Surging demand for butler-like concierge service at the millions of condominiums in China is creating one of the hottest sectors in the nation’s stock market. Property management companies, providing everything from childcare to shopping errands for residents in China’s densely populated communities, have soared this year as the pandemic kept workers at home.
Ever Sunshine Lifestyle Services Group Ltd., spun off from Cifi Holdings Group Co., has almost tripled this year. Yincheng Life Service Co. has surged more than 400 percent, while Times Neighborhood Holdings Ltd. has doubled. Overall, housing service stocks in Hong Kong have jumped 60 percent on average, topping the 47 percent rise by Chinese consumer stocks in Shanghai and the 29 percent gain for technology firms.
“The sector has become highly favored by investors, almost like they’re consumer or tech stocks,” said CGS-CIMB Securities property analyst Raymond Cheng. “We have seen global funds from Singapore to the U.S. piling onto it.”
China’s highly indebted property developers are taking note, seizing on the rally to list their service arms in Hong Kong and raise money to pare debt. Thirteen Chinese developers have started or flagged intentions to spin off their management units this year, a record since 2017 when the trend emerged.
A dense neighborhood in China can have as many as 100,000 condominiums, creating a captive market for versatile services. Residents - especially the elderly and those with young children - are increasingly using these butlers to buy groceries and medicine, rent out their investment properties, or even baby sit their children.
While listings picked up about two years ago when the property arm of Country Garden Holdings Co., the nation’s largest residential builder, started trading in Hong Kong, the major valuation boost has come this year.
Spinning off property management units gives developers much needed funding, especially as they face the biggest liquidity test in more than four years. China Evergrande Group, the nation’s most-leveraged major developer, and Sunac China Holdings Ltd. last month joined smaller rivals in announcing listing plans.
Evergrande’s addition of strategic investors into its privately-held services unit, a move widely seen as a pre-listing move, has helped the developer lower its net debt to equity by 19 percentage points, President Xia Haijun said on an earnings call last month.
Unlike developers that face uncertainties from a cyclical slowdown and government restrictions, the property management business is shielded from China’s property curbs. Its advantages include a stable model with recurring fee revenue and low leverage. Investors also like the growth outlook, as sprawling new apartments built by their parent developers translate into new business. The bigger players are also on a fast expansion track by swallowing smaller rivals.
“It’s an attractive, long-term investment opportunity that only exists in China, “ said CGS-CIMB’s Cheng, who estimates the industry’s market value will quadruple to $180 billion by 2025. “No other country has so much floor area to manage.”