Say goodbye to the "three highs" model of real estate enterprise transformation and welcome the "new life".
Scale is transferred to quality, long-termism replaces short-termism, and the transformation of development thinking has become the consensus of real estate enterprises
business transformation questions
Struggling with the bitter winter last year, all real estate companies are looking forward to a beam of light from spring.
Yes, this cold and freezing winter is not easy to cross.
Evergrande "exploded", Sunshine City "defaulted", Sunac "sold and sold", and Vanke "apologised" to shareholders... When the deadline for the release of the Hong Kong stock financial report (March 31) came, there were still many houses. The company was forced to suspend trading after failing to publish its earnings report.
Similarly, the performance of real estate companies listed on A-shares is hardly optimistic.
Since the financial reports of A-share real estate companies have not been disclosed yet, according to statistics from the China Index Research Institute, as of the end of February, 69 A-share real estate companies have released performance forecasts or performance reports, and about 40% of the real estate companies will experience performance losses in 2021.
At present, the transformation road of "respecting scale and seeking quality" is slowly unfolding. Although real estate enterprises will experience the pains of transformation, they will lead to a bright future of virtuous circle and healthy development.
The "three highs" model of pursuing scale urgently needs to be changed
Not only the performance has declined, but some high-debt real estate companies have fallen into "default" due to lack of funds and unable to repay their debts on time.
Faced with the sequelae left by borrowing and expansion, real estate companies have "remembered the pain" and actively carried out self-help measures, such as promoting sales, reducing debt, selling assets, adjusting structure, slowing land acquisition, and attracting cooperation. These positive self-help strategies will become the real estate industry. A good strategy for enterprises to "survive".
However, in the long run, the short-term pain in this industry is a healing process of "scraping the bone".
From the perspective of the long history, this short-term pain is necessary. It can cure the cyclical ills caused by the ups and downs of the real estate industry for a long time. It avoids the risk of a hard landing in the real estate industry driven by high leverage. It broke the bubble of soaring housing prices and finally triggered rational thinking in the entire industry, returning to a healthy and healthy development track.
There is a classic analogy in the real estate industry.
In the past, the real estate industry was known for its high debt, high turnover, and high returns. For a long time, driven by the above-mentioned "three highs" model, real estate was like a patient with "high blood pressure, high blood sugar and high blood lipids". Liquidity problems, high blood sugar is a metaphor for high leverage risk, and high blood lipids are a metaphor for the status quo of the industry’s increasing revenue but not increasing profits.
To treat the symptoms of "three highs", it is necessary to completely change the development thinking. The real estate industry urgently needs to change from the development thinking of pursuing scale under the past "three highs" mode to the thinking of pursuing high-quality development.
In other words, in the future, the development model of high quality, high efficiency and low debt will become the new mainstream.
Helping the virtuous circle and healthy development of the industry
This transition is a historical inevitability.
On the one hand, the main contradiction in my country's real estate market has transitioned from housing shortage in the past to unbalanced and insufficient development.
That is to say, my country's real estate industry is facing a transition from quantity to quality.
On the other hand, the disadvantages of the development model that pursued scale driven by high leverage in the past have become prominent, including increased industry risks and increased bubbles.
At this critical historical node, my country has guided the real estate industry to achieve healthy and stable development from the policy side.
On the one hand, "housing, not speculating" is the main tone of the future real estate industry. Under this policy tone, the stable development of the real estate industry will replace the cyclical fluctuations in the past; Constraints on housing companies will force housing companies to reduce their liabilities and return to the track of sound development.
On March 5 this year, Premier Li Keqiang stated in his "Government Work Report" that he would continue to ensure the housing needs of the masses, adhere to the positioning that houses are for living in, not for speculation, explore new development models, and insist on renting and purchasing. At the same time, accelerate the development of the long-term rental market, promote the construction of affordable housing, support the commercial housing market to better meet the reasonable housing needs of buyers, stabilize land prices, house prices, and expectations, and implement city-specific policies to promote a virtuous circle and healthy development of the real estate industry.
