China's Evergrande said to be in talks with Cala

China’s second-biggest property developer is reportedly in talks to buy privately-owned UK housebuilder Cala in a deal that could be worth as much as £700m.

According to Sky News, Evergrande has been in talks with Cala’s shareholders for several months.

It was understood the two parties are still some away from a formal deal, but a source told Sky the discussions were “serious and credible”.

The move by Evergrande comes ahead of a government push to deliver one million new homes by 2020.

Cala, which is owned by legal & General and real estate investor Patron Capital, reported an 18% rise in pre-tax profit before exceptional items for the year to the end of June to just over £60m. Revenue rose 15% to £587m and the average selling price was up 6% at £538,000.

Chief executive Alan Brown said at the time of the release: “2016 has been another record year with profits topping £60m for the first time in the Group’s history. Despite headwinds in some of our markets, we have continued to build on the strong momentum we have generated over recent years, once again delivering robust volume and revenue growth while still achieving incremental improvements in our return on capital employed.”

Evergrande recently announced plans to sell a string of non-core assets, including dairy, water and oil businesses, as it reverses a strategy of diversification.