Skip Navigation LinksHome > News

Memo of Press on Sales Performance of Evergrande in May 2010

 Date:2010.06.09   Publisher:Evergrande Group

Date: June 8th, 2010
Place: Shangri-La Hotel, Hong Kong

Hello, everyone. Welcome to the Press Briefing of Evergrande Real Estate Group on its Sales in May 2010. First of all, I would like to introduce the representatives of the management of the Group present today.
     Dr. Xia Haijun, Vice-Chairman of the Board of Directors and President
     Mr. Xie Huihua, Executive Director and CFO
     Mr. Lai Lixin, Executive Director and Vice-President

Lai Lixin: Now, I would like to brief you on Evergrande's sales in May 2010.
In May 2010, the contracted sales of the Group reached 4.05 billion yuan, the monthly record in 2010 by May, with an increase of 328.6% year on year. The contracted sold area reached 640 thousand sq.m. with an increase of 240.3% year on year. The mean contracted price was 6,326 yuan/sq.m. with an increase of 26% year on year.
In the midst of strict macro-control, the contract sales in May rose by 8.3% over the previous month, sold area 10.7% and mean price minus 2.2%. In May, Evergrande Oasis Villa Project in Nanchang opened, and the sales of up-market Evergrande Oasis Project in Guangzhou increased due to its 15% discount promotion campaign. They have narrowed the decline of sales due to the promotion campaign. If the sales of up-market project was not calculated, the sales of the Group in May would reduce by about 6% over the previous month.
Amid fluctuations in the property market, abundant line of products help us achieve sound performances. In May 2010, the areas with high contract sales include Chongqing, Chengdu, Hefei, Guangdong, Shenyang, Taiyuan, Nanchang and among other areas. The proportions of sales in various areas are getting more balanced, and the gap between the area with the highest portion and the area with the 10th largest land areas is rather small.
Due to the 15% discount promotion campaign and other favorable factors, the contracted sales in such second-tier cities as Tianjin, Baotou, Hefei, Xi'an, Shenyang and Taiyuan in May increased significantly over the previous month.
From January to May 2010, the total contracted sales of the Group reached 16.18 billion yuan, with an increase of 150.8% year on year. The total contracted sold area reached 2.533 million sq.m. with an increase of 85.2% year on year. The mean contracted price was 6,387 yuan/sq.m. with an increase of 35.5% year on year.In spite of the government's macro-control, a new monthly sales record in 2010 was created in May, which is noteworthy.
In terms of cash flow, the Group has long adhered to its steady business strategy, and has always kept sufficient cash flow after getting listed. By May 31st, 2010, the cash balance of the Group reached 19.99 billion Hong Kong dollars, and the unused bank line reached 25.7 billion Hong Kong dollars.
Having opened in spite of the macro-control and negative factors, the sales of Hefei Evergrande City and Nanchang Evergrande Oasis exceeded 480 million yuan. On the day of opening, 415 out of the 900 apartments in Hefei Project were sold, accounting for nearly 50% of the total, with sales amount reaching 237 million yuan. On May 23rd, the sales amount of Evergrande Oasis Villa Project in Nanchang reached 247 million yuan, with over hundreds of houses sold out on the day of opening, a new record in the real estate sector.
Against the backdrop of rigid macro-control, the our different lines of product in different cities are recognized by consumers, which demonstrates that we have a recognized quality and successful strategy in penetrating into second-tier and third-tier cities.
Our sound sales performance in May can be attributed to the following. With 96% of the 25 cities it focused on in its national strategy being second-tier and third-tier cities, Evergrande has a diverse product mix, and high-end and medium-end property in tourist attractions can meet the needs of different clients. Evergrande has forged strategic alliances with hundreds of brands both at home and abroad. Low-cost land, standardized operation, centralized bidding and procurement cost control system have enhanced Evergrande's capability to respond to the markets. Evergrande has had flexible pricing strategy, which can be adjusted as required based on reasonable profits, and the initiative which earned itself the trust of consumers.
That's all for my introduction. Thank you for your attention.

