2 Possible Growth Catalysts For APAC Realty Ltd
APAC Realty Ltd (SGX: CLN) has had a bumpy start to life as a listed a company. Since its initial public offering (IPO) in the later part of last year, its share price has tumbled 26% as investors grew concerned about the impact of the additional property cooling measures.
However, last month, the real estate brokerage company announced two new business initiatives that could potentially provide new avenues of growth.
Joint venture office in China
The group has entered into a joint venture agreement to take a 40% stake in a business set up in Hainan to conduct brokerage services and conduct training and licensing for real estate agents. Through the joint venture, APAC Realty will take its first steps in expanding its business in the China market.
Its other two partners in the joint venture are Zhong Zhi Seng He Real Estate Investment Consulting Co. Ltd and Bei Guo Tou (Shanghai) Equity Investment and Fund Management Co. Ltd which will own a 40% and 20% stake respectively.
Entering China through a joint venture makes sense for APAC Realty as it has partners that have the expertise in the local market. Moreover, existing projects from Zhong Zhi Sheng He Real Estate Investment will be transferred to the new joint venture.
The new China joint venture is only in its infant stages and I do not expect it to substantially move the needle for APAC Realty in the near term. Nevertheless, it provides the group with greater understanding of the China market, expanding its brand awareness and diversifying its income stream.
Expanding its franchise offices in China
In addition to its first joint venture, APAC Realty is extending entrepreneurship opportunities to ERA’s agents by allowing them to open franchise offices in any Chinese city. The concept has already been tested by senior division director, Daniel Phua, who set up a franchise office in Nanning, Guangxi, in May this year.
Despite Phua’s franchise office being a new concept in Nanning, clients have engaged it due to the recognition of ERA’s brand. With the success of the first franchise office, APAC Realty is hoping more agents will take up this opportunity to increase their sales and to run their own company. It will also enable APAC Realty to build up its ERA brand in China and increase its franchise revenue.
The Foolish bottom line
While near term earnings contribution might not be significant, the two initiatives mark APAC Realty’s maiden entry into China. I believe these are the right steps to take to break into the fast-growing China real estate brokering industry. If implemented successfully, these could very well mark the start of a new chapter of growth for the group.