INDUSTRY OVERVIEW. The following sets out the main reasons DTZ C&W adopted the above sources of information and considered them as reliable:

Transcription

1 This section contains certain information, statistics and data relating to the economy of the PRC and the industry in which the Group operates. The Company has extracted and derived the information in the section below, in part, from the DTZ C&W Report, a commissioned report from DTZ C&W. Please see the paragraph Sources of Information below. The Company believes that such sources of the information in this section are appropriate sources for the information and statistics below, and has taken reasonable care in extracting and reproducing such information. The Company has no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by the Company, the Sole Sponsor, any of their respective affiliates or advisers, or any party involved in the Share Offer and no representation is given as to its accuracy. SOURCES OF INFORMATION In connection with the Listing, the Company commissioned the DTZ C&W Report from DTZ C&W for use in this prospectus to provide Shareholders with information relating to the economy of the PRC, the residential and commercial property market in Pearl River Delta including Guangzhou, and the industry in which the Group operates. DTZ C&W has charged a total fee of RMB400,000 for the preparation of the DTZ C&W Report. DTZ C&W is a global real estate adviser, which offers a range of services including investment agency, leasing agency, property and facilities management, project and building consultancy, investment and asset management, market research and forecasting and valuation. DTZ C&W has 300 offices in 60 countries. The DTZ C&W Report was prepared primarily by the designated market research team of DTZ C&W based on data from the PRC government, renowned research institutions and the proprietary databases of DTZ C&W. In the course of research, DTZ C&W also conducted interviews with local marketing agents in the residential property sector in the PRC. The following sets out the main reasons DTZ C&W adopted the above sources of information and considered them as reliable:. It is general market practice to adopt official data and announcements from various Chinese government agencies; and. DTZ C&W understands the data collection methodology and source of the subscribed database from China Real Estate Index System. While preparing the DTZ C&W Report, DTZ C&W has relied on the major assumptions listed below:. The macro-economic environment of each of the PRC and Pearl River Delta including Guangzhou is expected to grow at a steady rate;. The political environment of the PRC remains stable; and 50

2 . The real estate industry of each of the PRC and Pearl River Delta including Guangzhou is expected to grow at a steady rate. Based on the review and analysis under the above bases and assumptions, nothing has come to the attention of the Directors and the Sole Sponsor to indicate that such information is misleading. As at the Latest Practicable Date, the Directors confirmed that to the best of their knowledge and information and taking reasonable care, there was no adverse change in the market information since the date of the Market Research Report, which would qualify, contradict or have an impact on the information in this section. OVERVIEW OF THE PRC ECONOMY Over the past five years, the PRC s economy experienced a steady growth with a softening trend. Under the influence of various macro-economic policies, the PRC s GDP growth has remained healthy, with nominal GDP value increasing from approximately RMB47,310 billion in 2011 to approximately RMB74,413 billion in 2016, representing a CAGR of approximately 9.5%. According to the National Bureau of Statistics of China, the PRC has been the world s second largest economy in terms of nominal GDP since Investment in fixed assets has maintained a steady growth. The total investment in fixed assets in the PRC has increased from approximately RMB31,149 billion in 2011 to approximately RMB60,647 billion in 2016, representing a CAGR of approximately 14.3%. The urban resident disposable income per capita has increased from approximately RMB21,810 in 2011 to approximately RMB33,610 in 2016, representing a CAGR of approximately 9.0%. This growth shows that the willingness of urban residents to consume has increased, with their purchasing power raised. The PRC s economic outlook and government policies established for economic growth and urbanisation The PRC s economic development had boosted the pace of urbanisation. Over the past 10 years, the rate of urbanisation in the PRC has increased by approximately 1.0% to 1.5% every year, reaching 57.4% in An increase of 1.0% represents an increase of approximately 13 million rural people migrating into urban cities, which will no doubt bring in large housing and consumption demand to the urban cities in the PRC. According to the National Plan on New Urbanisation ( ) ( 國家新型城鎮化規劃 ( )), released by the PRC State Council, certain measures such as emphasizing small town development, improving integrated transportation network, enhancing public service level etc. will be carried out to increase the level andqualityofchina s urbanisation in the future, aiming at having the urbanisation rate to reach 60.0% by OVERVIEW OF THE PRC PROPERTY MARKET The economic growth, urbanisation and rising standards of living in the PRC have been the main driving forces behind the increasing market demand for properties. The real estate industry in the PRC is dependent on the PRC s overall economic growth, including the increase in the purchasing power of residents in the PRC and the resulting demand for residential properties. 51

