Invisible "new real estate forces": the annual sale of houses exceeds 10 billion, and the subway com

With the development of the TOD model, more metro companies have joined the team of "housing to maintain rail".

In 2023, the sales area of commercial housing in the country will hit a new low in the past decade, and the total sales of the top 100 real estate companies will decline by more than 15% year-on-year.

At the time of the reshuffle in the real estate industry, the subway company began to sit at the table.

Recently, 31 metro companies have successively announced their 2023 annual reports. According to the statistics of the E-House Research Institute, 7 of the metro companies that have published their annual reports have announced real estate development revenue, among which Suzhou Rail Transit, BIIC (the parent company of Beijing Metro), Chengdu Rail Transit and Guangzhou Metro will all have a year-on-year increase of more than 40% in real estate development revenue in 2023, far exceeding the average level of the real estate industry.

Shenzhen Metro, which has titles such as "the king of subway company profits" and "the subway company that is best at engaging in side business", holds 100 billion yuan in land reserves, and although its real estate development income declined last year, it still reached 14.7 billion yuan, contributing more than 58% to its overall revenue.

In recent years, more and more metro companies have joined the team of "housing to maintain rail", Jinan Rail Transit has become one of the developers with the largest amount of land to be developed in the local market, and Xiamen Metro TOD has shouted the slogan of "Breaking 10 Billion Yuan" by 2024.

The two subway companies earned more than 10 billion yuan from selling houses

According to the data of the Ministry of Transport, by the end of 2023, a total of 55 cities across the country have opened and operated urban rail transit, with an operating mileage of more than 10,000 kilometers.

Recently, 31 subway companies have published their annual reports, according to the statistics of the E-House Research Institute, 25 subway companies last year's operating income increased year-on-year, mainly due to the substantial increase in subway passenger traffic, but there are also 6 revenue declines.

Among these metro companies, seven companies, Shenzhen Metro, Beijing Investment Corporation, Chengdu Rail Transit, Suzhou Rail Transit, Guangzhou Metro, Qingdao Metro, and Wuhan Metro, have announced their real estate development revenues.

Among them, the annual real estate revenue of Shenzhen Metro and BIIC exceeded 10 billion yuan - in 2023, the real estate development revenue of Shenzhen Metro will reach 14.72 billion yuan, and that of BIIC will be 11.32 billion yuan. In addition, the real estate income of Chengdu Rail Transit last year was 9.99 billion yuan, which was also close to 10 billion yuan, a year-on-year increase of 60%.

Suzhou Rail Transit had the highest growth in real estate development revenue, with an annual revenue of 3 billion yuan, an increase of 124% year-on-year. Guangzhou Metro's real estate revenue was 2.47 billion yuan, a year-on-year increase of 41%.

However, the volatility of the real estate market has also brought challenges to the real estate projects of some metro companies, such as Qingdao Metro and Wuhan Metro, whose real estate development revenue fell year-on-year in 2023. Wuhan Metro, in particular, saw its real estate development income fall by 97 percent to just 180 million yuan last year.

In 2023, the sales area of commercial housing in China hit a new low in the past decade, and the real estate development revenue of Suzhou Rail Transit, BIIC Corporation, Chengdu Rail Transit and Guangzhou Metro all achieved a year-on-year increase of more than 40% last year, far exceeding the average level of the real estate industry.

Yao La, director of the consulting center of Shanghai E-House Real Estate Research Institute, believes that the four metro companies have been able to achieve such results, which is inseparable from the TOD development strategy they have adhered to for many years, and to a certain extent, it can also be seen that the resilience of TOD projects is strong, and their ability to resist cycles is strong.

The TOD model, or Transit Oriented Development, refers to the establishment of urban areas that integrate work, commerce, culture, education, and residence, with public transportation such as subways and light rails as the center.

At present, many cities that have opened subways are practicing the TOD development model. The opening of the subway has a significant role in promoting the value-added of real estate projects along the line, and the subway company can know the development schedule and route of the subway in advance, thereby increasing the added value of the land taken.

