Appliance makers pin hopes on real estate

Some of the sector's best-known names enter the property market

SHANGHAI - China's major home-appliance makers have found a new source of profit as they cash in on the lucrative real estate sector, industry experts said.

Home-appliance producer Zhejiang Supor Co Ltd plans to invest 1.5 billion yuan ($232 million) in the central business district area in Shenyang, the capital city of Liaoning province, according to The Securities Daily. The company also bought two blocks of land in Shenyang in June priced at 1,000 yuan a square meter (sq m) and 950 yuan a sq m to increase presence in the real estate sector.

Supor is not the only home-appliance maker in China engaged in the property sector. Eyeing a huge profit margin, almost every large home-appliance maker in the country has set up its own real estate company in recent years.

For instance, Haier Electronics Group Co Ltd formed a property business in 2002, while the Zhuhai-based Gree Electronic Appliances Inc established a real estate company in 1991 and it went public on the Shanghai Stock Exchange through a backdoor listing in 2009.

Property development is said to be one of the most profitable businesses in China. A report from the China Academy of Sciences said the profit margin for property development was as high as 55.7 percent in 2009. In comparison, the profit margin for home-appliance manufacturing is around 10 percent or lower.

Though the central government has imposed tighter financial policies to contain inflation and rising housing prices, industry experts remain positive on the property sector's long-term prospects.

"Compared with other businesses, property investment can generate a relatively good return for companies in the long run," said Xue Shengwen, an analyst at the China Investment Consulting Industry Research Center. "For companies with sufficient cash flow and capital reserve, property investment means the companies can earn better profits in the future."

Xue also said that because there is no strict technique or scale requirement for property developers, entry to the real estate sector is relatively easy.

While industry experts have recognized the rationale of home-appliance makers dealing in property to increase profit, they suggest that companies should find a balance between their core business and investing.

Lu Renbo, vice-secretary-general of the China Electronic Chamber of Commerce said the property market would hold some uncertainties in next few years, so home-appliance companies should not be over-reliant on the real estate market.

Guo Jin, a Supor representative, was quoted by China Securities Journal as saying that the company will remain focused on home appliances.

Income from real estate investment may account for only a tiny part of the companies' total revenue.

For instance, the Sichuan-based Changhong Electric Co, reported 41.7 billion yuan sales revenue in 2009, of which only 2.9 percent came from property dealings.