HONG KONG • When Chinese developers started offering in-house services such as beauty treatments to boost the value of their properties three years ago, few expected the sideline to become one of their fastest-growing revenue streams in otherwise tough times.
What began as something of a gimmick to attract middle-class buyers through premium concierge perks has blossomed into a new financing platform - developers are rushing to spin off management units to unlock their value.
Traditionally, Chinese developers offered little more than security and maintenance services at their residential projects but, now, more and more apartment towers offer extras such as in-house takeout and grocery delivery, tour reservations and even personal financial products.
"Two, three years ago, there was no problem selling any new projects, even in third- and fourth-tier cities, so people didn't really care about services," said deputy executive director Peterson Liang at Colliers International Real Estate Management Services in Shanghai. "But today, sales are not as good, and there's more competition, so there's a need to enhance after-service."
Top developer China Vanke is looking to join the growing list of its peers that have sold their "one-stop shop" management businesses following the successful listing of Fantasia Holdings' management unit, Colour Life Services.
Nine months after the listing in June last year, Colour Life shares had gone up 230 per cent. Even with the turmoil that has recently battered Chinese markets, they are still about 43 per cent ahead.
Even though management services provide only a fraction of a developer's total revenue, any new sources of income are welcome, as the traditional real estate sector has struggled in recent times with high land costs and excess supply.
Developers make an income from the services by charging commission fees on outside contractors.
Developers call it the "last-mile advantage", referring to the distance from the gate of the housing complex to the lift - an area that is off-limits to outsiders such as delivery staff for security reasons.
Here, it turns out, is where developers can make money, by offering in-house services directly to residents, charging commissions on third-party providers.
"Working with third-party providers saves developers a lot in labour costs, because they don't need to keep staff on-site to do repairs, for example. Even better, they can charge the provider to do that work for their tenants," one developer said.
Margins vary depending on the service and the company's accounting method.
Country Garden, China's sixth-largest developer by sales, saw its revenue from property management rise 86 per cent in the first half, compared with a year ago. It also said it expected the segment to continue to drive profit. Even so, the segment accounted for only 2 per cent of its total revenue.
Along with CIFI Holdings, Country Garden is in talks with financial advisers about a potential listing of its management unit.
State-owned China Overseas Land & Investment is jumping on the bandwagon, too, having submitted a listing application to the Hong Kong stock exchange last month.
China Vanke is setting up a property management unit that it said it would spin off eventually, without providing a timetable. Guangzhou R&F Properties said last week that it was exploring similar options.
Analysts said China's recent stock rout would not affect such plans as the units were relatively small.
One pampered resident, a 35-year-old company manager who moved to Beijing from Hong Kong four years ago, said the services were better than those offered in his home town.
"The best service I found? They offered to wash all the curtains in our home once a year for free," he told Reuters, giving his name only as Yu.
REUTERS
