Two China property giants lead drive to diversify

livemint.com:

Some of China’s biggest developers are doubling down on asset management and investment property rather than home building, seeking more stable sources of income as hopes for a turnaround in the country’s real-estate sector fade. That shift, an effort to boost profit stability after years of weak property sales and tightened sector regulations in the world’s second-largest economy, should give investors a clearer road map into earnings while also boosting company valuations and financial health, analysts say. At the front of the drive are China Resources Land and Longfor, two developers with mature investment properties that include some of the biggest shopping malls in China.

CR Land said this month that it expects recurring business to make up 40% of profits by 2025 and 50% over the longer term, up from 34% last year, helping it strike a balance between cash flow, profitability and asset turnover. It plans to open 16 malls in China this year and boost its total portfolio in 2027 to 117 from 76 currently. In Longfor’s case, nearly two-thirds of core profit last year came from the rental business and property management services, up from 27% in 2022.

Last year was an inflection point for Longfor to “transform to a landlord model," Jefferies analysts said in a recent research note. Longfor now plans to add 14 malls this year to its portfolio of 88 under management. “Both Longfor and CR Land had in a way sacrificed some of their short-term profit over the past decade to grow their commercial empire," Daiwa analyst William Wu said.