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China Overseas Land Plans $500 Million Real-Estate Fund

China Overseas Chairman Kong Qingping
China Overseas Land & Investment Ltd. Chairman Kong Qingping. Photographer: Paul Hilton/Bloomberg

China Overseas Land & Investment Ltd., the Hong Kong-listed developer controlled by the nation’s construction ministry, plans to set up a real-estate fund of $300 million to $500 million as it bets that government measures won’t curb property demand.

The fund, which will invest in commercial and residential properties in China, may be ready in the first half, Chairman Kong Qingping said in an interview in Beijing.

Kong is betting long-term property demand in China, where January home prices rose in all but two of the 70 cities monitored by the state, will outweigh the impact of curbs imposed by a government concerned about an asset bubble. Expansion by Chinese developers into smaller cities may hurt their profit margins as land costs climb faster than home prices, Credit Suisse Group AG said March 2.

“Any company that has a nationwide coverage is certainly stronger than those in single cities,” Kong said when asked about the Credit Suisse report. “They’re emerging markets with low and healthy home prices.”

Cities including Jinan in the north, Nanjing in the east and Kunming in the south have followed the capital Beijing in introducing local curbs on home purchases. The government this year raised down-payment requirements for second-home purchases and imposed taxes on residential properties in Shanghai and Chongqing.

Control Home Prices

China Overseas hasn’t been affected by property curbs imposed by the government yet, Kong said. The measures will help control home prices in the short term, though long-term demand will continue to be strong, he said.

Vincent Lo, chairman of rival Shui On Land Ltd., said yesterday he expects home sales in China will fall “sharply” this year because of government curbs. Lo’s Shui On Construction and Materials Ltd. said today it closed a China real estate fund to investors after raising $400 million.

Real Estate Group Co., the nation’s second-biggest developer, said last week the current round of curbs won’t change its bullish outlook in the medium to long term.

China Overseas was unchanged at HK$13.46 at the close in Hong Kong. The stock lost 6.4 percent this year, compared with the 1.2 percent gain in the benchmark Hang Seng Index. The Hang Seng Property Index declined 3.1 percent.

Credit Suisse said developers including China Overseas, which expanded heavily into the smaller cities, will be the most affected by the government measures.

Commercial Projects

The company wants its commercial property to account for 20 percent of its net income in five years, Kong said. The developer has more than 2 million square meters of commercial property land bank, he said.

Its parent had HK$32 billion ($4.1 billion) in cash at the end of last year, Kong said. Financing plans for the listed company will depend on its business expansion plans, he said.

China State Construction International Holdings Ltd., a sister company, will take part in the government’s call to build more affordable, public housing, including two projects in Chongqing, said Kong, who is also chairman of China State Construction.

The government plans to build 36 million low-income housing units in its 12th Five-Year Plan. The plans won’t have a “big impact” on the private residential market, Kong said.

“The return rates of building social housing is low, but it also has low risks,” Kong said.

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