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Zhuhai state-owned assets have made big moves in acquiring and storing existing commercial housing.

On August 9, Huafa Group (SH600325, share price 6.03 yuan, market value 16.595 billion yuan) announced that the company plans to cooperate with Zhuhai Huafa Group Co., Ltd. (hereinafter referred to as Huafa Group) or its subsidiariesCarry out trading business of existing commercial housing and supporting parking spaces (including housing that meet the pre-sale conditions, collectively referred to as "existing commercial housing"), with the total transaction amount not exceeding RMB 12 billion.The acquiring entity of this acquisition is Huafa Group or its subsidiaries, and Huafa Group is the controlling shareholder of Huafa Group and an affiliated party. Therefore, this transaction constitutes an affiliated transaction.

A reporter from the "Daily Economic News" (hereinafter referred to as the reporter or reporter) noticed that affected by the news, Huafa Group's share price rose by more than 6% at the opening today (August 12), and fell back to the flat price in the late trading, closing at 6.03 yuan per share, with a total market value of 16.595 billion yuan.

Source: Huafa Group Announcement

The transaction amount does not exceed RMB 12 billion

According to the announcement, the acquiring entity of this transaction is Huafa Group or its subsidiaries, and the transaction amount will not exceed 12 billion yuan.

According to public information,The shareholders of Huafa Group are Zhuhai State-owned Assets Supervision and Administration Commission and Guangdong Provincial Department of Finance, which hold 93.51% and 6.49% of the shares of Huafa Group respectively.As of March 31, 2024, Huafa Group's total assets were approximately RMB 752.83 billion, total liabilities were approximately RMB 577.08 billion, and net assets were approximately RMB 175.75 billion; in the first quarter of 2024, Huafa Group achieved operating income of approximately RMB 36.03 billion and net profit of approximately RMB 1.38 billion.

The transaction methods include but are not limited to direct sale of commercial housing and sale of equity in real estate project companies. As for the price determination method, the final transaction price will be determined and a formal contract will be signed based on the asset appraisal report issued by an asset appraisal company with relevant qualifications.

"This transaction is to actively respond to the work deployment of the Third Plenary Session of the 20th CPC Central Committee on 'accelerating the establishment of a housing system that promotes both renting and purchasing, and accelerating the construction of a new model of real estate development', and to help Zhuhai accelerate the structural reform of the housing rental supply side and build a new housing pattern that promotes both renting and purchasing."

Regarding the purpose and impact of the acquisition of existing commercial housing, China Resources Land said that it will have a positive impact on the revitalization of the company's existing assets, sales and cash flow growth, and is in line with the company's development strategy and the interests of all shareholders.

Regarding the collection of commercial housing for use as affordable housing, a relevant person in charge of the Zhuhai Housing and Urban-Rural Development Bureau said in an interview with the media that relevant policy documents and implementation details are being formulated, and any progress will be announced to the public in a timely manner.

"By actively responding to the national policy of destocking and purchasing existing houses as affordable housing, Huafa Group can send positive market signals to the outside world and improve its profitability at the same time."Li Yujia, chief researcher of the Housing Policy Research Center of the Guangdong Provincial Institute of Urban and Rural Planning, said in an interview with a reporter from the China Business Network today that Huafa Group, as the listing platform of Huafa Group, plays a vital role in the implementation of the group's overall strategy.

Li Yujia believes that through this acquisition,Huafa Group is able to achieve multiple goals, including destocking market inventory, easing capital chain tension, and assuming public functions.The support of major shareholders is crucial to listed companies. This strategy of "keeping the wealth within the family" can not only enhance the market competitiveness of Huafa Group, but also strengthen its capabilities in the leasing platform.

Song Hongwei, research director of Tongce Research Institute, believes that this move by Huafa Group is an obvious related business, which has the component of transferring cash flow and will have a certain impact on the future strategic development of the company and investor returns.From the perspective of existing housing, the operating yield is relatively low, and for secondary sales, the sales cycle is relatively long and there is a certain degree of uncertainty.

