Longfor to ramp up emphasis on residential and commercial property leasing

Longfor Properties Co, one of the mainland's top 10 developers, is seeking to expand its footprint in commercial and residential property leasing in an effort to tap new growth engines as the domestic property market cools.

The Beijing-based company plans to invest as much as 10 per cent of its received payments into businesses based on rental income each year, in an effort to generate more stable forms of revenue, according to Longfor chief executive Shao Mingxiao.

"We firmly take a bullish stance on the businesses," he said. "We decided to go all out for an expansion in the home rental segment as we are assured of the potential,"

Profits derived from residential and commercial property leasing are expected to account for 20 per cent of total profit by 2020, up from the current 12 per cent, he said.

In January to November, Longfor generated home sales of 148.4 billion yuan (US$22.5 billion), an increase of 85 per cent from the same period a year ago.

The company is on track to beat its annual sales target of 150 billion yuan.

Shao forecast annual sales growth of 15 to 20 per cent in coming years.

"After reaching broad scale, home leasing can be an important profit contributor for us," Shao said. "We need two to three years to nurture the growth of the segment before turning a profit."

Longfor has 15,000 units for home leasing under management this year and will add an additional 50,000 units next year and another 100,000 units in 2019, he added.

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Longfor forecast home leasing will generate 2 billion yuan in revenue in 2020.

The company also aims to more than double rental income from commercial property to 6 billion yuan in 2020, compared to an estimated 2.5 billion yuan in 2017.

Since last year, Beijing has implemented a series of cooling measures such as limiting home purchases and heightened mortgage loan requirements to curb the red-hot residential property sector,

Authorities are also encouraging growth in the home leasing market as a way to help meet demand from new urban immigrants who cannot afford elevated home prices.

"With tremendous support from governments, home rentals are turning out to be a high-growth area due to the huge demand," said Cao Hua, a partner at Unity Asset Management. "Market leaders with big volume of businesses and strong management teams will benefit."

Major property developers such as China Vanke and Sino-Ocean Land Holdings are also expanding home leasing services to tap demand from low-income residents unable to buy a home.

However, some developers have steered clear of the concept citing relatively low rates of return on investment.

Still, Shao said Longfor could achieve a 5 to 6 per cent yield from the home leasing business.

Longfor is known for its strong financial position and low leverage under Shao's leadership, who became CEO in 2011.

In 2016, the company's underlying profits climbed 11.8 per cent to 7.76 billion yuan.

Read the original article on South China Morning Post. For the latest news from the South China Morning Post download our mobile app. Copyright 2017.

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