[Facilitator]: Now, it's time for the Q&A session. If you have any questions, please raise your hands and tell us which organization you are representing before asking questions.
Hong Kong Apple Daily: What will the marketing strategy be like in June? Will Evergrande keep its 15% discount policy or introduce even greater discount?
Xia Haijun: Last time when I was in Hefei, I talked about Evergrande's pricing strategy, which is fluctuating in line with the market conditions. That is to say, developers determine the prices in light of the market conditions. In other words, the basis of pricing is to earn the recognition of the local citizens and maintain the reasonable profits for developers.
Judging from the current situation, the regulatory measures in property markets in China is getting more and more rigid, which can be seen by the recently launched house property tax and detailed criteria for the second suite. Generally, we will fix prices according to the market conditions twice a month to ensure the annual sales targets. By May, we have met 40% of the annual sales targets. The rate in general is satisfying.

Hong Kong Economic Daily: As we found out, Evergrande's annual sales targets remain the same as the targets set out early this year. Prices are related to reasonable level of profits. But how many profits are reasonable? 10-15%? What is the standard of Evergrande?
Xia Haijun: By May 2010, we have achieved 45% of the sales targets of the whole year, though we are somewhat modest in saying over 40%. Annual sales targets, once set out, must be met and should not be subject to any changes, and will be raised rather than lowered if to be adjusted.
Each developer has its own understanding and expectation of reasonable returns. It has long been Evergrande's objective to become a developer "that build apartments affordable to the common Chinese”. While we do not pursue the highest level of profits in the industry, we need reasonable level of profits. As to the specific standard, the mystery will be unraveled by the end of this year.

Hong Kong Daily News: Will the land value-added tax recently launched by the government have any impact on your gross profits? What is the rate of land value-added tax Evergrande has to pay each year?
Xie Huihua: The policy of land value-added tax currently announced is not the latest, and will not be unchanged for ever. Evergrande pays its value-added tax according to the relevant laws and regulations. Each year, the rate of value-added tax Evergrande pays is 2% of its sales. By the end of 2009, it was 720 million yuan. If the government requires us to pay in lump sum, we believe we can handle that.

21st Century Business Herald: The relevant figures of Evergrande in May was good, whereas those of other property companies declined both year on year and over the previous month. Do you worry that other companies may offer discount or lower prices to ensure their sales? If they do so, it means fierce price competition in the market. How will you respond?
Xia Haijun: I cannot tell you what are the judgments of other developers towards the general situation, but what I can tell you is that judgments vary with developers. Early this year, Evergrande issued corporate bonds twice, which means that we have predicted the macroeconomic control in the near future. After issuing bonds in April, new macro-control measures were launched. I think Evergrande has far-reaching and strategic visions towards the market.
In May, we decided to launch the 15% discount policy, which has attracted the attention of the press. There was a lot of publicity about it, some was true whereas some was misleading. When some friends from the press went to Hefei and saw with their eyes, discovering the genuine discount and promotion by Evergrande, they began to understand us. Seen from the sales figures in May, Evergrande's achievement was greater than that of the same month of any preceding years, which should be attributed to its forward-looking strategy-making.
It is our belief that there will be little room for price growth this year, but in the long term it is the sunrise industry in China and has large room for development. Whichever enterprise adjusts the price first will take the initiative and win the competition. The sales figure in May proves that the strategy of Evergrande is correct. Different developers may have different view towards the market. Some that have insufficient lands at hand will not lower the prices. Sone may adjust their prices later this year, which is my judgment.

