Xinyuan Real Estate’s Beijing Liyuan Project

Updated 4/14

On 4/12 Xinyuan announced its acquisition of a new land parcel in Eastern Beijing.  Some information about it was also provided on page 9 of the company’s Investor Presentation released two weeks ago.

XIN Presentation Map April 2016

source: Xinyuan Real Estate

Average prices for new homes in the Tongzhou District are currently 31000 RMB/sqm, more affordable than prices of 50000-82000 RMB/sqm in central districts.

XIN Tongzhou Average New Home Price April 2016

source: Fang.com, Koneko Research

I don’t know the exact address of Xinyuan’s new land parcel, but most new homes currently for sale in the Liyuan area are listed at around 40000 RMB/sqm:

XIN Tongzhou Liyuan area Map April 2016 -2

source: Fang.com, Koneko Research

The area is served by the #6 and Batong lines of the Beijing subway and is only about 20 minutes from the city center.

The land purchase price of RMB 1.14Bn works out to about 11000 RMB per developed square meter.  The acquisition came through a private transaction with a local developer rather than a public auction.  Construction and other expenses are likely to be 9000-10000 RMB/sqm.  For reference, the 20-F disclosed total costs (excluding land) at Xinyuan’s Beijing Xindo project of $161mm, about 8000 RMB/sqm.

The company has not disclosed any details of its development plan for the Liyuan site, but there is obviously a large margin of safety between a rough cost estimate and the area’s current home prices.  It’s possible that the land purchase contract includes some concessions, such as reservation of a portion of the site for affordable housing, that will reduce the area available for sale at market prices.

Conclusions:

  • The Central government’s relocation to Tongzhou provides assurance of increased future demand in the area.  For broad background on the long-term plan see NYT: As Beijing Becomes a Supercity, the Rapid Growth Brings Pains
  • The land purchase price appears to be a bargain that will enable an excellent return on this development.  For background on Xinyuan’s margins by project see my previous article.  Finding the opportunity to purchase the land privately may account for part of the above average return.
  • The timing of the purchase maintains the presence of the Xinyuan brand in the Beijing market.  Pre-sales at the Liyuan project are likely to begin around the time that the Xindo project is completed.

This article will be revised and updated if I discover additional information in the next few days.

 

 

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