Author:HE Yueyang,Edit:Zhao Yuan.
2023 is coming to an end, and this year is a turning point for the real estate industry.
Objectively speaking, this year's real estate industry is still not optimistic, and "major changes in supply and demand" is the new situation in the real estate industry.
According to data from the National Bureau of Statistics, from January to November 2023, the sales area of commercial housing in the country will be 10100 million square meters, down 80%, and the sales of commercial housing in the same period were 105 trillion yuan, down 5 percent year-on-year2%;Among them, the area of residential sales from January to November was 8600 million square meters, down 73% and residential sales of 94 trillion yuan, down 43%。
At the same time, we also see that the policy side has given a lot of support to real estate, including boosting market demand by reducing down payments, stipulating the growth rate of bank lending to the real estate industry, that is, "three not less than indicators", and "white list" and other measures to alleviate the financing problems of real estate enterprises, especially non-state-owned real estate enterprises.
It's just that the transmission of policies takes time, and it also takes time for market confidence to recover.
Even after the industry recovers, the old model of real estate companies relying on pushing up the scale of liabilities to drive the growth of asset scale and sales growth will be unsustainable.
Therefore, real estate companies should consider the following questions at present: "After the relationship between supply and demand changes", how will the real estate market go in the future?What kind of opportunities exist here?How to resolve the current crisis?
This is not only about short-term operations, but also about long-term strategies. So, which real estate companies can take the lead in getting out of the bottom of the industry?What kind of real estate companies have the potential for successful transformation?
The Northam curve is a universal law of urbanization development in the world.
In the long run, according to the Northam curve, which has been tested in other countries, the rate of development will become slower after urbanization reaches 70%, and according to this value, there is still room for improvement in the stage where our urbanization is slow to develop.
Of course, the national situation is different, and it is not appropriate to copy the figure of 70%.
Gao Shanwen, chief economist of Anxin** (now SDIC**), mentioned in a recent speech that the lower limit of China's real estate investment in GDP is 7%, which is at least more than 1 percentage point higher than now.
The formation of this viewpoint is not a direct "take-it-or-leave-it" doctrine, but also refers to the Northeast region, which has passed the peak period of urbanization, in addition to referring to the foreign real estate market.
Overall, the consensus expectation of the market is that the current real estate market is overcorrected and will return in the future.
In the coming 2024, most economists and industry experts expect the real estate market to pick up marginally, and the decline in new construction, overall investment, sales and other indicators will narrow, and some relatively optimistic economists believe that these indicators can stop falling and be the same as in 2023.
The aggregate can only be maintained, and the opportunities for increment are mainly structural.
On the one hand, China's per capita living area is still at a low level, on the other hand, the rigid demand has been almost satisfied, and the remaining rigid demand may be met by the affordable housing led by ** in the future.
This is the long-term logic of improving demand to support new home sales. In the short term, the current downward trend has added to the wait-and-see sentiment of rigid demand.
The divergence of the market has already played out in 2023.
In the new housing transactions as of October, three-room products occupy the main position, accounting for 561%, four-bedroom products grew rapidly, and the proportion of five-bedroom and above product transactions also increased slightly, while the proportion of one-bedroom, two-bedroom and other apartment types continued to decline.
Research by the China Index Research Institute also shows that large-scale new homes are the main sales force in first- and second-tier cities, and the proportion of sales in third- and fourth-tier cities has also increased.
Therefore, for real estate companies, the future opportunities lie in the layout of high-energy cities and the promotion of high-quality commercial housing.
Let's start with the land layout.
The land of high-energy cities has become a must for real estate enterprises. However, there are not many real estate companies that can afford to take land, and real estate companies have also diverged.
As of the end of November, the new value of the top 10 real estate companies accounted for 64%, and the new value of the top 11-20 real estate enterprises accounted for 19%, among which the more powerful land acquisition is the state-owned enterprises.
Among the private enterprises, Longfor is one of the few high-quality real estate enterprises that are still actively storing land. For example, in December, Longfor was rated at 265.3 billion and 2900 million yuan **, photographed the core plots of Hangzhou and Chengdu.
According to the 2023 TOP100 list of national real estate enterprises acquiring land released by the China Index Research Institute, Longfor has acquired a total of 31 land acquisitions in 2023, with a total construction area of more than 3.4 million square meters, a total land price of more than 36 billion yuan, and an equity land price of nearly 25.2 billion yuan, making it the company with the largest amount of land acquisition among private real estate enterprises. The newly added land reserves are mainly distributed in first-tier and strong second-tier cities such as Shenzhen, Shanghai, Guangzhou, Chengdu, Hangzhou, and Suzhou.
Let's look at the product quality.
