China Railway Leverages High-speed Rail and Metro Sites

China Railway Group is setting a strategic goal to allow its real estate company China Railway Group to enter the top 10 in the national real estate industry in the next five years and the top five in the next 10 years.

When the high-speed rail project strode, a high-speed rail "team" emerged. As the “backbone”, the infrastructure construction business of China Railway Group Co., Ltd. (China Railway Group, 601390.SH) has developed rapidly. In addition, China Railway’s real estate business is even more irresistible. It has inadvertently entered the “billion-dollar legion” of the real estate circle and has become a “big estate”.

In 2010, the China Real Estate Corporation ranked the 21st and 17th respectively with 13.3 billion yuan and 1.85 million square meters in terms of sales amount and sales area. Not only that, China Railways is setting a strategic goal to allow its real estate company China Railway Real Estate Group Co., Ltd. (hereafter referred to as China Railway Group) to enter the top 10 in the national real estate industry in the next five years and the top five in the next 10 years.

How can China Railways achieve this kind of ambition? Its "speech right" in the high-speed rail infrastructure business can help its real estate sector "strengthen"?

China Railway Chengdu is known as "Iron City"

In the era in which the old walls of Chengdu City have not yet been completely dismantled, China Railway's subsidiary China Railway Second Bureau Co., Ltd. (hereinafter referred to as China Railway Second Bureau, 600528.SH) and other railway departments occupy a large area of ​​land in the north of the city and is called “Iron City”. . Nowadays, in the “Iron City” built in the 1950s, most buildings have been covered with dust and worn out. In June 2011, Tang Zhicheng, General Manager of China Railway Second Bureau, announced the official launch of the 90% transformation project in Jinniu Area. .

According to preliminary statistics, the area to be reconstructed covers a total area of ​​approximately 415 mu and is divided into five regions, Tongjin Land, Shawan Land, Railway Xincun Land, Majia Garden Hotel Land, and West First Ring Land. There are 21 households with more than 8,200 households and a population of more than 29,000 people. The area of ​​houses to be demolished is about 840,000 square meters and the total investment is about 10 billion yuan.

In addition to the old iron and steel project, many real estate development projects in Chengdu have the shadow of China Railway. Among them, “China Railway Xicheng” is a work created by Chengdu China Railway Group, a wholly owned subsidiary of China Railway Group, in Chengdu.

“China Railway Xicheng” is located in the core area of ​​West New City in the west of the city. It is one of the six billion-billion commercial circles planned by the Chengdu government. The project covers an area of ​​288 mu and the building area exceeds 700,000 square meters. The total investment is estimated to be 5 billion yuan. The project covers five-star hotels, large commercial supermarkets, and city theaters. It is by far the largest urban complex in the west of Chengdu.

“The project is located on Line 4 of the subway that is under construction. China Railway Real Estate acquired the land at a relatively low price in the form of a listing.” Zhou Yuan, a researcher at Sichuan Zhongyuan Real Estate, told the Times Weekly that when the land was sold, Also caused no small controversy. According to Chengdu's relevant regulations, the sale of a piece of land or a few pieces of land packaged together must not exceed 200 acres. The two lands of China Railway Xicheng exceeded this, and the industry suspects that the land is tailor-made for China Railway Group.

It is not uncommon to pack in this way. It is understood that China Railway Group has obtained thousands of acres of land in the Wenjiang District of Chengdu by way of land acquisition and plans to create a villa plate. In addition to the aforementioned projects, China Railway Ruicheng Real Estate Co., Ltd. (hereinafter referred to as China Railway Ruicheng) under the China Railway 2nd Bureau has projects in Chengdu Shuangliu, New Territories, Jixian, Daxu, and Dujiangyan, with a total construction area of ​​300,000 square meters. the above.

"China Railway has a variety of companies in Chengdu to do real estate development, mainly to China Railway, in addition to a lot of 'vest'." Zhou Hao said that conservative estimates, if the China Railway Group's Chengdu real estate company as a whole, The amount of projects it develops will surely rank among the top five developers in Chengdu.

Infrastructure company real estate scale can not be underestimated

China Railway has a large number of real estate companies and more than 70 real estate companies in more than 20 provinces and cities across the country. Through capital operation methods such as holding and equity participation, China Railway’s real estate resources have been effectively integrated, and China Railway Group’s real estate and China Railway Ruicheng’s two contexts have gradually emerged.

China Railway Property is a wholly-owned subsidiary of China Railway Group. With a registered capital of 2.1 billion yuan, the company has a first class qualification for real estate development. China Railway Property has 12 wholly-owned (controlling) subsidiaries and 53 member companies. The members of the group are located in the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Tanggu Center, and the central cities of the country. In 2010, the company’s real estate development business revenue was 11.71 billion yuan, an increase of 114.6% year-on-year. China Real Estate Development Co., Ltd., which was developed by China Railway Group, has achieved good development performance in real estate projects such as Guiyang China Railway Yidu International, Xi'an Colorful Nanjun and Wuhan Bairuijing Central Business District. As of December 31, 2010, the company is in the development phase of the project covers an area of ​​14.56 million square meters, with a total construction area of ​​25.01 million square meters.

