China’s Vanke, Wanda Form Partnership Amid Housing Slowdown

China Vanke Co. and Dalian Wanda Group Co., two of the nation’s biggest property companies, forged a strategic partnership that may lead to more than 100 billion yuan ($16 billion) of joint projects.

The companies will buy land and develop projects together to “leverage on their respective strengths” in commercial and residential real estate, according to a joint statement Thursday. They are also discussing joint projects that would exceed 100 billion yuan if talks are successful, Wanda Chairman Wang Jianlin 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 concerns among investors, according to Credit Suisse Group AG.

“The progress may be slow, with baby steps, but has significant potential synergies,” Credit Suisse’s Hong Kong-based analysts led by Jinsong Du wrote in a report.

Billionaire Wang owns more than 50 percent of Beijing-based Dalian Wanda Commercial Properties Co., China’s biggest mall operator known for its Wanda Plazas. Vanke, with headquarters in Shenzhen, is the nation’s biggest listed developer by sales with a focus on residential projects.

Wanda Commercial rose 3 percent to HK$69 as of 3:09 p.m. 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.

Profit Margins

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, according to Credit Suisse. 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.

The average home price in the 70 cities tracked by the government fell for 11 months through March, prompting the government to reverse four years of property curbs and cut interest rates. Investment in property development rose in the first four months at the slowest pace since at least 2012, according to government data this week.

While the two developers will form joint ventures to operate projects, there won’t be a restructuring involving the companies themselves, Wang said. Wanda initiated the idea of the partnership and Vanke “reacted quickly,” Vanke President Yu Liang said.

“The past era was an era with a supply shortage, and probably people neglected the importance of cooperation,” Wang said.

— With assistance by Dingmin Zhang

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