A virtuous circle and healthy development of the real estate industry are the future development goals.
Under the guidance of the new development goals, a new consensus in the industry has also been formed-scale is transferred to quality, and long-termism replaces short-termism. This will be the direction of all new housing enterprises.
■ "self-help" methodology
1 Cost reduction and efficiency increase
In times of financial difficulties, companies often reduce costs and increase efficiency, and real estate companies are no exception.
For real estate companies, in reducing costs and increasing efficiency, the "three fees" are more intuitive in terms of financial performance, including sales expenses, management expenses and financial expenses.
Real estate companies usually pay attention to the control of sales expenses and financial expenses. Therefore, when the industry is down, the most immediate way to reduce management expenses is to lay off staff and reduce wages and reduce labor costs.
Since last year, more than 50 real estate companies including Evergrande, China Fortune Land Development, Blu-ray Development, Jianye Real Estate, and Xiangsheng Holdings have laid off employees in varying proportions, ranging from ordinary employees to executives.
Taking CCRE as an example, at the beginning of this year, CCRE adjusted the original five-level management to three-level management, and also cancelled the original five major business group headquarters. The headquarters staff involved about 1,000 people. More than half of the personnel returned to the front line.
For housing companies with tight liquidity or already "exploding", in addition to layoffs, there is also a large-scale salary reduction. The methods include canceling quarterly bonuses, year-end bonuses and other bonuses, and delaying the payment of wages.
2 Adjust the structure
During the period of industry expansion, real estate companies often adopt a decentralized and fully empowered organizational structure, while in the period of contraction, real estate companies will reversely adopt a centralized, centralized management method.
According to the statistics of the Middle Finger Research Institute, since 2021, more than 20 real estate companies have started the road of organizational reform.
In terms of organizational structure, Vanke, Jinmao, CIFI, China Resources and others have implemented the optimization of the organizational structure characterized by light headquarters and strong regions to create efficient organizations.
For example, the scale of Vanke's headquarters was reduced to about 150 people; Xuhui proposed "small headquarters, strong regions, and light front lines".
There are also organizational structure adjustments centered on business optimization to help the development of key businesses. For example, Rongsheng Development established the "Greater Bay Area Special Zone" for the first time; Seazen Holdings established a new health care business center.
At the same time, real estate companies have also adjusted their regional structures through mergers and splits, optimized regional management, and improved management efficiency.
For example, at the end of December 2021, Country Garden adjusted its organizational structure, reducing its regional companies from 106 to 65.
In addition, some real estate companies have merged from the original multiple headquarters or multiple businesses into one, focusing on the development of the main business.
In February this year, CCRE announced that it would be adjusted from five-level management to three-level management, directly canceling the two levels of business group and region, the original business group headquarters was cancelled, and the five headquarters were unified.
It is worth mentioning that, along with the adjustment of the organizational structure, the authority originally possessed by regional organizations has also been withdrawn to the headquarters.
The most typical is the authority to acquire land. On March 31, Vanke’s chairman of the board of directors, Yu Liang, said at the performance meeting that in terms of land acquisition, Vanke will change from decentralized to centralized management and control, and the quota will no longer be divided, and the overall control will be unified.
3 Promotion and quality improvement
"Grasp the promotion and get the money back" has become the first consensus for real estate companies to get out of the predicament.
For the leading real estate companies with good fundamentals, the sales with payment has become the focus of their emphasis.
Cheng Guangyu, executive vice president of Country Garden, said at the performance meeting that the estimated saleable value this year is about 650 billion yuan. Country Garden will pay more attention to the relationship between reasonable volume and price, and pursue high-quality sales and operations.
Real estate companies with tight liquidity put sales promotion in the first place.
Huang Xianzhi, Chairman of the Board of Directors and Chief Executive Officer of Zhengrong Real Estate, said at the performance meeting that the current first task is to focus on orderly production and operation and payment collection. "Promoting money back" is the five core goals.
