Nowhere on Earth is wealth being created faster than in China’s mainland property market.
The collective net worth of the country’s richest developers has rocketed since the start of the year, adding $44.3 billion to the fortunes of seven real estate tycoons.
As China’s regulators move to tame a frenzied property market, investors are betting that the largest companies will squeeze out smaller competitors and extend their dominance in a consolidating industry.
"It’s like a self-reinforcing theme - the more property stocks rally, the more buyers are confident on the consolidation theme that’s benefiting the largest players," Alan Jin, property analyst at Mizuho Securities Asia said.
Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas, said that overseas funds are also improving the appeal of some long-dismissed companies that pay record-high dividends. "The story becomes very compelling," Mr Lee said.
Investors are betting those large developers - many of whom maintain cross investments or have a history of trading assets - will continue to wrest market share from smaller businesses.
Stock boom
Hui Ka Yan’s Hong Kong-listed China Evergrande Group, the country’s largest developer, has risen 534 per cent this year and reported that its revenue more than doubled through June. Sun’s Sunac China Holdings, a residential and commercial developer based in Tianjin, increased revenue 25.9 per cent and is up 501 per cent. China Evergrande Chairman Hui Ka Yan and Sunac’s Sun Hongbin have collected the vast majority of the year’s gains, adding $42.5bn between them.
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Kaisa Group Holdings, which operates in more than 50 cities, has risen 222 per cent, after rebounding from a corruption controversy that threatened to bankrupt the business and halted trading of its shares from April 2015 until this March.
The rise has added $648m to the fortune of Chairman Kwok Ying Shing, 52, who owns 24 per cent of the company and has a net worth of $948m, according to the Bloomberg Billionaires Index. Mr Kwok also owns 8 per cent of watch retailer Hengdeli Holdings and electronic components maker Mega Medical Technology respectively. His brother, Kwok Ying Chi, a former director of the company, has a 14 per cent stake valued at $756m.
Tight grip
The valuations are also helped by a limited public float for company shares, as well as cross dealing among the tycoons. Kaisa shares, which quadrupled in September, reached an all-time high the day after a group led by the wife of property mogul Joseph Lau bought about $600mworth of Kaisa bonds, her second investment in the business this year. The Lau family has also accumulated a 7 per cent stake in China Evergrande.
Mr Hui’s $33.4bn gain this year puts him just $5.2bn behind Alibaba Group Holding founder Jack Ma, Asia’s richest person with $46bn, according to the Bloomberg index, a daily ranking of the world’s 500 richest people. Mr Lau has added $908m this year and has a $8.9bn net worth.
“Limited liquidity of the stock is part of the reasons for stock surge,” said Philip Tse, vice president of Bank of Communication International Holdings, “but the fundamentals of the mainland real estate companies are still performing well with increase both on sales and margins.”
A UBS Wealth Management report released this month said it expects 20 per cent earnings growth for large listed developers in next 12-18 months. Still, the rally has begun to show some signs of weakness as China’s leaders have pledged to snuff out asset bubbles, with President Xi Jinping renewing a call earlier this month that homes are for living in and “not for speculation".
The Bloomberg China Real Estate Owners and Developers Valuation Peers index slipped 9.6 per cent from its peak on September 21. The index, which tracks 22 mainland developers, is up 106 per cent this year.
“Not all rallies are sustainable," said BNP’s Mr Lee. "The next phase of the rally should be very selective, favoring those who can truly gain market share.”
It is, however, another indicator of how the world’s wealthiest are on a roll with billionaires in Asia leading the pack.
Billionaire wealth increased 17 per cent to $6 trillion in 2016, after a decline the previous year, UBS Group and PricewaterhouseCoopers said in a report issued last week. Led by China, the number of the region’s billionaires surpassed the US for the first time.
But don’t shed a tear for the richest folks in the US: American billionaires still control the most wealth at $2.8 trillion.
The gain in total billionaire wealth was twice the 8.5 per cent increase of the MSCI AC World Index.
Asia’s economic expansion saw, on average, a new billionaire created in the region every other day. Should that pace continue, Asia would overtake the US as the world’s largest concentration of wealth in four years, the Swiss bank and the auditing firm said in an analysis of data from roughly 1,550 billionaires.
How fast billionaire wealth grows in Asia will depend in part on how state-driven investment in China is replaced with other sources of capital, UBS Chief Investment Officer Mark Haefele said at a press conference in Zurich last week.
Rise of China's billionaires
“As China hooks up its capital markets to the global system, it will have a very profound impact on capital flows - on Europe as well," he said. The execution of Chinese President Xi Jinping’s growth policies will also influence how fast total Asian billionaire wealth overtakes the US, he said.
A combination of geopolitical stability in Greater China, rising Chinese real estate prices, infrastructure spending, the growing middle class and buoyant commodity prices all boosted wealth, the UBS report said, citing interviews with Asia’s richest people.
Three-quarters of the world’s new billionaires hail from China and India. The number of Asia billionaires rose by 117 for a total of 637, with self-made billionaires seeing their wealth rise faster than those who became rich through family ties. The US added 25 billionaires for a total of 563.
"In China, one billionaire is created every three weeks," Qiong Zhang, head of wealth management for UBS Securities in China, said in an interview. "For many of the first generation of entrepreneurs, a major focus is bringing the business to the capital markets, raising funds and M&A," she said, adding that the Swiss bank sees Greater China as a "crucial" wealth management market.
Europe’s number was basically flat at 342 in part due to death and because “entrepreneurial companies can find Europe a difficult place to do business due to both the conservative business culture and strict regulations,” UBS said.