3 The PRC government has put in place certain policies which are intended to stabilise the property prices and to control the mortgage loan in the PRC. These policies primarily relate to, among others, control over purchasing properties for speculation and adjustment of the minimum capital ratio of fixed asset investment projects according to the economic situations and the necessity of macro-economic control. Under the effects of the growth of domestic investment, consumption and the PRC economy, the PRC property market has been growing rapidly. The total investment in real estate development projects increased from approximately RMB6,180 billion in 2011 to approximately RMB10,258 billion in 2016, representing a CAGR of approximately 10.7%. According to the National Bureau of Statistics of China, the total GFA of commodity residential properties completed increased from approximately 743 million sq.m. in 2011 to approximately 772 million sq.m. in The total GFA of commodity residential properties sold increased from approximately 965 million sq.m. in 2011 to approximately 1,157 million sq.m. in 2013 after the two downward adjustments on the official borrowing and saving rates made by the People s Bank of China in 2012 which had stimulated the demand for residential properties and resulted in a boost of the total GFA of residential properties sold in Although the total GFA of residential properties sold witnessed a drop from approximately 1,157 million sq.m. in 2013 to approximately 1,052 million sq.m. in 2014, there was a rebound to approximately 1,124 million sq.m. in 2015 due to the relaxation of the restriction policy on purchases of residential properties. Although the purchase restriction policy was reactivated in the fourth quarter of 2016, the total GFA of residential properties sold still had an overall increase to approximately 1,375 million sq.m. in The average selling price of residential properties in the PRC also experienced a surge between 2011 and 2015 at a CAGR of 9.6%. OVERVIEW OF PEARL RIVER DELTA INCLUDING GUANGZHOU ECONOMY Overview of Pearl River Delta economy Accordingtothe Pearl River Delta Reform and Development Plan ( ) ( 珠江三角洲地區改革發展規劃綱要 ) ( 年 )) promulgated by the National Development and Reform Commission in December 2008, there are 9 cities located at the Pearl River Delta including Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing, with the total area of approximately 24,437 sq.km., accounting for approximately 14% of the land area in the Guangdong Province. The GDP of the Pearl River Delta increased from approximately 52

4 RMB4,397 billion in 2011 to approximately RMB6,791 billion in 2016, which accounted for approximately 79.3% of the total GDP in Guangdong Province. The key economic indicators of Pearl River Delta are as follows: CAGR Pearl River Delta GDP (RMB billion) 4,397 4,790 5,306 5,780 6,227 6, % Pearl River Delta GDP Growth (%) N/A Note: N/A means not applicable or not available Sources: Guangdong Province Statistical Yearbook, DTZ C&W Overview of Guangzhou economy Guangzhou s GDP went up year-over-year at a steady growth from 2011 to The city s regional GDP in 2016 was approximately RMB1,961 billion, with an increase of approximately 8.3% over that of GDP per capita in Guangzhou in 2016 reached approximately RMB139,644 with an increase of approximately 2.5% over that of Urban disposable income per capita in Guangzhou increased from approximately RMB34,438 in 2011 to RMB50,941 in Fixed asset investment grew at a CAGR of 10.9% from approximately RMB341 billion to approximately RMB571 billion during 2011 to The regional urbanisation rate was at approximately 86.0% in According to the Guangzhou City National Economic and Social Development Thirteenth Five-year Plan ( ), Guangzhou s GDP is expected to reach RMB2.8 trillion with an annual growth rate of above 7.5% in Guangzhou is expected to promote a moderate population density with a balanced distribution. In 2020, the regional population will be controlled at approximately 15.5 million residents. It is expected that target of doubling the urban disposable income per capita in 2020, compared with that in 2010, will be achieved. ANALYSIS OF THE PROPERTY MARKET IN PEARL RIVER DELTA INCLUDING GUANGZHOU Overview of the property market in Pearl River Delta The property market in Pearl River Delta experienced a stable growth in the recent years. According to China Real Estate Index System (CREIS), real estate investment in Pearl River Delta rose from approximately RMB414.0 billion in 2011 to approximately RMB806.1 billion in 2016 at a CAGR of 15.7%. According to China Index Academy, in 2016, the 9 cities of Pearl River Delta sold a total of approximately 82.2 million sq.m. of primary commodity residential properties, which has increased at a CAGR of 10.4% from 2011 to Guangzhou, Foshan, Dongguan, and Huizhou were the cities with relatively higher sales, as each of them recorded sales of more than 7 million sq.m. Since there are differences in terms of economic strength and the real estate market development among the cities in Pearl River Delta, the demand for new commodity residential 53