Compared to China Railway Group, China Railway Ruicheng is slightly smaller. According to public information, China Railway Ruicheng is a wholly-owned subsidiary of China Railway Second Bureau, and is responsible for the real estate development and urban industrial business within the scope of China Railway Second Board.

China Railway Ruicheng was formerly known as the Ministry of Railways Second Engineering Bureau Housing Development Corporation established in July 1988. In June 1999, it was reorganized into China Railway Second Bureau Group Real Estate Development Co., Ltd. In March 2008, China Railway No. 2 Bureau integrated its real estate business, with China Railway Erzheng Group Real Estate Development Co., Ltd. as the main body, and established China Railway Ruicheng through capital increase and change of name to centrally manage all real estate companies and projects within the scope of China Railway Second Bureau and to manage Group company level land consolidation project.

The difference between China Railway Group and China Railway Ruicheng lies in the fact that the former has operations all over the country, while the latter is mainly active in the Chengdu market and prefecture-level cities around Guiyang and in a few cities such as Guiyang and Beijing. Compared with China Railway Group's annual revenue of more than ten billion yuan, China Railway Ruicheng Real Estate's annual sales revenue is only about 2 billion yuan.

In addition to China Railway Group, China Railway Construction Co., Ltd. (China Railway Construction, 601168.SH), which is also committed to the construction of high-speed railways, cannot ignore the scale of its real estate business, and China Railway Construction’s “International City” series is not famous in the industry. small. According to public information, as of the end of 2010, China Railway Construction carried out real estate development business in 26 cities such as Beijing. The total land area for project construction was 6.46 million square meters, and the planned total construction area was 220,000 square meters. In 2010, 29 projects were sold in 21 cities, with an area of ​​18.34 million square meters sold, an increase of 141.3% over 2009, and an operating income of 5.189 billion yuan, an increase of 98.73% over 2009.

More than half of the land has not been linked through bidding

The China Railway Group and China Railway Construction, which are based on infrastructure, are considered as “outsiders” in the real estate industry. Compared with other “foreign guests” in the real estate industry, the pace of development of these two companies can be called “quick speed”. Wang Haibin, the chief analyst of World Union Real Estate, even claimed that he was born in the national team, and naturally, there is no need to worry about the speed of development.

Gao Boxuan, senior researcher of China Investment Advisors, told the Times Weekly reporter that on a scale, such companies have strong capital and a background of state-owned enterprises. Compared with other real estate companies, business risks are more controllable. “The rapid growth of the infrastructure business has provided a strong backing for the development of the real estate business.”

It is understood that the sales of China Railway and China Railway Construction in real estate are not high, but the land reserve has reached a certain scale, both of which are more than 20 million square meters. The reserve amount is comparable to the other “famous” such as China Merchants Property and China Resources Land. "The real estate central enterprises. Land Resources As the "lifeline" of housing enterprises, how can China Railways and China Railway Construction have access to land?

“The land reserves of these companies are allocated to enterprises for historical reasons, such as the land of China Railway Construction’s “military transfer”, and some are acquired through auctions by their real estate companies.” Gao Boxuan believes that the infrastructure business is also for the real estate business. Development provides a strong backing. With the backdrop of the high-speed rail, it is undoubtedly beneficial for these companies to obtain land in the form of an agreement. For example, a large part of the real estate resources of China Railway, a considerable portion of its land costs is converted through project construction, and the cost of land prices is very low.

Wang Haibin told the reporter of the Times Weekly that it would become an important way for China Railway Group and China Railway Construction to obtain land by not resorting to bidding and hanging out procedures and obtaining land through government allocation or agreement transfer. "Half of the transferred land did not pass the bidding, filming, and hanging programs. Many state-owned enterprises took the land with various reasons. With the help of high-speed rail and subway construction, China Railways and China Railway Construction won a lot of land, and the cost of land acquisition was not high. ”

Although the cost of land acquisition is not high, the profitability of China Railway Group and China Railway Construction Property is not outstanding among real estate companies. According to financial reports, in 2010, the gross profit rates of China Railways, China Railway 2nd Bureau and China Railway Construction Real Estate Development were 23.73%, 16.46% and 29.95%, respectively. "The gross profit margin of real estate companies is above 30%-40%, and even below 30%, even if they are below average," Wang Haibin said.

Compared with the above-mentioned company's infrastructure business, the gross profit margin of the real estate sector is still very substantial. Take China Railway Group as an example. In 2010, its operating income for infrastructure construction, engineering equipment and parts manufacturing was 411.7 billion yuan and 10.3 billion yuan, respectively, and its gross profit margin was only 7.66% and 16.27%, far below the real estate sector. In terms of China Railway Construction, its engineering contracting business and industrial manufacturing business revenues were 428.4 billion yuan and 9.2 billion yuan in turn, with gross profit margins of 8.12% and 15.74%, respectively, which are not too different from the real estate sector.