(Yicai Global) Jan. 27 -- Unprofitable Chinese internet startups should stay away from risky land purchases, an expert told Yicai Global following such plans of firms such as Kuaishou Technology.
Startups that are not in the black should avoid burning their investors' money by buying pricey property as they should focus on long-term development, said Zhang Yi, data mining firm iiMedia Research Group's founder and chief executive.
The parent of Tiktok-rival Kuaishou said in its prospectus submitted with Hong Kong Exchanges and Clearing on Jan. 24 that the unprofitable video platform owner will splurge CNY2.8 billion (USD433.8 million) to buy about 114,200 square meters of property. It will also spend CNY22.8 million (USD3.5 million) per month to rent real estate over the next three years.
Companies may be tempted to purchase property to add to their market valuation and sense of belonging amongst their staff, said Zhang.
Using funding to invest in property may seem attractive for many reasons. Owning office space enables firms to turn their profits into fixed assets to reduce their overhead costs, said Guo Yi, chief analyst at Beijing-based real estate service platform United Harvest.
Moreover, companies that want to obtain land use rights can usually secure a better location at lower prices from local governments with their sound revenues and tax payments instead of renting an office, Guo added.
Other tech firms have been investing in property too. A firm, whose shareholders include video platform Bilibili's Chairman and CEO Chen Rui and Chief Operating Officer Li Ni, won its bid for almost 130,000 sqm of land in Shanghai for CNY8.1 billion (USD1.3 billion) on Jan. 22.
An affiliate of lifestyle platform operator Meituan secured more than 52,600 smq of land nearby in Yangpu district for CNY6.5 billion last November.
Before that, ByteDance recently spent CNY5 billion to buy new office space, while Xiaomi purchased properties in Wuhan, Shenzhen, and Beijing.
Editor: Emmi Laine