by the profitable property projects in Dongguan, particularly after signs of a recovery in manufacturing emerged at the beginning of 2016, said Zhang Xilin, CEO of Guangdong LianYing Furniture Co.
"After setting up an online platform for our furniture factory, we recorded an online sales volume of 36 million yuan from January to July. The figure surpassed sales for all of 2015," Zhang told the Global Times on Sunday.
Zhang said he intends to expand production by 50 percent and expects growth will surpass 100 percent this year. "I don't plan to invest in real estate like some other local businessmen because my factory is doing well."
The owners of small- and micro-sized factories are more likely to invest in property to offset losses in producing garments and electronics, but large manufacturers have seen stronger growth in the first six months of 2016, analysts said.
"As rising labor and land costs are both weighing on performance, some factory owners may decide to turn to a more profitable sector," Lu said.
Large enterprises recorded an industrial output of 59.96 billion yuan from January to June, up about 13 percent on a year-on-year basis, the Guangdong-based news website southcn.com reported in July, citing the local government data. Medium-sized enterprises recorded industrial output of 39.1 billion yuan, up 0.5 percent from the same period in 2015.
However, small- and micro-sized companies saw their industrial output fall 1.6 percent year-on-year to 28.77 billion yuan, according to southcn.com.
As the numbers of unsold properties in Dongguan continue to fall and demand continues to grow, home prices are expected to keep risings in the second half of 2016, Yan said.
"Considering how low profit margins are for some small manufacturers, investing in real estate might be a feasible way for them to transform their businesses," he said.