5 properties in Guangzhou, Shenzhen, and Zhuhai have a mix of fundamental and investment demand while Jiangmen, Zhongshan, and Zhaoqing were basically dominated by fundamental demand. Overall, the property market in other cities in Pearl River Delta is stable and healthy. Major real estate indicators in Pearl River Delta CAGR Real estate investment (RMB billion) % Total GFA of primary commodity residential properties sold (million sq.m.) % Source: CREIS (China Real Estate Index System), China Index Academy The major factors of driving the property market in Pearl River Delta The China (Guangdong) Pilot Free-Trade Zone ( 中國 ( 廣東 ) 自由貿易試驗區 ) formally approved by the State Council on 31 December 2014 covers the three areas in Pearl River Delta including Nansha of Guangzhou, Qianhai and Shekou of Shenzhen, and Hengqin of Zhuhai. The free trade zone aims at creating an international, market-oriented and regulated business environment based on pilot reforms implemented over a period of three to five years. The free trade zones provide a new driving force for Pearl River Delta economic development and will offer more investment opportunities and trade facilitation. Therefore, it is anticipated that there will be a boost in the demand of residential and commercial properties in the Pearl River Delta. With the estimated completion of Hong Kong-Zhuhai-Macao Bridge by the end of 2017, the transportation network among cities within Pearl River Delta will be improved. The shortened travel time between the eastern and western banks of the Pearl River Delta facilitates the flow of commuters, and hence the cities in the western banks such as Zhuhai and Zhongshan and the peripheral cities surrounding are expected to benefit from the economic development and eventually to drive the residential and commercial market. Besides, according to the Three-year action plan for major infrastructure construction projects (the Action Plan ) ( 交通基礎設施重大工程建設三年行動計畫 ) ( 簡稱 行動計畫 ) jointly issued by National Development and Reform Commission and Ministry of Transport in May 2016, Pearl River Delta region will focus on promoting various projects of railways, highways, waterways, airports, and urban rail transit involving a total investment of about RMB4.7 trillion during 2016 to After the completion of these projects, there will be closer ties among cities in Pearl River Delta and in the long term will stimulate the demand of residential and commercial properties in the regions. 54

6 Overview of property market in Guangzhou From 2014 to 2016, the major supply of land in the central urban area of Guangzhou mainly came from urban renewal plots. Most of the land supply plots were captured by the large property developers with state-owned background and strong capital strength. Residential lands were sold by auction with increasing land prices. According to the Guangzhou Municipal Land Resources and Housing Administrative Bureau, the land supply for commodity residential properties in the next three years will be approximately 11.6 million sq.m. on site area, equivalent to an average of 3.9 million sq.m. per annum. Guangzhou Commodity Residential Property Market GFA (million sq.m.) Primary commodity residential property transaction volume (million sq.m.) Secondary commodity residential property transaction volume (million sq.m.) GFA of housing stock (million sq.m.) Ratio of primary to secondary commodity residential property transaction volume Ratio Sources: CREIS (China Real Estate Index System), CRIC (China Real Estate Information Corp), DTZ C&W In major developed cities including Beijing, Shanghai and Shenzhen, urban land supply is usually in shortage and therefore the market is more dependent on the secondary market. According to CREIS, in 2016, the transaction value in the secondary property market accounted for 77% and 64% of the total property transaction amounts in Beijing and Shanghai, respectively. However, between 2012 and 2016, the real estate market in Guangzhou was still dominated by primary commodity residential properties where the transaction value of secondary market transactions as a percentage of total property transaction amounts was only 42% in In the same year, according to Yang Guang Jia Yuan* ( 陽光家緣 ), an official real estate information website maintained by the Guangzhou Housing and Urban-Rural Construction Committee ( 廣州市住房和城鄉建設委員會 ), the number of registrations of secondary commodity residential property transactions in the nine main areas of Guangzhou (excluding Zengcheng and Zonghua districts) was more than that of primary commodity residential property transactions. In Guangzhou the total GFA of primary commodity residential property sold has increased from approximately 7.7 million sq.m. in 2012 to approximately 14.6 million sq.m. in 2016 while total GFA of secondary commodity residential property sold increased from approximately 4.9 million sq.m. in 2012 to approximately 11.5 million sq.m. in The ratio of primary to secondary commodity residential property sold in Guangzhou was generally over 1.0 since The ratio reached a short term peak of 1.7 in 2014 and gradually decreased to 1.3 in 2016, indicating a growing secondary 55

