Chinese real estate companies are trying to diversify their business models as the pace of new construction has moderated (see SCMP: China Developers Unearth New Gold Mine in Serving Home Owners). During Xinyuan’s most recent conference call CFO George Liu mentioned Xinyuan’s interest in expansion of its property management business:
“We are also exploring new opportunities to develop real estate related products and services in a way to complement our core real estate development business. For instance, Xinyuan owns a little in property management company with proven track record and strong brand recognition in China. We will capitalize on providing value added products and services to community residents.”
Last month the China Property Management Association ranked Xinyuan Property Management services #16 in the country, well above its ranking in sales volume (#75 in 1H15 according to CRIC). At 12/31/14 Xinyuan managed 6.5mm sqm of completed property with over 57000 homes. The company’s Property Management Business website has more information about the services provided. These have expanded beyond a traditional focus on maintenance, security, and landscaping to broader resident services that benefit from Xinyuan’s on-site presence in each community like being a gateway for products and services ordered through an ecommerce app. Ideally, property management success reinforces a positive image for the Xinyuan brand and acts as a competitive advantage in sales of new homes.
The potential value of a property management business is demonstrated by the success of Colour Life, the 2014 services spinoff of from developer Fantasia Holdings. While developers such as Fantasia and Xinyuan trade at low P/E and P/B multiples, the market awards Colour Life a P/E multiple over 40X and a P/B multiple over 6X.