China Vanke Co (萬科企業) and Dalian Wanda Group Co (大連萬達集團), two of China’s biggest property companies, have forged a strategic partnership that might lead to more than 100 billion yuan (US$16 billion) of joint projects.
The companies plan to buy land and develop projects together to “leverage on their respective strengths” in commercial and residential real estate, according to a joint statement yesterday.
They are also discussing joint projects that would exceed 100 billion yuan if talks are successful, Wanda chairman Wang Jianlin (王健林) told reporters in Beijing, without giving details.
China’s biggest commercial and residential developers are closing ranks as demand wanes amid an economic slowdown and a widespread glut of properties that has depressed prices.
Co-developing mixed-use projects can help Wanda reduce inventories in smaller cities and boost the gross margins of Vanke’s properties, easing investors’ concerns, Credit Suisse Group AG said.
Wanda Commercial shares yesterday rose 3 percent to HK$69 as of 3:09pm in Hong Kong trading, extending this year’s rally to 39 percent. Vanke jumped as much 6.4 percent, the most since April 22, before paring the gains. The stock is up 15 percent this year. The benchmark Hang Seng Index fell 0.2 percent.
The partnership is “absolutely not” just about buying land together and building Wanda Plazas with Vanke homes around them, Wang said.
The two companies are discussing cooperation at a “deeper level” that could lead to “massive projects,” he said without elaborating.
Wanda’s low land costs can help Vanke raise margins on its investment properties by as much as 20 percentage points from a current average of 26 percent, Credit Suisse said.
Having Vanke as a partner can help Wanda develop and sell projects, the analysts said. There are 48 cities where the two both have projects, they wrote.
Wanda initiated the idea of the partnership and Vanke “reacted quickly,” Vanke president Yu Liang (郁亮) said.
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