7 commodity residential market. The ratio is expected to follow the trend of other major cities in China such as Shenzhen, Beijing and Shanghai, where the ratio is less than 1, indicating an expanding secondary commodity residential property market in the medium to long run. The total GFA of the unsold housing stock of primary commodity residential properties in Guangzhou surged from approximately 7.7 million sq.m. in 2012 to 12.2 million sq.m. in 2014 due to the effect of the purchase restriction policy imposed in When the purchase restriction policy was relaxed in 2015, there was a rebound of the residential GFA sold, and hence a drop in unsold housing stock from approximately 10.0 million sq.m. in 2015 to approximately 7.9 million sq.m. in 2016 and a further drop to 7.5 million sq.m. in September After the implementation of the purchase restriction and differentiated housing credit lending policies in October 2016 and the two new measures on purchase restrictions in March 2017 as set out in the section headed Regulatory Overview, according to CREIS, the transaction volume of primary commodity residential properties was approximately 4.1 million sq.m. in the fourth quarter of 2016 and approximately 7.5 million sq.m. in the first nine months of The total transaction volume in the first nine months of 2017 decreased by 27.9% as compared to the first nine months of 2016, while the average selling price of primary commodity residential properties in Guangzhou for the first nine months of 2017 increased slightly by 2.2% from the average selling price of primary commodity residential properties in Guangzhou for The purpose of the purchase restrictions is generally to promote a healthy development of the residential property market, to cool down excessive speculation, whilst meeting fundamental demand. In response to newly announced measures, purchasers may take a wait and see attitude and postpone their purchase decisions in the short run. As a result, the transaction volume of the remaining period of 2017 is estimated to soften and thus the transaction volume of the whole year is unlikely to exceed that of The unsold housing stock level of primary commodity residential properties in Guangzhou will also remain low. Based on our observations of the effects of the various restrictive measures and control policies on the Guangzhou property market in the past few years, such measures and policies may result in a slight dip in transaction figures, such as volume and price, for a temporary period. However, as many other factors play a role, the market generally recovers and continues to trend upwards. Once these restrictive measures have been digested by the market, and if there are no significant changes in macroeconomic environment and new policies, the transaction volume is expected to have a steady growth in 2018 and

8 Average level of price and rent in the property markets in Guangzhou RMB per sq.m. 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, , ,000 13, , , ,346 16, ,691 16, Q Q Q RMB per sq.m./index Average selling price of primary commodity residential properties (RMB per sq. m.) Average rent of commodity residential properties (RMB per sq. m. per month) Prime retail rental index (Base Value = 100) Note: There is no official data for the price level of secondary commodity residential properties. There is no official data for the average rent of commodity residential properties for the period between 2011 and 2013 and the official data available is only for yearly figures. Sources: Statistical Bulletin of National Economics and Social Development of Guangzhou, Guangzhou Association of Real Estate Agents, DTZ C&W. According to Statistical Bulletin of National Economics and Social Development of Guangzhou, there was a general increase in average selling price of primary commodity residential properties from RMB10,926 in 2011 to RMB16,346 in 2016 at a CAGR of 8.4% from 2011 to Guangzhou market was dominated by primary commodity residential property during the period, and the average price trend of secondary commodity residential property generally followed the same of primary commodity residential property. In the last few years, the Guangzhou residential market has been cyclical and driven by the various government policies as set out in Regulatory Overview Policies and Measures on Controlling and Adjusting on the Housing Market. The only negative adjustment of average primary commodity residential price was noted in 2015 at -4.5%. Despite the tightening policies in the fourth quarter of 2016 and in March 2017, the average primary commodity residential price continuously remained stable in the first nine months of It is expected that the average primary commodity residential price will continue to be stable, and grow by a single-digit percentage in the coming few years. According to Guangzhou Association of Real Estate Agents, the average rent level of commodity residential properties was stable from 2014 to 2016 at a level of slightly above RMB39.0 per sq.m. per month. Looking to the near future, it is anticipated that the average rent level will remain stable in Guangzhou. According to the Notice No. (2017) 29 ( 穗府辦 號 ) issued by the Office of the People s Government of Guangzhou ( 廣州市人民政府辦公廳 ) on 30 June 2017 and printed on 10 July 2017, the Working plan on accelerating the development of the housing leasing market in Guangzhou ( 廣州市加快發展住房租賃市場工作方案 ) was issued in order to establish a transparent, comprehensive, and regulated residential leasing market by 2020 through the protection of the leasing interests of the lessor and lessee, increasing the supply of residential units for leasing purposes and strengthening the leasing market. Key suggestions include allowing 57