Previously, the existing properties were transferred to Zhuhai Anju Group

In fact, in terms of the collection and processing of existing housing, Huafa Group, backed by state-owned assets, has been at the forefront of the industry in recent years.Since the beginning of this year, China Resources Land has launched a commercial housing “old for new” program in Zhuhai and East China.

According to the reporter, in Zhuhai, Huafa Group and Beike launched a new model of "helping to sell + direct purchase" in May this year. At that time, more than 1,000 Beike brokers learned the new dual model of "trading old for new" on site and signed a military order. In the East China region, Huafa Group implemented the innovative model of "direct acquisition by state-owned enterprises", directly purchasing houses, and linking up with about 1,000 intermediary stores, giving priority to helping to sell throughout the city, and a professional team to evaluate, follow up and provide services.

According to Huafa Group, since the implementation of the "old for new" policy in January this year, Huafa has carried out a new direct purchase model of "old for new" in the first four months, which has attracted the attention of more than 20,000 homeowners. More than 2,000 groups of customers intend to participate in the replacement activities, and more than 350 families have taken the lead in joining the ranks of old for new.

Regarding the old houses that have been recycled, a person close to Huafa Group said in an interview with a reporter from China Business News:Taking Zhuhai as an example, the recovered old houses can be sold or used as long-term rental apartments, depending on the specific conditions of the recovered old houses.For various considerations, Huafa Group established a wholly-owned subsidiary to undertake related transactions.

The reporter learned that Zhuhai Huaben Investment Co., Ltd. (hereinafter referred to as Zhuhai Huaben), a wholly-owned subsidiary of Huafa Group, is mainly engaged in the "old for new" housing acquisition work.So far,Zhuhai Huaben established 75 wholly-owned subsidiaries and acquired a total of 79 residential properties.As of July 25 this year (audited), Zhuhai Huaben’s total assets were approximately RMB 320 million and its net assets were approximately RMB 260 million; its operating income was RMB 0 and its net profit was RMB -58,100.

Source: Huafa Group Announcement

On July 31, Huafa Group announced that its wholly-owned subsidiary Zhuhai Huafa Asset Management Co., Ltd. (hereinafter referred to as Huafa Asset) intends to transfer 100% equity of its wholly-owned subsidiary Zhuhai Huaben.The existing real estate under Zhuhai Huaben was transferred to Zhuhai Anju Group for a transfer price of 266 million yuan.The counterparty of this transaction intends to pay the equity consideration in cash. After the transaction is completed, Huafa Asset will no longer hold the equity of Huaben Company.

According to data from China Index Academy, in the first seven months of 2024, Huafa Group's sales revenue was 53.61 billion yuan, ranking 11th in the industry; the equity sales amount was 35.88 billion yuan, also ranking 11th in the industry.

Faced with downward pressure in the real estate market, Li Yujia believes that Huafa Group needs to effectively manage the repayment of maturing debts and the delivery of projects to ensure the stability of the capital chain.“By achieving sales and recovering funds, Huafa Group can better promote its land acquisition activities in Zhuhai and across the country, while maintaining its brand and market credibility.”

Song Hongwei believes that the real estate markets in various cities are facing great pressure in the second half of this year, and the pressure faced by real estate developers is still relatively large. For real estate developers, the first priority is to quickly sell off existing houses and recover cash flow. At the same time, they must also optimize investment strategies to prepare for further adjustments and performance improvements.

Statistics from the China Real Estate Research Institute show that as of early August, more than 70 cities across the country, including Shenzhen, Guangzhou, Hangzhou, Suzhou and Zhuhai, have issued policies for local governments or state-owned enterprises to purchase existing residential properties for use as affordable housing.

reporter|Zhen Sujing

edit| Wang Yuelong Wei Wenyi Du Bo

Proofreading| Chen Keming

Cover image source: Photographed by Wang Jiafei, reporter of China Business Network

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