According to Kerry's research, as of October 2023, about 20 real estate companies have adjusted their product strategies to focus more on user living experience, and are still concentrated in the top enterprises, with central and state-owned enterprises occupying the mainstream position.
Among private enterprises, Longfor was the first to respond to "improvement demand". As early as December 2022, Longfor launched a high-end improved product - Yuhujing.
In 2023, Longfor has added three new products: Yunhesong, Qingyunque and Yanxitai.
Judging from the market response, Longfor's product quality strategy has withstood the test. Chengdu Longhu Binjiang Yunhe Song opened 100% for the first time, Longfor Xi'an High-tech Qingyunque won the regional sales championship for many months, Hefei Qingyunque was sold out at the first opening, Yuhujing sold 3 billion in half a year, and Quanzhou Yuhujing, with a cumulative contract amount of more than 4.7 billion yuan, ranked first in Quanzhou'......s sales list for 10 consecutive months
In 2023, Longfor will deliver a total of about 140,000 sets of quality to more than 160 projects in 56 cities across the country, of which about 20% of the projects will be delivered more than one month ahead of schedule, with an overall satisfaction rate of over 90% and annual sales of 1,735800 million yuan, ranking among the top ten in the industry.
It is not difficult to see that real estate companies need to follow the long-term trend of the market in order to break the short-term sales and payment collection dilemma.
"Establish first and then break" is an important aspect of economic work in 2024.
The essence of the first establishment and then the breakthrough is to do a good job in the connection and transformation between the old and new models, for real estate enterprises, actively looking for and developing high-quality second growth curve or even the third growth curve, is a kind of "standing".
Vanke, which was the first to propose to survive, has been involved in logistics, commercial real estate, skiing, property, industrial office, etc., and there are also some real estate companies with a larger span to build cars, and what can really become the second growth curve of real estate enterprises is the business with a high degree of correlation with real estate, property, long-term rental apartments, and commercial real estate.
These seem to be extensions of real estate development, but the business model is not the same, and the experience in real estate development can only be applied to other formats to a limited extent.
For example, property management is an asset-light model, with relatively stable cash flow and less investment but more service capabilities, while the business model of long-term rental apartments and commercial operations has high investment and high requirements for site selection and operation capabilities.
How to developNew business and synergy with real estate development are related to the risk resistance ability of real estate enterprises, and also related to whether the transformation of real estate enterprises can goOpen.
From property to long-term rental apartments to commercial operations, Longfor is a sample that has explored enough related formats and formed a new development model, and it is also a relatively successful sample.
At present, Longfor has three major sectors and five major waterways, forming a 1+2+2 business pattern. The three major sectors refer to development, operation and service, and the five major waterways are real estate development, long-term rental apartments, commercial operation, property management, and smart construction.
Operation (long-term rental apartments, commercial operation) and services (property management, smart construction) are all part of Longfor's "establishment", and it is also the business that Longfor has been laying out since many years ago.
From real estate development as the absolute pillar to the formation of a 1+2+2 pattern, Longfor has completed the restructuring of its business.
Last year, Chen Xuping, CEO of Longfor Group, mentioned the word de-real estate, and in his vision, the four channels of non-real estate development in the future can account for more than half of the profits.
In fact, in the first half of this year, Longfor's operations and services have generated 50% of the group's profits.
By the end of 2023, Longfor Commercial has opened more than 80 shopping mallsLong-term rental apartments have formed four product lines, of which Guanyu has opened more than 120,000 roomsIn terms of property, Longfor Zhichuang continued to grow in the area under managementIn terms of smart construction, Longfor Longzhi has obtained more than 60 construction and management projects, with a total construction area of more than 10 million square meters.
According to Longfor's announcement, from January to November 2023, Longfor's operating business and service business will consist of an operating income of about 240500 million yuan (tax included), the operating income in the first 11 months has been close to the whole of last year.
How did Longfor's operation and service business come to be?
As we mentioned earlier, Longfor's operation and service business was planted very early, and in the process of growth, it has also accumulated good reputation, digital capabilities, team organization capabilities, and collaboration capabilities between businesses.
For example, the satisfaction of Longfor property has always been very high, and for example, Longfor has the ability to undertake complex projects of "agent construction + agent operation", which is very competitive.
In response to some new situations in the market, Longfor has also made some responses and reduced the amount of enterprises with weak business logic.
In terms of business, Longfor expects the catering industry to recover well in 2023, so it has increased the proportion of catering. In the context of the declining birth rate, Longfor has adjusted the direction of child-related business to be small and abundant.
In the past, with the development of the city, the passenger flow of some previous commercial projects has changed, and Longfor will also reorganize the retail brands introduced to enhance the overall value of the project.