9 qualified children of the lessee to apply for admission to nearby schools, reduction of VAT for individual lessor, a new bidding mechanism for increasing the leasing residential gross floor area in competitive land bidding process, and allowing commercial properties to be converted into leasable residential properties. As a result, the residential leasing market may become more active and transparent. However, the working plan and key suggestions above are subject to further details to be released by the relevant local government authorities and thus the impact has yet to be revealed or studied. According to DTZ C&W prime retail rental index, which covers the average rent in index form of prime retail market of Guangzhou, it experienced a stable increase from 2011 to 2014 while a drop from 2014 to In the first half of 2017, the index exhibited a slight increase. Looking to the near future, it is anticipated that the prime rental index will remain stable in the prime retail locations of Guangzhou. The major factors of driving the property market in Guangzhou The enforcement of Universal Two-child Policy is expected to stimulate the demand on housing in Guangzhou, especially the properties with bigger flat size, in order to improve the living standard and environment. The China (Guangdong) Pilot Free-Trade Zone ( 中國 ( 廣東 ) 自由貿易試驗區 )innanshawas formally approved by the State Council on 31 December 2014 to form a new competitive edge in international economic cooperation, to strive for being a pilot free trade zone with legal system in line with high international standards, and to facilitate investment and trade. Nansha is administered by Guangzhou and this project will eventually enhance the trade and economic activities in the surrounding area and Guangzhou will reinforce its economic position through development of the free trade zone. In 2016, urban disposable income per capita in Guangzhou reached RMB50,941, with an increase of approximately 9.0% over the previous year. The demand for residential properties as a result grew with the surge of the purchasing power. OVERVIEW OF THE PROPERTY CONSULTANCY AND AGENCY INDUSTRY IN THE PRC Development of property consultancy and agency industry Property consultancy services refer to the provision of consultancy services on laws, regulations, policies, market information and relevant technologies to parties involved in the property market whilst the property agency services refer to the provision of property market information and agency services. Property consultancy, property agency and property valuation services are collectively known as property intermediary services. In 1998, the PRC government reformed the housing system and deepened the monetization reform of housing distribution. The developed property market in the coastal cities such as Guangzhou, Shenzhen and Shanghai started becoming dominant in the PRC, and the relevant property intermediary service industry also entered into the local development stage, although some overseas competitors had already stood in advantageous market positions in 1990s. During 58

10 this period, property agency and consultancy services gradually laid the foundation of transforming from simple property sales agents into one stop integrated real estate consultancy planning and consultancy sales agents. Since 2001, property consultancy and agency industry has entered a period of rapid growth. There was a general trend of rise in revenue and profit of companies within the industry, so that the strength of property consultancy and agency companies become consolidated and their business scales had a remarkable expansion. The development characteristics of the industry According to the Thirteenth Five-Year Plan for the National Economic and Social Development of the People s Republic of China ( the Thirteenth Five-Year Plan ) ( 中華人民共和國國民經濟和社會發展第十三個五年規劃綱要 ) ( 簡稱 十三五 ), the macro-economic policy aims at optimizing the structure of residential housing supply, striking a balance between market demand and supply, and maintaining the stable growth in the property market. The property market in Pearl River Delta experienced a stable growth in the recent years. Guangzhou, Foshan, Dongguan, and Huizhou were the cities with relatively higher sales, as each of them recorded sales of more than 7 million sq.m. Property agency and consultancy companies are extending their service lines in these cities as well as other key cities in the Pearl River Delta so as to capture the market opportunities. Currently, the real estate market in Guangzhou was still dominated by primary commodity residential properties. In the short run, primary commodity residential market will still be important for all property agency and consultancy companies. In the long run, Guangzhou will be similar to other major developed cities including Beijing, Shanghai and Shenzhen with shortage of urban land supply and therefore the market will be more dependent on secondary commodity residential property. Therefore, property consultancy and agency companies in Guangzhou tend to focus on the primary commodity residential market while establishing their number of outlets so as to expand their market coverage in secondary residential market. Property agency and consultancy companies traditionally approach client through outlets. Nowadays, they also make use of the online platform such as website or other communication tools to connect with customers and also launch promotion campaign. It can raise public awareness and brand recognition in a more effective and efficient way. Moreover, the agency companies can, via online platforms, send marketing materials such as periodicals and sales brochures, realty title certificates, information of properties available for sale and lease, assistance with mortgages, etc. The ultimate aim is providing a one stop solution to the client. According to DTZ C&W, there were 11 new large scale retail developments launched within the 6 core districts in Guangzhou during 2015 and Due to the complexity of the consumer retail market in Guangzhou, along with the recent development of e-commerce, the strategy on retail marketing and operation has become more and more important. For example, the consumer retail market is mainly dominated by fashion flagship stores, personal care and beauty shops, chained restaurants, and boutique with personalized designer brand in recent years. 59

