Midea Property Reveals Violations: 650 Million Hidden Loaned Out, Two Departments Blamed

(Source: Real Estate Insider)

In this five-year-long deep downturn in the housing market, few first-tier private developers have managed to withstand the pressure, such as Midea Real Estate, backed by the “Electrical King” Midea Group.

This appears to be just the surface; underlying pressures remain widespread. By mid-2024, the housing market was in an unprecedented difficult period. Midea Real Estate, listed on the Hong Kong Stock Exchange, undertook a major business restructuring to shift its focus, including divesting its development segment.

In October of that year, Midea Real Estate sold its entire real estate development division to its controlling shareholder through a spin-off, focusing instead on light-asset operations such as agency construction, property management, and asset operation.

Less than two years after its restructuring and transformation, Midea Real Estate is now approaching its 2025 financial reporting period. However, just before disclosing its financials, it revealed a major issue.

This incident occurred in 2025. Midea Real Estate used trust channels to lend large sums of money to related companies of its controlling shareholder. This method was relatively covert, constituting a related-party transaction that was not publicly disclosed, violating Hong Kong Stock Exchange listing rules. It can no longer be concealed.

Between early 2025 and July of that year, Midea Real Estate’s subsidiaries Foshan Mezhi and Guangdong Mezhi, as trustees, entered into entrusted investment agreements with Wanxiang Trust, Yuecai Trust, and Zhongyuan Trust.

The maximum limits for these three trust agreements were 500 million yuan, 250 million yuan, and 1 billion yuan, respectively, with reference annualized net returns of 3.85%, 3.2%, and 3.2%. The entrusted periods were 36 months from the first deposit into the trust, 24 months from the agreement date, and 36 months from the first deposit, respectively.

According to the agreements, the maximum total outstanding loans entrusted to Wanxiang Trust and Zhongyuan Trust could reach 1.5 billion yuan, with rolling loans potentially extending up to three years. The maximum entrusted amount to Yuecai Trust was 250 million yuan, with a maximum rolling period of two years.

These three trust companies, as trustees, issued four rounds of unsecured loans within 2025 to Shenyang Zhenghui, Nanhai Meiming, and Shunde Tianmei. However, a condition was that the total outstanding principal at any point during the term could not exceed 650 million yuan.

Why was there a special clause in the trust loan agreements stating that the maximum outstanding total loan at any time could not exceed 650 million yuan? Industry analysts suggest it was likely a risk mitigation measure at the time.

Midea Real Estate announced that by the end of 2025, all outstanding loans and interest had been fully repaid, and the entrusted investment agreements had been terminated.

In other words, if the company’s risk management and internal audit departments had not discovered the undisclosed related-party transactions during their internal control review in early 2026, would the entrusted loans have continued to roll over and flow to related parties of the controlling shareholder?

It is understood that Shenyang Zhenghui is 50% owned by Midea Real Estate’s controlling shareholder Lu Deyan through an indirect wholly owned subsidiary, Shenyang Meiyi. Nanhai Meiming and Shunde Tianmei are also indirectly wholly owned subsidiaries of Lu Deyan. Lu Deyan’s real estate development holding platform is Midea Jianye, an offshore entity, which develops real estate nationwide through its controlling stake in Midea Real Estate Group (which was spun off from Midea Real Estate listed on the H-share market).

In fact, Lu Deyan is the spouse of He Xiangjian, founder of Midea Group, and as daughter-in-law, she and her father-in-law He Xiangjian are acting in concert, both being controlling shareholders of Midea Real Estate.

All three financing entities are related parties of Midea Real Estate. The aforementioned 650 million yuan trust loan not only constitutes a related-party transaction but also requires public disclosure and approval from independent shareholders.

Midea Real Estate explained that this violation was mainly due to internal communication errors—business teams advanced the transaction without informing the compliance team that the counterparty was a related party. The compliance team, in handling the matter, ultimately failed to identify potential indirect related-party links.

Does this imply that: either Midea Real Estate’s business team was “irresponsible” or “deliberately concealed risks,” or that the compliance team was unprofessional or negligent in failing to detect and prevent the related-party transactions? Did these two teams have some tacit understanding at the time, knowing what was happening, but ultimately failing to hide it, “taking the blame”?

By the end of 2024, Midea Real Estate had approximately 1.03 billion yuan in cash and cash equivalents. The maximum outstanding trust loan of 650 million yuan accounted for about 63% of its cash holdings at that time.

As of mid-2023, Midea Real Estate’s total cash and bank deposits were 708 million yuan, with both short-term and long-term borrowings reduced to zero. In the first half of last year, it generated nearly 2 billion yuan in revenue, a 41% year-on-year increase; net profit was 313 million yuan, up 128.1% year-on-year.

This is like a “cash cow” with no interest-bearing debt, continuously generating cash and profits. Who wouldn’t be envious? Especially considering it’s closely related to its controlling shareholder.