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Chinese developers seek piece of booming education market

Chinese developers seek piece of booming education market
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When China’s premier Li Keqiang recently vowed progress on a property tax intended to rein in home prices, it signalled to the country’s real estate developers that more than a decade of double-digit growth would soon end.

Facing slowing growth in their core business, top developers are betting on the education market, building and operating international schools for tens of thousands of students.

The country’s three biggest property developers — Country Garden, Evergrande and Vanke — have seen sales slow in the first quarter of this year, according to an industry ranking compiled by research agency China Real Estate Information Corp. Meanwhile, home price growth has dipped following a clampdown on lending and property speculation.

That has already made a dent in developers’ financials. Dalian Wanda reported a revenue drop of almost 11 per cent in 2017 while other residential developers are girding for longer-term impact. JPMorgan Chase has forecast as much as a 6 per cent decline in mainland Chinese home sales this year.

Now developers are “looking at other sectors in which to invest in order to get the returns that they need to continue growth”, says John Mortensen, regional director of real estate investment and management company JLL, which often works with universities.

Meanwhile, China’s education market is booming. The sector will grow from Rmb1.64tn ($261bn) in revenue in 2015 to Rmb2.9tn ($461bn) in 2020, according to Deloitte, with particularly high demand for English-language curriculums.

Growth in private schools has outpaced China’s overall education growth, with the number of students rising almost 150 per cent in the past decade even as the number of students enrolled in public schools declined almost 15 per cent, according to the Chinese education ministry. In recent years, private school operators have increasingly opened English-only international schools catering to Chinese students.

“Conveniently, the demographic buying new apartments is not dissimilar to that that’s looking for education and has the financial wherewithal to be able to afford both an international education and have the aspirations to go on studying overseas,” says Mr Mortensen.

Amid fierce competition to get into good universities at home and overseas, proximity to a good school is often a key factor in determining Chinese property prices. A 2012 study of Shanghai housing found that prices were more than 40 per cent higher in top-rated school districts.

That has prompted residential developers to build new complexes with schools within walking distance of apartments, hiring or building in-house education teams to recruit teachers and design bilingual curriculums.

Guangzhou-based Country Garden, China’s top residential developer by sales, is now also among the country’s biggest private education providers. Its education subsidiary, Bright Scholar, runs 52 bilingual international schools that each offer a full education from kindergarten to secondary school. Bright Scholar listed on the New York Stock Exchange last year, raising more than $150m.

Country Garden’s controlling shareholder Yang Huiyan, daughter of the group’s founder, became China’s richest woman after Country Garden shares surged in January, adding more than $2bn to her wealth.

A middle school under construction on the outskirts of Laohekou, Hubei Province, China © Bloomberg

Country Garden has also partnered with Shattuck-St Mary’s, a US private school, on an international campus at its sprawling Forest City complex in Malaysia.

“They provide the hardware and we provide the software, so to speak,” says Shattuck-St Mary’s president Nick Stoneman, who expects the 3,000-student, $200m campus to open in September.

Vanke Group, China’s second biggest residential developer by sales, set up its own education group in 2015 as part of a strategic shift aimed at offering a “full ecology” to families.

“Their children can study here and their elders can also receive care with us,” says Xu Qingchuan, a Vanke director who manages the group’s education programmes. “If they want to go travel, we also have tourism services.”

Five of Vanke’s 13 schools are tuition-charging institutions built as public-private partnerships with local public education authorities. Meanwhile, Vanke’s Hangzhou secondary school specialises in fine arts, an area in which the public school system often lacks resources.

Dalian Wanda is a property group with a growing interest in schools © Dreamstime

Dalian Wanda is another property group with a growing interest in schools — its children’s education and entertainment group almost tripled its sales last year even as the group’s total revenues fell more than 10 per cent.

“Wanda must reach customers of all ages . . . Kids mean the future,” Dalian Wanda’s chairman, Wang Jianlin, wrote in a report.

Finding new avenues of business is important amid growing threats to developers’ traditional areas of activity. Local governments have been moving to curb property speculation in recent months, using measures such as increasing downpayment requirements, restricting consumer lending and frequent re-selling of homes, and preventing non-locals from purchasing properties.

Growth in prices and sales has ticked up since September but has fallen short of the year before. Some analysts expect home sales to stagnate or even fall this year, with JPMorgan Chase forecasting a 6 per cent decline.

Meanwhile, Chinese urbanisation policies have reduced the prime land available for developers, which have had to move further out from city centres. To entice affluent buyers to urban fringes, they must provide a full suite of services, including education and healthcare.

Follow Emily Feng on Twitter @emilyzfeng

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