11 Major selling, administrative and other expenses The major cost involved in property consultancy and agency companies generally refers to the agent staff cost, which is subject to market fluctuation and volatility. According to Guangzhou Statistical Bureau, the average annual salary level in Guangzhou increased from RMB57,473 per capita in 2011 to RMB89,096 per capita in 2016, equivalent to a CAGR of 9.2%. The growth is in line with the GDP growth of Guangzhou CAGR Average annual salary level 57,473 63,752 69,692 74,245 81,171 89, % Sources: Guangzhou Statistical Bureau, DTZ C&W Competitive landscape in the property consultancy and agency industry The entry barrier of the property consultancy and agency industry is relatively low, which resulted in a large number of players in the market while most of them are small in scale and the competition is keen. However, whether a company can effectively compete in the market depends on a series of factors including its brand recognition, its experience in the property consultancy and agency industry and market coverage by number of shops and staffs. The gradual shift from the domination of primary market to secondary market also plays an integral role in the transformation within the real estate industry. According to the analysis of the primary market of the property agency industry from the Top 100 Enterprises Research Report 2015 and the China Index Academy, the primary market agency fee rate of the Top 100 companies was approximately 1.01% in 2016, showing a slight downward trend from 2011 which then stabilised in 2015 and Top 100 Enterprises Average Agency Fee in Primary Property Market (%) (Note) % % % % 1.03% 1.14% 1.08% 1.04% 1.03% 1.01% 1.01% % % % Top 100 Enterprises Average Agency Fee in Primary Property Market (%) Source: Note: PRC Real Estate Consultancy and Agency Top 100 Enterprises Research Report 2015, China Index Academy There is no data for the average agency fee in secondary property market. 60

12 Nowadays, property consultancy and agency companies tend to engage in businesses involving both primary and secondary residential properties and utilize their client resources and market knowledge to enhance integrated businesses by forming alliance with property developers and even other competitors. Through well-comprehensive training system and selecting recognized sales partners, both the primary and secondary market players could complement each other to achieve unique advantages, which make an important contribution to the market transformation. Competitive landscape in the property consultancy and agency industry in Guangzhou primary residential market As one of the first-tier cities, the property consultancy and agency industry in Guangzhou is relatively mature because of its higher degree of market-orientation. In 2016, the top 10 property consultancy and agency companies had a total market share of 51.4% by primary commodity residential area sold, where our Group has a market share of 1.9% and ranks eighth. Among the top 10 companies in primary residential market, eight of them are nationwide companies in China, and which were established for more than 10 years. Two of them are currently listed companies and four of them are related to property developers. The following list shows the ranking of property consultancy and agency companies in the primary residential market in Guangzhou in terms of the approximate GFA sold in 2016: Ranking (by approximate area sold) Agency name Approximate GFA sold in Market share of 2016 total area sold (sq.m.) (%) 1 Company A 3,132, Company B 1,615, Company C 528, Company D 512, Company E 402, Company F 338, Company G 311, Our Group 279, Company H 246, Company I 125, Source: DTZ C&W Note: Companies A, B, C, F, G, H, I and Our Group are nationwide companies. Companies A and C are currently listed companies. Companies E, F, I and Our Group are related to property developers. 61

13 In 2016, the top 10 property consultancy and agency companies in Guangzhou had a total market share of 56.1% by total transaction amount of primary commodity residential properties, where the Group has a market share of 1.9% and ranks ninth. The following list shows the ranking of property consultancy and agency companies in the primary residential market in Guangzhou in terms of the approximate total transaction amount in 2016: Ranking (by approximate total transaction amount) Agency name Approximate total transaction amount in Market share of Guangzhou in total transaction 2016 amount (RMB million) (%) 1 Company A 57, % 2 Company B 27, % 3 Company C 9, % 4 Company D 7, % 5 Company F 7, % 6 Company E 6, % 7 Company G 5, % 8 Company H 5, % 9 Our Group 4, % 10 Company I 1, % Source: DTZ C&W Note: Other than Companies A and C which are currently listed companies, the companies above are private companies and the actual percentage of agency fee for each project cannot be verified. The most reliable data or statistics available is the total transaction amount of each agency company. Secondary residential market According to the Guangzhou Association of Real Estate Agents ( 廣州市房地產中介協會 ), by the end of March 2016, Guangzhou has a total of 485 real estate agency companies, including 185 secondary market real estate agency companies with outlets. As the secondary market real estate agency market becomes increasingly mature in Guangzhou, there are 16 large companies running with at least 10 outlets in the market. Among the top 10 companies in the secondary residential market, four of them are nationwide companies in China while six of them only cover the market in Guangdong Province. Only one of the top 10 companies is a listed company and two of them 62

