(Yicai) Jan. 8 -- After an influx of new market entrants seeking low-risk real estate opportunities, growth in China's construction management sector is slowing amid sluggish project launches and weak new home sales.

Last year, 28 leading construction agencies reported less than 8 percent growth in construction area compared to 2023, according to data from the China Index Academy. This marks the first time since 2018 that the annual growth rate has fallen below 10 percent. In comparison, growth rates reached 56 percent in 2023 and 11 percent in 2022.

The construction agency business model is gaining popularity in China due to its shared responsibility and benefit structure between project owners and managers. Management companies oversee planning, construction, and supervision, receiving milestone-based fees, while project owners - often local governments - retain ownership and handle financing.

Poor Sales

Weakened housing sales are affecting the entire value chain. Due to sluggish new home sales, competition among construction management companies has become intense, with price wars eliminating some smaller companies, Zhou Xuan, director of product research at EH Consulting, told Yicai.

Liu Bingyang, president of China's second-largest construction agency CIFI Construction Management, said companies in the field are hesitant to take on new projects due to various risks.

Liu Shui, director of enterprise research at the CIA, noted that local governments' urban investment companies, typically major clients of construction managers, are reducing their land acquisitions and delaying the commissioning of new projects, which also contributed to the slowdown in market growth.

Only one-fifth of projects awarded to municipal investment companies since 2021 have begun construction, according to real estate data provider CRIC.

New Agencies 

The market's slower expansion last year was also partly due to the difficulty in maintaining the high growth rates seen in 2023, Liu explained. The previous year's boost was partially attributed to new market entrants, as many property developers switched to this lower-risk business model during uncertain sales and financing conditions.

However, growth potential remains once sales recover. China's construction management market is relatively small compared to mature overseas markets, suggesting room for expansion. According to CRIC's survey of nearly 10,000 residential projects, construction management firms were involved in less than 2 percent of projects currently on sale across 29 key Chinese cities.

Liu Shui emphasized that construction management companies need to focus on creating marketable products with precise positioning and high quality. This approach would improve project sales rates, enhance brand reputation, and increase client satisfaction, leading to sustained business growth.

Editors: Tang Shihua, Emmi Laine