SINA: What is your expectation of the property tax and house property tax to be effective in the near future? Most people believe these measures are tough and developers will have a lot of pressure. Can you talk about how Evergrande will cope this from the standpoint of a developer? How much room do you think the adjustment of house prices will be in the second half of this year?
Some developers made it clear that they would not buy any land in the second half of the year. What is Evergrande's plan and how would it buy cheaper lands? Thank you.
Xia Haiyun: I would like to begin with buying land. Based on the accurate decision-making, each macro control and regulation represents a golden opportunity of development for those enterprises with cash at hand.
The first and foremost thing for Evergrande is to keep its steady operation and maintain the sufficiency of its cash flow. As introduced by Lai Lixin just now, Evergrande now has 20 billion yuan worth cash flow and maintains monthly sales of about 4 billion. Therefore, the cash of Evergrande is sufficient in 2010. In this case, Evergrande will grasp the current opportunity and buy some new lands in stock. As to how to increase the stocks in different regions, this is the company's strategy.
We will not take more land in up-market cities and hotspot regions, such as Beijing and Shanghai. The company will be very cautious in proceeding in these areas. Second-tier and third-tier cities are the focused regions of the company in 2010 and even in 2011. Why?
The price hike of houses and apartments in these cities is small and people have greater rigid demand. For years, the achievements of Evergrande in second-tier and third-tier cities attest to the fact that our strategy is right. Evergrande will move the focus of strategic objective of land reserves to second-tier and third-tier cities. This important strategic decision can guarantee that our land reserves are built on a low-cost basis.
As to the output in land reserves, we can not only see nothing but statistics or areas of land but also the quality and the total sum of the land. When Evergrande penetrated into the markets in second-tier and third-tier cities, the lands are cheap and of high quality, which can ensure the steady growth of the company. At the same time, the output of the Company on lands is more reasonable. For example, the total sum of lands Evergrande is about to buy in the country is sometimes smaller than the price of a single plot in such cities as Shanghai and Beijing. Therefore, how many land reserves developers have should not be the only indicator of how great pressure these enterprises may have in terms of land reserves. The key point is how much do they pay for the lands.
There is much publicity about property tax on the web, some positive and some negative. People have different views on whether the tax should be levied and how to levy. The house property tax, or property tax, is concerned with many Chinese laws and confirmations. For example, which should be used as the criterion for evaluation, purchased value or evaluated value? The latter is the practice of foreign countries, in which case government sets out an evaluated value on which tax is levied. There are many houses and apartments in China, and it will be quite a huge bulk of work load to evaluate all of them in China.  The levy on house property tax is complicated and systematic. The central government proposed that the house property tax reform should be carried out gradually. Personally, I don't think it will be completed in 2010 or in the near future.
It is possible that some hotspot cities may be listed as the pilot cities. For example, the house property tax may be experimentally levied in such hotspot cities as Shanghai, which can provide useful experience for the popularization in the country. Currently, the effects of house property tax on house prices are only conceptual. It will somewhat suppress the demands in the enforcement in the future, and will somewhat hold down house prices.

Guangzhou Daily: According to the sales briefing, the sales of Evergrande in May is good. How many projects will be opened in June? How many apartments or houses will be available? So far, Evergrande has radiated in 25 cities of China. Can you tell us what other cities Evergrande is to penetrate into in 2010?
Xia Haijun: What cities are our targets are our trade secrets, which I cannot disclose here. But I can give a general introduction. Our focus is second-tier and third-tier cities, that is capitals of provinces and developed cities. The detailed information will be disclosed in the semi-yearly report and announcement.
In June, four to five of our projects will be opened, such as Evergrande City in Taiyuan. As our sales in May broke the records, we decided to open the project in Taiyuan in June. Projects such as Evergrande Oasis in Jinan, Evergrande Garden in Changsha, Evergrande City in Chengdu and Evergrande Oasis in Tianjin are about to open in June. I believe that more projects will be opened in June and the apartments available will be more than that in May. We will have better sales than that in May, and the sales in June is a guarantee of our meeting the annual sales targets. It is our hope that half of our annual targets can be reached when six months are past.