14 are related to property developers. Below is the list ranking the top 10 companies by number of sales agents in 2016 where the Group ranked fifth in terms of the number of sales agents and seventh in terms of the number of outlets in Guangzhou: No. of sales agents in Guangzhou in 2016 No. of outlets in Guangzhou in 2016 Market share (by no. of outlets) (%) Ranking (by No. of Staff) Agency name 1 Company J 3, Company A 1, Company K 1, Company B Our Group Company E Company L Company M Company N Company P Source: DTZ C&W Note: Companies J, A, B and our Group are nationwide companies. Company A is a listed company. Company E and our Group are related to property developers. There is no reliable data or statistics in relation to area transacted and revenue of the top 10 property consultancy and agency companies for the secondary residential market from the Guangzhou Association of Real Estate Agents or other government bodies, and therefore the information in relation to revenue generated from the secondary market for the companies above is not available. For ranking of companies in the secondary residential market, the number of outlets of each agency company is used as a parameter as the number of outlets represents market penetration. In contrast to primary residential market transactions, which primarily take place through channels such as agents stationed at open sales exhibitions or booths organized by the property developers, secondary residential market transactions take place through the channels of physical agency outlets. According to the 2017 Report on Housing Consumption in Guangzhou* ( 廣州市住房消費大數據報告 2017 年 ) prepared by L+ Research Institute, a related company of Lianjia, which is one of the key real estate agency companies in Guangzhou, a ranking of market players by the number of secondary market online registrations ( 二手網簽 ) in 2016 was published. Online registration ( 網簽 ) is the process of registering a property transaction via offices of Guangzhou Association of Real Estate Agents ( GZREA ). This ranking covers the secondary market online registrations ( 二手網簽 ) in the 11 administrative districts of Guangzhou, including Yuexiu District, Liwan District, Haizhu District, Tianhe District, Baiyun District, Huangpu District, Panyu District, Huadu District, Nansha District, Zengcheng District and Conghua District. It covered approximately 82% of the secondary residential market transactions in Guangzhou in 2016 and is considered as one of the key indicators of secondary residential market activity. 63

15 There are no clear leaders yet in this secondary residential market, with the largest player when ranked by number of outlets, Company A, accounting for only approximately 6.1% of the market share based on secondary market online registrations ( 二手網簽 ) and the second largest player when ranked by number of outlets, Company J, accounting for only approximately 11.2% of the market share based on secondary market online registrations ( 二手網簽 ). The other top two players when ranked by number of outlets, Company B and Company K, each accounted for even less of the market share. These players have been in the Guangzhou market for many years, and yet have not managed to gain a dominant position in the secondary real estate market. Competitive analysis in the residential market According to comparable analyses performed andprovidedbythecompanyofthecurrently listed companies above, it was noted that Company C has a much larger market capitalisation than that of our Group, and as such, financial performance of Company C is not reasonably comparable to our Group. Our Group s revenue growth in 2016 underperformed that of Company A s in agency consulting business as Company A (i) has a more diversified geographical scope and market presence in other regions in the PRC than our Group; and (ii) experienced a rapid growth in secondary property real estate agency business mainly attributable to the increase in its secondary branches. In 2016, our Group outperformed Company A in terms of net profit margin mainly because (i) unlike Company A, our Group did not have any interest-bearing borrowings and thus no interest or finance cost was incurred in 2016; and (ii) our Group s administration and management structure is relatively simpler than Company A s due to our Group s key geographic focus being in Guangzhou and Pearl River Delta only. The above analysis was made by comparing our financial performance to that of Company A based solely on the annual report published by Company A which was obtained in the public domain. 64