For the asset-heavy development model of commercial operation and long-term rental apartments, Longfor attaches more importance to the assessment of operating cash flow and return on assets, and for businesses such as property management that are not bound by debt constraints but achieve asset-light expansion, Longfor's strategy is to speed up.
Longfor's five major waterways, including current business and future business, production cash flow, precipitation assets to increase scale, and profit contribution, the formation of a stable business network in different waterways, in order to achieve high-quality transformation.
What is a high-quality transformation?
Whether real estate companies can successfully transform depends on whether they can resolve liquidity risks in the short term.
Although the pace of thunderstorms in real estate companies will slow down in 2023, according to Kerry data, as of early December, 12 sales TOP200 real estate companies have defaulted substantively, and among these defaulting real estate companies are mixed-ownership real estate companies.
Overall, in the first half of 2024, the maturity scale of overseas bonds of real estate enterprises is relatively large, and March and April are the peak periods for debt repayment of domestic bonds.
Among private enterprises, according to statistics, as of 2023, among the top 30 sales companies in 2021, only 7 have not defaulted on their debts, including real estate companies such as Xincheng, Binjiang, Longfor, and Midea.
Not only did Longfor not default, but it also recently repaid some loans early.
According to ** report, on December 20, Longfor repaid the HK$2 billion syndicated loan in advance, and after repaying the loan, by 2025, Longfor has no overseas syndicates that need to be repaid when due, and by 2027, there will be no maturing US dollar bonds.
In addition, it has been revealed that Longfor's ** chain ABS and commercial bills have been cleared to zero, which are non-interest-bearing liabilities.
In terms of healthier asset structure and safer finances, Longfor has a well-known bottom-line thinking, which has prevented risks in the years when the real estate industry has made great strides, and can also be more stable in the downturn of the industry.
Bottom-line thinking requires Longfor to maintain an excellent debt structure at all times, such as controlling the proportion of short-term debt at about 10%, and laying out financing resources in advance to cope with possible fluctuations or risks.
Excessive short-term debt often leads to liquidity risk, which may further expand into a debt crisis.
Also because of its high credit, Longfor was able to borrow at a low interest rate, and the interest rate of the three-year medium-term notes issued on December 18 was only 366%。
In the long run, whether real estate companies can successfully transform depends on the sustainable development of their business.
Why do you say that?
The funds of real estate development business are roughly divided into four types: sales proceeds, borrowing money from banks and other financial institutions, bond issuance in the open market, and equity financing.
The first one corresponds to the cash flow of the operating activities of the real estate enterprise, and the last three correspond to the cash flow of the financing activities of the real estate enterprise.
As we mentioned earlier, at the financing end, policies such as "three not less than" and "white list" are dredging the financing channels of real estate enterprises, but first of all, it takes time, and secondly, whether you can raise enough funds for operation and loan repayment is also related to the performance of the sales side.
The sales-side market has been clearly differentiated, and it is not so easy for real estate companies to de-stock housing. At this time, if the real estate company does not find other businesses that can generate operating cash flow and sustainable development, then financing can only quench the thirst for a while, and the risk will still accumulate, but it will be delayed.
Therefore, sustainable development must have a strong self-hematopoietic ability.
Longfor has proposed to move forward around the goal of operating cash flow of the whole group. This is a new anchor for the transformation of real estate enterprises, and it is also an important indicator of high-quality development.
Under this goal, Longfor will take into account the repayment rate when acquiring land. For the commercial operation of long-term rental apartments, it is also proposed to achieve positive operating cash flow, that is, the annual rent can cover operating costs, and even meet capital expenditures.
The top-level strategy should shift from "scale-only" to pay more attention to cash flow, and specific businesses should also pay more attention to quality.
For example, the asset-heavy business, depreciation and amortization are higher, this kind of business either has a higher gross profit margin, in order to have higher profits, or has a higher turnover, with "small profits but quick turnover" to accumulate profits and cash flow, only in this way can it be competitive and sustainable development.
For example, in the real estate business, if the differentiation between city, location and quality is taken into account, then when acquiring land and product design, it can be closer to market demand, faster completion, faster turnover and payment.
Long-term rental apartments are more suitable for high gross profit margins to cover high depreciation. In the first half of the year, the gross profit margin of the two channels in Longfor's operating segment reached 70%.
Profit margin, turnover rate and leverage ratio are the three elements to measure the performance of enterprises, the previous model of real estate enterprises is to rely on leverage and turnover rate, high turnover is efficient performance, but the combination of excessive leverage and high turnover makes the financial risk of real estate enterprises more and more.
E-House Research Institute said that the current destocking index of 100 cities across the country has begun to cross the maximum pressure point, and is developing in the direction of pressure release and positive certainty.
The ice is melting, but the new situation has a new order, and real estate companies that find a new business logic and pay more attention to profit margins and cash flow can wait until the next spring blossoms.