Under the new goal of pursuing quality, many real estate companies have fundamentally changed their previous goals of scale expansion. Vanke, Longfor, Xuhui, Zhengrong, etc. no longer set sales goals, and instead emphasized more high-quality equity sales Forehead.
Taking CIFI Holdings as an example, it directly dropped the word "scale" in its development positioning, while CCRE Real Estate put forward the development concept of "do less, do small, and do well" this year.
4 Slow down land acquisition
Since the real estate industry entered a trough last year and financing has been tightened, most real estate companies have cut land acquisition expenditures to varying degrees.
According to statistics from Yihan Think Tank, in 2021, the total amount of land acquired by TOP100 companies will be 2,537.7 billion yuan, a year-on-year decrease of 21.5%; among them, the investment of companies ranked 11-30 will drop the most, down 14.6 percentage points.
Land acquisition expenses such as Seazen Holdings, Greenland, Sunshine City, Kaisa, and Zhongnan Land have been cut by more than half.
This year also continued last year's trend.
According to statistics from Kerui, the total amount of land acquired by real estate companies in January-February 2022 was only 96 billion yuan, a year-on-year decrease of 86%.
Regarding this year's land acquisition strategy, some real estate companies have publicly stated that they will continue to reduce land acquisition expenditures, or even stop acquiring land.
Sunac China, which once high-profiled "buy, buy, buy", also announced its "prudent acquisition of land" at the beginning of last year, and it is rare to make a move in the open market.
At present, Zhengrong Real Estate, which is currently in a period of tight liquidity, directly announced at the March performance meeting that it would "suspend land acquisition" and use limited funds to ensure delivery and production operations.
5. Reduce debt
In addition to paying close attention to sales receipts, it has also become a consensus for housing companies to change their development thinking and strive to reduce debt.
In August 2020, the regulator issued the "Three Red Lines" policy to supervise the liabilities of housing enterprises in an all-round way, and proposed three indicators, that is, the asset-liability ratio excluding advance receipts shall not be greater than 70%; the net debt ratio shall not be greater than 100% ; The cash short-term debt ratio shall not be less than 1 times, and corresponding to the three indicators, housing enterprises are divided into green, yellow, orange and red.
Since the release of the "Three Red Lines", China Jinmao, Shimao Group, China Merchants Shekou, Vanke, and CIFI Holdings have successively been promoted to green housing companies.
As of April 8 this year, according to the statistics of reporters from the Beijing News, among the top 50 listed housing companies in terms of sales, there are 16 green housing companies, 13 yellow housing companies, and red housing companies that have disclosed their performance in 2021. 2 enterprises.
At the performance meeting, more real estate companies called out the goal of becoming "green".
Country Garden, which is currently in the yellow grade, will strive to move to the green grade by mid-2023; Midea Real Estate and Greentown China plan to enter the green grade in 2023; Times China said that it will complete the “three red lines” to green by the end of 2022. Target.
6 Sale of assets
In order to survive the current crisis, housing companies that are in desperate situation will also adopt the method of "surviving with broken arms" and "reluctantly cut flesh" to sell assets.
According to incomplete statistics from a reporter from the Beijing News, since last year, more than 20 real estate companies including China Evergrande, China Fortune Land Development, Blu-ray Development, Sunac China, Shimao Group, China Aoyuan, and Kaisa have sold assets.
Sunac issued an announcement on March 25 this year, disclosing that in the past six months, in order to ensure the on-time repayment of open market bonds, Sunac has tried its best to save itself. Among them, it has resolutely disposed of assets of about 25.72 billion yuan.
Shimao Group is also actively selling assets to help itself.
In recent years, Shimao Group has sold Shanghai Hyatt Hotel on the Bund, Guangzhou Asian Games City Project, Hong Kong Victoria Harbour Project and Shanghai North Bund Project, with a total price of about 9.1 billion yuan.
In addition, Shimao also put many of its assets and projects on the shelves.