16 Retail market The table below sets out certain data of the historical GFA of retail properties under construction, GFA of retail properties newly constructed, GFA of retail properties completed, GFA of retail properties sold, and the average selling price of retail properties in the Guangzhou retail market from the China Index Academy during the period indicated. Guangzhou Retail Market GFA (million sq.m.) , ,791 20, ,943 18, GFA of Retail Properties Under Construction (million sq.m.) 25,000 20,000 15,000 10,000 5,000 0 RMB per sq.m. GFA of Retail Properties Newly Constructed (million sq.m.) GFA of Retail Properties Completed (million sq.m.) GFA of Retail Properties Sold (million sq.m.) Average Selling Price of Retail Properties (RMB/sq.m.) Source: China Index Academy The GFA of retail properties under construction in Guangzhou grew from approximately 8.3 million sq.m. in 2011 to approximately 11.2 million sq.m. in The GFA of retail properties newly constructed in Guangzhou also maintained overall steady growth in the past few years. It grew from approximately 1.3 million sq.m. in 2011 to approximately 2.4 million sq.m. in In 2014, the figure even increased to approximately 2.9 million sq.m., with a year-on-year increase of approximately 19.5%. The GFA of retail properties completed in Guangzhou fluctuated in the past few years. The figure decreased from approximately 2.6 million sq.m. in 2014 to approximately 1.6 million sq m. in 2015, sharply down by approximately 37.9%. The GFA of retail properties sold in Guangzhou maintained at an overall steady growth trend from approximately 0.6 million sq.m. in 2011 to approximately 1.3 million sq.m. in In 2015, the figure decreased back to a level similar to the level in 2013 at approximately 1.0 million sq.m. The average selling price of retail properties in Guangzhou fluctuated from 2011 to In 2015, the figure came down to approximately RMB18,943 per sq.m., which was similar to its level in It is expected that the supply, demand and price in the Guangzhou retail market will become more stabilised in the near future. The suburbs outside the six core districts in Guangzhou will become an important source of new retail shop supply and those retail development outside the six core districts will take time to become mature and be digested by the market. 65

17 Future Opportunities Pearl River Delta economy is transforming and expanding through the establishment of various free trade zones. The real estate market would also be benefited by the development of the free trade zones. With its experience and history, our Group has the capability to expand its services lines in key cities of the Pearl River Delta. In other major developed cities including Beijing, Shanghai and Shenzhen, urban land supply is in shortage and therefore the market is more dependent on secondary commodity property. Currently, the primary residential property is still dominant in Guangzhou market. It will be essential to maintain the market share of primary residential market in the short term. In the long run, the potential room of expansion will be in the secondary market and the key is to expand the number of staffs and shops so as to increase the market coverage and capture the growth in secondary residential market. Our Group currently has 39 retail outlets in Guangzhou to compete with other competitors in secondary residential market. An increase in outlets and staff members will help expand the business volume of the Company in both primary and secondary market. With the advancement of technology and the previous experience of the Company, the integration of client resources is easier through the one-stop shop integrated platform. In the process of service flow, apart from traditional property consultancy and agency services, our Group has also offered additional integrated services such as online platform allowing other agencies to participate in property agency projects, assisting customers to obtain relevant property certificates and procuring corporate client to lease commercial space. The adoption of online platform also lower the pressure on operation cost and provide a more efficient service. Threats and Challenges Undeveloped land in Guangzhou is becoming increasingly scarce and the cost of acquiring suitable land for property development has been increasing. Therefore, the supply of new residential properties is expected to decrease slightly in the coming years. To meet the residential needs, people will switch the attention to secondary market. In the past decade, the rapid real estate development in PRC has also been accompanied by macroeconomic control measures regularly. Therefore, the fluctuations in the supply of, or demand for, and the prices of residential properties in Guangzhou and other regions in the Pearl River Delta may have an impact on business performance of the property agency and consultancy companies. Meanwhile, further restrictive measures adopted by the PRC government on bank loans and property purchases may depress the property market in many areas of the PRC, including Guangzhou and elsewhere in the Pearl River Delta, where the business of our Group locates. Brand management is also important to the survival of property agency and consultancy companies within the industry. As most of the property agency and consultancy companies significantly rely on their brand reputation and images to attract potential customers, any negative incident or negative publicity concerning our businesses and projects would adversely affect our Group s reputation, business performance, and market positions. Thus, without a good internal management system, the brand recognition can be easily ruined. 66

18 Although there is improvement of the regulatory regimes, the entry barrier is still relatively low in Guangzhou and other regions in Pearl River Delta. For example, most of the secondary property agency companies in Guangzhou are small in scale with less than 10 outlets. The competition could be regarded as fragmented in the market. As the property market in the Pearl River Delta is still evolving, there is always a need for the property agency and consultancy companies to respond to changes in market conditions more quickly and increase the market share through opening up more outlets in order to maintain or enhance their competitiveness. 67