In September last year, the China Urban Rail Transit Association issued the "Guiding Opinions on Further Encouraging and Developing the Comprehensive Development and Utilization (TOD) of Urban Rail Transit Stations and Surrounding Land", which is the first TOD policy document at the national level and is of great significance for promoting the development and practice of TOD in various places.

Metro companies actively carry out "real estate side business"

The subway is expensive, but as a means of public transportation, the fare is relatively low, so in general, the subway operation business is not profitable, and real estate has become an important "side business" of the subway company.

A comprehensive review of the 2023 annual reports of 31 metro companies shows that except for Shenzhen Metro, Shentong Metro, and Changzhou Metro, the difference between the total operating income and the total operating cost of most metro companies is negative.

However, there are also subway companies that are still in a state of loss even if they count government subsidies, such as the loss of Lanzhou rail transit after adding government subsidies, the loss of Foshan Metro is 119 million yuan, and the loss of Shenyang Metro is 72 million yuan.

In order to feed back the construction and operation of rail transit, in recent years, with the increase in the mileage of subway opening, more and more metro companies have launched the "rail + property" model to develop real estate and property above rail transit stations.

Thanks to real estate development investment, Shenzhen Metro was once known as "the most sideline subway company", which was at the top of the subway company's revenue list all year round, and was also the "king of profits" among subway companies.

Shenzhen Metro has two main business segments, one is subway and railway operation and management design; The second is the "integrated development of station and city", that is, real estate development, including residential, commercial and affordable housing projects.

In 2023, Shenzhen Metro will achieve an operating income of 25.15 billion yuan, of which the "station-city integrated development" segment will achieve an operating income of 14.723 billion yuan. Although Shenzhen Metro's real estate development revenue fell by 8.26% year-on-year due to the weakness of the real estate market, its contribution to the overall revenue still reached 58.5%, surpassing the main business of subway and railway operation.

In addition, the profitability of Shenzhen Metro is also more dependent on real estate, with the gross profit margin of its subway and railway operation and design segment reaching -23.06% last year, while the gross profit margin of the station-city integrated development segment reached 37.4%.

According to the Prospectus for the Public Issuance of Corporate Bonds (Phase III) to Professional Investors in 2024 by Shenzhen Metro Group Co., Ltd., as of September 30, 2023, the total planned investment amount of the integrated development projects under construction of Shenzhen Metro Station City has reached 191.556 billion yuan, of which 104.078 billion yuan has been invested, and 87.478 billion yuan still needs to be invested, and 30 pieces of land have been acquired, with a total value of 117.7 billion yuan.

Jinan Rail Transit is regarded as one of the developers with the largest land holdings in Jinan's real estate market. From 2019 to 2022, Jinan Rail Transit has acquired about 34 parcels of land in the Zhangma area of Jinan East Railway Station and the core area of Jinan East Railway Station, with a total area of more than 1,000 acres. Recently, the first real estate project "Longquan Mansion" of Jinan Rail Transit is about to enter the market.

In April 2021, Xiamen Metro Superstructure Investment and Development Co., Ltd. (hereinafter referred to as "Xiamen Metro TOD"), a wholly-owned subsidiary of Xiamen Rail Group, was officially inaugurated, specifically targeting TOD development projects. In the first year of its establishment, the company spent 9.29 billion yuan to auction the TOD plot of Xiamen Wetland Park, with a total investment of more than 14.29 billion yuan. In 2022, Xiamen Rail Group spent another 12.5 billion yuan to acquire three TOD plots, and in 2023, it will acquire plots near the TOD in Haicang Center. At a pledge meeting in 2024, Xiamen Metro TOD shouted the slogan of "breaking 10 billion" in 2024.

Yao La believes that the main contradiction faced by the development of rail transit under the new situation is capital, and TOD development is an important path to alleviate the problem of rail transit funds, and the subway company should accelerate the construction of a new development model, explore, cultivate and enhance the ability of TOD projects to "invest, finance, build, manage and retreat", and actively transform into an urban comprehensive operator, and it is expected that key cities will also successively introduce relevant policies to support the development of subway companies. In the future, metro companies need to think about how to innovate cooperation models, how to integrate the resources of the industrial chain, and how to give full play to the advantages of all parties, which is both a challenge and an opportunity.

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