In 2005, the national real estate investment accumulated to RMB 1575.93 billion, increasing by 19.8% compared with 2004, but the growth rate decreased by 8.3%. Of these, state-owned and state-owned holding enterprises invested RMB 263.625 billion, a year-on-year decrease of 6.8%, and the proportion in the total investment decreased from 21.5% of 2004 to 16.7% of 2005. In Jan-Sep 2006, the national investment on real estate development totaled at RMB 1290.24 billion, up 24% over the same period of 2005, and the growth rate rose 1.7%; the real estate investment shared 23.1% of total fixed assets investment, growing by 0.1% compared to the same period of 2005. In addition, the total real estate investment in eastern, central and western regions were respectively RMB 829.782 billion, RMB 228.595 billion and RMB 231.862 billion, each accounting for 64.31%, 17.71% and 17.97% of the total. In Q3 2006, the real estate sales price in 70 large-medium cities rose by 5.5% comparing with the same period of 2005, rental price up 1.1%, land transaction price up 4.9% and property service price slightly up 0.1%. 

Growth of real estate investment in China, 2001-2005 (%)

Regional Investment in Real Estate Industry, Jan-Sep 2006

With the implementation and fulfillment of macro-control policies, the overinvestment in real estate has been under the control in some degree. However, such problems as excessive investment scale in real estate, sharp rise in commercial housing price, irrational supply structure and disordered market still exist in some regions.

In order to control the overheating real estate industry, the central government carries out the macro-control measures featured by "administrating the lands and tightening the credits", and in this way, the government can firmly hold the land and capitals in its hand. Henceforth, the integration ability of land and capitals has become the important embodiment of the competitiveness of real estate enterprises. On Apr 28, 2006, the People's bank of China raised the lending rate by 0.27%. The benchmark rate on over-five-year housing loan rose also from 6.12% to 6.39%. This was the second interest increase of the central bank since the first interest increase over one year ago, and this interest increase aimed to restrict the investment demand and further stabilize the price of real estate. On May 17, 2006, Premier Wen Jiabao presided over a standing conference, and put forward six measures to accelerate the healthy development of real estate industry, which focused on to better control real estate, adjust housing structure, guide consumption reform, reduce the real estate bubble, maintain the sustainable development of real estate industry and to ensure the financial order.     

In 2006, the sales revenue of top 10 Chinese real estate enterprises shared only 5.2% of total market amount. And the scale of real estate enterprise represents the ability of controlling the market, which not only includes the ability to gain lands but also the ability to finance and operate capitals. From the development of overseas companies specializing in real estate, when a company achieves a certain business scale and is able to operate the market steadily, the expansion via M & A and cooperation will be rather feasible.

It is a sound approach for real estate enterprises to strengthen their presence by scale development. Meanwhile, being strong in operation and management, large-scale real estate enterprises can establish their own brands in the market in an easier way. Moreover, they take absolute advantages in various financing means over small-size enterprises. From the view of bank loans, it is much easier for large-scale real estate enterprises to obtain the commercial loans, and the large number of commitment loans is the powerful back of the enterprises. The well-developed large-scale real estate enterprises can finance through listing, and moreover, the overseas funds also prefer the large and strong real estate enterprises. Comprehensively, only the large-scale real estate enterprises are able to fully perform themselves in security market, no matter by equity financing or by debt financing, because they are more prestigious and attractive and can be accepted by investors. 

Under the influences of state macro-control policies, the real estate market will appear two trends, the first is that some medium-small real estate enterprises with lands but not strong in capital are anxious to develop the land, they need to be merged by large enterprises with abundant assets. The second is that some strong real estate enterprises spare no effort to purchase and merge the medium-small enterprises with land resources and the excellent land projects for their healthy development, and then to realize the continuous scale expansion. The M&A for the markets will accelerate the integration and enhance the concentration, so the real estate enterprises will compete in quality, brand and capital.

The scale development of real estate enterprises has three trends. One is horizontal reorganization, i.e. establishing large-sized enterprises groups. It aims to combine the enterprises with the same business together and then to establish large-sized group enterprise engaging in specialized production, and thus reduce the additional costs caused by interior competition and enlarge the enterprise scale through concentration of production capacity, then make it achieve the scale economy and finally reduce the costs of the products.

Another is vertical reorganization, i.e. establishing cross-industry enterprise groups. Making use of the high connection degree and the extended industrial chain of real estate industry, it can integrate the enterprises with related businesses together to form the cross-industry enterprise groups and establish the design-development-production-distribution-property management system. This system not only can ensure the enterprises with stable market demands, smooth supply and demand channels and reduction of the risks, but also can provide organizational guarantee for system innovation, which helps to establish new production system in accordance with the demands of modern industry, to form the new pattern of serial development, scale production and supporting supply, and to create advantages for the real estate enterprises to implement the differentiated strategy.

The last one is the mixed reorganization, i.e. realizing the poly-angular operation. As a high-risk industry, real estate industry almost experiences a downturn-midseason-downturn process every five years. Thus, the real estate enterprises can extend to other industries through mixed reorganization, and make use of different development cycle of the industries to achieve the mutual complementarities and then reduce the investment risks.  

Comparison of Merger and Reorganization Pattern of Real Estate Enterprises