In addition to selling assets and projects in bulk, some real estate companies sold the property sector as a whole, including R&F, Blu-ray Development, Yuzhou Group, Zhongliang Holdings, Zhongnan Group, etc., and sold their properties as a whole to get funds to survive the crisis.
7 Introduce cooperation
At present, under the condition that the financing policy is still tightening, the life of private real estate enterprises is still relatively difficult.
Therefore, the introduction of central and state-owned enterprises with financial strength is a choice to "survive".
On April 2, Kaisa, China Merchants Shekou, and China Great Wall Assets signed a strategic cooperation agreement in Shenzhen. The three parties will focus on cooperation in the areas of urban renewal, real estate development, and commercial complex operation in the Guangdong-Hong Kong-Macao Greater Bay Area.
Among them, China Merchants Shekou is a state-owned enterprise, and China Great Wall Assets is one of the four major state-owned asset management companies in my country, specializing in the management, investment and disposal of non-performing assets and equity.
At the same time, the local government also stepped forward to promote the cooperation of related enterprises.
In January of this year, the Guangdong provincial government convened a meeting of many real estate companies, including Aoyuan Group, R&F Properties, Poly Real Estate, China Overseas Properties, Minmetals Properties, Yuexiu Properties, Pearl River Industrial Group and other state-owned and private enterprises, and organized several state-owned and central-owned enterprises for a meeting. Mergers and acquisitions of out-of-risk real estate projects "matching".
With the "matching" of local governments and the implementation of M&A loans, there may be a round of M&A led by central and state-owned enterprises this year.
Can housing companies get out of the woods this year?
With the recovery of policies and the launch of self-help measures for housing companies, can housing companies get out of the predicament this year?
Bo Wenxi, chief economist of IPG China, said: "Although the six ministries and commissions have jointly expressed their support for real estate development, the real estate market has not yet experienced a substantial recovery. The liquidity crisis of real estate enterprises is still very serious, and some leading private real estate enterprises still appear." Therefore, it is the key to the sustainable development of housing enterprises and the real estate industry this year whether to reverse the momentum of this industry in the second quarter of this year and get out of the predicament.” Bai Wenxi further suggested: “On the premise of effectively controlling risks, In addition to providing sufficient credit support for housing companies, the capital side should also provide necessary and reasonable support for the existing financing of housing companies to prevent the continued deterioration of liquidity and promote their recovery as soon as possible.”
"With the gradual relaxation of restrictive policies in core cities, the possibility of easing the liquidity stress of housing companies is relatively high. Since this year, the policy support for housing companies' financing has improved significantly compared with the second half of last year. For private housing companies There is also an environment for marginal improvement," said Yang Chang, chief expert of the Institute of Public Policy and Governance of Shanghai University of Finance and Economics.
"This year is a year of polarization. It is difficult for all housing companies to get out of the predicament, but some housing companies may find their own path, because only by identifying their own advantages and development momentum can they stand in the market." Pangu Think Tank Senior researcher Jiang Han said.
"With the recovery of market sales, companies that actively save themselves will gradually get out of the predicament." Liu Shui, head of research at the Enterprise Division of the China Index Research Institute, suggested that real estate companies should change their business philosophy: "Great is not strong, and stable and strong. On the one hand, Enterprises should not be greedy for large-scale operation, otherwise they will have to increase leverage and high debt, which will easily lead to debt risks. At present, a considerable number of enterprises that have defaulted on their debts are large-scale real estate enterprises. On the other hand, real estate development has entered a new stage, and stable operation is the key to 'Strong', walking steadily is more important than walking fast."
"The future real estate pattern may usher in new changes." Yu Xiaoyu, research director of Yihan Think Tank, said: "First, in addition to state-owned enterprises, central enterprises and high-quality private enterprises, some industrial capital, local urban investment, regional housing enterprises, etc. have begun to rise; The second is that the real estate industry is more professional and subdivided, such as the emergence of models such as funders, developers, and construction agents, and the financial attributes of real estate companies will become weaker and weaker, which is more conducive to the healthy and sustainable development of the entire industry.”
Written by Xu Qian, reporter from Beijing News