Guangzhou TV Station: Low-price apartments are in much attention. Only 1 in 14 can succeed in buying the low-price apartments in Guangzhou. What regions will Evergrande choose to develop its low-price apartments?
Xia Haijun: Be it low-price apartments, low-rent apartments or affordable apartments, macro-control and regulation is not the solution to housing problems in China. To solve the problem, the demands should be checked by levying house property tax on second apartments or houses after confirmation. Meanwhile, the land supply should be increased for project of low-price apartments, low-rent apartments or affordable apartments. Commercial apartments and guarantee apartments are of different systems. No matter how much further the prices of commercial apartments lower, a large number of the Chinese people still cannot afford them. To guarantee that all low-income Chinese have apartments to live in, it is imperative to put more efforts on building affordable apartments, low-price apartments and low-rent apartments, which I think should be primarily led by the government. As a developer, we should develop on the commercial property markets, which can be divided to high-end, medium and high-end and low-end properties. The primary business of Evergrande is medium-end and medium and high-end properties, which account for 70% of its businesses. The mean price is 6,326 yuan/sq.m., which means with a down payment of about 200 thousand yuan and pay back several thousand yuan each month, most of the Chinese will find it acceptable. We will strive to keep the costs of development and prices at certain intervals, which have at least two benefits. First, it can meet the demands of some wealthy Chinese for houses or apartments. Second, it will provide cost effective houses and apartments for the Chinese people.
One journalist asked me how to respond to the government's property policy. My answer is Evergrande does not gain its market shares through lowering prices, but through providing cost-effective products. Our apartments and houses are finely furnished. The builders we employ are all among the top 20 in China, and the furnishing enterprises we employ are all among the top 10 in China. The building materials and machinery we use are all internationally or domestically brand-name products. To combine all these high quality products into Evergrande's projects, the strategic alliances it forged play its part. What we are doing is to form alliances of powerful enterprises and integrate the powers real estate resources market in China so as to build all Evergrande's projects quality ones.
Recently, Strategic Partners Alliance Conference was held in Guangzhou, which were attended by representatives of over 200 builders, materials suppliers, dealers and banks in China. The alliance made Evergrande possible to use the best possible materials and equipment in its projects through intensified purchasing and standardized operation. Meanwhile, the prices are kept reasonable. This is what cost-effectiveness means. Our ad slogan is a house full of brand-names and 9A furnishing. All products used by us are the best. Standard procedures make our products of the highest quality, which alongside the reasonable prices and market-oriented pricing strategy, has made Evergrande popular among the ordinary Chinese. “High cost-effectiveness” is the most important reason that Evergrande's apartments and houses are marketable in China.
As introduced by Mr. Lai just now, 50% of the total available apartments were sold out in Hefei on the day of opening, and 50% of the houses were sold out on the day of opening in Nanchang. Competitive prices are not the only reason. More importantly, the product line of Evergrande has gained the recognition of the ordinary Chinese. Therefore, high cost-effectiveness is not only the major characteristics of Evergrande products but also a powerful tool in the midst of ever-tightening macro-control measures.

Information Times: How is the sales going after Evergrande's 15% discount policy in May? Since 2010 the volume and value of transaction in both first-tier and second-tier cities are declining, especially in May when the transactions declined, credit squeezed, and stock market crashed. Will the capital chain of developers be stretched in the next six months in 2010?
Xia Haijun: PPT will show you more clearly that following the macro-control policy on April 18th, Evergrande made statistics between April 20th and May 5th. Before the 15% discount, the average daily sales was 64 million yuan. But the statistics between May 6th and the end of the month show that after the 15% discount policy, the daily sales jumped to 135 million yuan, with an increase of 110%. After the discount policy, the sold areas jumped to 22 thousand sq.m from 9400 sq.m before the policy with an increase of 134%. After the discount policy, the mean price dropped to 6,273 yuan/sq.m from 6,805yuan/sq.m before the policy with an reduction of 7.8%. After the discount policy, the sales increased by folds and the prices decreased by 7.8%.
As long as real estate companies can take the situation into account and take the lead in adjusting the prices accordingly, they can respond to the market bust and achieve reasonable increase of sales.
If the sales goes not well and real estate companies do not have new financing channels, they will face the pressure of capital chain rupture. This is our judgment to the general situation in China. Prices will drop further in the months to come, or else real estate companies will face even greater capital pressure arising from the declining sales and lack of new financing channels.
In the previous six months in 2010, Evergrande made two financing campaigns in the international capital markets. The windows of real estate markets to conduct international financing is closed. The credit crunch is intensifying in China. Real estate companies face capital pressures arising out of difficulties in financing in the international markets and squeezed credit in domestic banks. With the sales not improving, real estate companies may face even greater capital pressure. Some of them may lose the conditions and courage to compete in this market.

[Facilitator]: That's all for today's pressing briefing. Thank you for coming.

XML 地图 | Sitemap 地图