Zouxi TieshalingPosted on 2023-12-17 14:23From Xueqiu ยท Zhejiang's snowball column from Zouxi Tieshaling.
15 years ago, in the middle of 2008, the first and the real estate market just fell after the big bull market, Vanke is already the world's largest developer, selling 60,000 houses a year, Vanke's ** in the 06-07 bull market rose 20 times. In his 2007-2008 letter to shareholders, Ronnie Chan commented on Vanke's business model and compared it to Hang Lung.
Regarding Vanke's business model, Ronnie Chan said: "Vanke's model is to buy large tracts of land to build residential units and sell them as soon as possible** or pre-sale. The company is not too worried about market timing, focusing on traffic or volume, much like a manufacturer of products that are intensive.
Regarding Vanke's financing model, Ronnie Chan said: "Companies in this type of model need capital, but as long as the bank is willing to provide project financing, the company's own capital does not need to be huge. What matters to the company is cash flow, so speed is important in order to get to market ahead of neighbouring projects, so that they can cash out to repay loans and reinvest.
Ronnie Chan pinpointed the risks of this model: the risks associated with this model are mainly related to market cycles. The company's profitability is only based on the previous project, and there is no guarantee whether it can continue to make money in the next roundIndeed, the company is likely to lose so much money in the next cycle that all of its past earnings will be wiped out. In fact, if there is a protracted bear market, the company is likely to go bankrupt due to a lack of cash flow.
Notice Ronnie Chan's use of the phrase, he used "yes and yes", he thinks that there is a high probability that a company with this model will encounter a bear market and collapse due to cash flow disruption.
Ronnie Chan believes that in fast-growing economies, land and property prices fluctuate greatly, and in good times, floor prices will even exceed property prices, which is commonly referred to as "flour is more expensive than bread". The land is too high, and the company with a high turnover model cannot stop buying land, otherwise it will face a situation where there is no rice to cook. Ronnie Chan said: It's like doubling your stakes every time you win at the table, and you only need to lose once and you lose everything you earned before.
In fact, all mainland developers have adopted the Vanke model, and they have grown rapidly and lost their hands in the end.
Ronnie Chan's comments are public speeches, and he often speaks in various forums, which many developers in the mainland should have heard, even if no one listens to him, it is impossible to listen to him. Everyone is riding a horse and galloping, and it is impossible for anyone to take their time, and the final outcome was doomed from the beginning.