The listing frenzy that once swept through property management firms is undergoing a notable shift, as a growing trend of privatization emergesRecently, a prominent property management company, Ronshine Services, announced that it has received approval for its privatization proposal, with plans to delist on March 18thThis follows Huafa Properties, which ignited the wave of voluntary delistings in the sector.
When discussing the reasons for their exit from the public market, both companies pointed to factors such as low liquidity of their stocks, difficulties in financing, and the pressing need to reduce operational costs.
This is not merely a dilemma faced by isolated firmsIn the two years leading up to this phenomenon, the property management sector has been significantly affected by a downturn in the real estate market, compounded by volatility in capital marketsThis combination has resulted in declining performance metrics across the majority of firms, thus intensifying pressure on their stock pricesAmong the 65 listed property management companies, nearly 90% reported a turnover rate below 1%.
Experts assert that the decline in share prices and poor liquidity has severely restricted these companies’ abilities to raise funds in capital marketsThe costs associated with maintaining a public listing are substantialIn light of these circumstances, the decision to pursue privatization appears to be a prudent moveNevertheless, this trend may not necessarily dominate the landscape, as some companies continue to seek listingsThe recent cases of delisting could lead others to reflect on the original intentions behind going public and might motivate a shift within the industry from a reliance on capital expansion towards enhancing service quality and operational efficiency.
Launching the exit from public markets, Huafa Properties first announced its intentions in late May 2024, revealing that its parent company, Huafa Group, plans to initiate a privatization process.
Huafa Properties explained their rationale, citing persistently low trading volumes which have hindered shareholders from executing significant trades without adversely impacting share prices
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Since 2017, low trading volume paired with a downward trend in stock price has left the company unable to consider equity fundraising, despite this being a primary advantage of their public status.
Adding to this, they insisted that maintaining their current listing does not adequately support their long-term growth financing needsIn their view, continuing to list may not yield any meaningful benefits in the foreseeable future.
After delisting, Huafa Properties anticipates a reduction in administrative costs and management resources tied to compliance and regulatory requirements of being a public companyThis will presumably offer Huafa Group greater flexibility to pursue long-term business goals, insulating it from stock price fluctuations and extra costs often associated with being publicly traded.
By late September of the same year, Huafa Properties had successfully completed its privatization process, marking it as the first property company to voluntarily delist.
Following in Huafa Properties' footsteps, Ronshine Services announced in November 2024 that its majority shareholder intends to privatize the company via a consensual arrangement, attributing the decision to similarly low liquidity in stock trading, falling share prices, and the loss of financing capabilities through the public marketThey concluded that privatization would better benefit the company’s long-term prospectsData revealed that the daily trading volume for Ronshine Services constituted a minuscule 0.04% to 0.05% of its outstanding shares, rendering shareholder liquidity exceedingly difficult.
This marks a stark contrast to the previous years when property management companies actively sought listings in Hong KongFrom 2019 to 2021, 43 companies achieved public offerings, with a peak of 18 in the single year of 2020.
However, in the past two years, the deep adjustments within the real estate sector have adversely affected the growth prospects for property management firms, leading to diminished enthusiasm for public offerings
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Between 2022 and 2023, only ten firms went public, with instances of delisting surfacing as we entered 2024.
Wang Ruijie, an analyst at E-Han Property Research, suggested that the allure of capital markets for property management firms has decreasedOverall, property stocks are currently under valuation pressure, and a re-evaluation of their worth is still underway, constraining the capital-raising advantages enjoyed by these companies.
Moreover, it is crucial to note that Ronshine Services, Huafa Properties, and others are not alone in this struggle; the entire property management industry finds itself entrenched in a state of malaise.
A recent report from CRG Property Management showed that nearly 90% of listed property management companies had daily turnover rates below 1%. Specifically, of the 66 firms listed in 2024, 59 displayed a turnover rate under 1%, accounting for an alarming 89.4%. Typically, turnover rates below 1% indicate a severely sluggish stock, highlighting a lack of activity and poor trading liquidity.
In terms of stock price movements, by February 2024, the average share price of listed property management firms had plummeted to a new low of 3.4 HKD per shareAlthough these stocks experienced some recovery following the introduction of various support policies for the real estate sector, the momentum was short-lived, and by year-end, prices settled back down to 4.6 HKD per share—a more than 30% decline since the beginning of 2023.
Looking ahead, further industry consolidation appears inevitableThe underwhelming performance of capital markets mirrors the struggles of companies to achieve revenue growth amidst the prolonged downturn in the real estate industry.
According to the data, in the first half of 2024, the revenue growth rate for listed property management firms fell to 4.7%, marking a historical lowIn the same period, the average net profit for these firms was approximately 140 million Yuan, a decline of over 30% year-on-year
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Alarmingly, more than 60% of listed firms saw a downturn in net profits, with seven slipping into losses.
Compounding this, many property management companies faced challenges in project expansion due to direct impacts stemming from associated real estate companies’ performance; the average new contract area for the top hundred firms in 2024 decreased by 12.8% year-on-year.
The overall outlook for profit margins and growth potential within the industry is bleak, resulting in a collective valuation pressure on property stocks in capital marketsCurrently, the price-to-earnings ratios of listed property management firms remain at low levels.
In a monitoring report, the property management sector witnessed two notable rebounds in valuation driven by favorable policy environments in 2024. October 2024 witnessed a peak not seen in nearly two years, with the average P/E ratio climbing to 15.2 timesHowever, as the effectiveness of these policies wane, property stocks saw their valuations decline once againBy the end of 2024, the average P/E ratio for listed property firms had regressed to 13.2 times, with an annual average P/E remaining at a low 11.9 times.
The influence of these trends has left property management firms’ market capitalizations suppressedUntil the end of 2024, a sample of 62 companies recorded a total market value of 232.5 billion Yuan, reflecting a slight 1.7% decrease from the same time in 2023 and a staggering nearly 45% drop compared to 422.3 billion Yuan in 2022. Nearly 70% of listed property management firms experienced a year-on-year decline in market value, with three firms seeing their valuations halved.
The hesitance of investors concerning property stocks has stifled trading intentions, thereby contributing to reduced liquiditySimultaneously, regulations in the real estate market and broader fluctuations have further pressured investments in property stocks, restricting their liquidity.
Peng Yu, Deputy Director of Research at the China Index Academy, highlighted that the valuations and stock prices of property companies have languished over the past two years, diminishing their ability to raise funds effectively through capital markets
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