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How to make a new leader in global real estate market?

 Date:2016.10.13   Publisher:Xinhua News Agency

Over the past years, the "Surpass Vanke" slogan has been a banner in the real estate circle, under which so many real estate enterprises have been coming forward.

By 2016, the state of survival of the fittest in the real estate industry had been intensified, the companies had rapidly clustered together and additional regulatory policies continued to be released, while in the "equity dispute" for more than a year, Vanke has stepped down from the position of the “world’s top real estate company” at the end of September. Evergrande, 12 years younger than Vanke, takes the place.

It’s easy to find out in the contrast that Evergrande has completely triumphed over Vanke whether it is in sales, total assets, operating income, cash reserve and other core financial indicators, or the speed of development and growth expectation.

Evergrande tops the list of the global real estate companies.

The September Sales Presentations released by China Evergrande (HK.3333) on October 10th, 2016 showed that its total sales in the first three quarters reached 280 billion 580 million yuan, an increase of 39% over last year, and it is expected to achieve the annual increase of 100%. Among which, the sales in September reached 47 billion 520 million yuan, an increase of 323.6% over the same period last year, and it was ranked the first in the industry for the third consecutive month. Evergrande’s sales breakthrough of monthly 40 billion yuan in three consecutive months is equivalent to the annual sales of some large enterprises, which makes the company ranked at 17th as for the annual sales in 2015 among the country’s top 100 real estate companies.

For the housing areas, Evergrande totally sold 34 million 577 thousand square meters from January to September, 2016, with 5 million 158 thousand square meters in the single month of September.

Looked from the two cumulative sales data, Vanke was lagging behind Evergrande by 17 billion 700 million yuan and 14 million 656 thousand square meters. Besides, the Equity Sales List for January to September, 2016 released by CRIC also revealed that Evergrande’s cumulative equity sales has reached 266 billion 810 million yuan which continued its first ranking nationwide and surpassed the second place of Vanke by 77 billion 440 million.

For the sales performance in a single month, Evergrande exceeded Vanke for three consecutive months in the third quarter in 2016, respectively leading by 57%, 141% and 87%. More housing areas of 3 million 24 thousand square meters in September were sold than the latter’s.

This means that Evergrande has replaced Vanke and has become the new leading enterprise in the global housing market.

In fact, it took both Evergrande and Vanke three years to increase their sales from 50 billion yuan to 100 billion yuan or more, but the former’s growth rate was significantly higher after reaching the threshold of 100 billion yuan and it just took two years to increase the Evergrande’s sales from 100 billion yuan to 200 billion yuan while Vanke doubled the period.

In the first half of 2016 when quite a few real estate companies achieved their historical results, it could be found in the semi-annual financial data comparison of the two giants that Evergrande’s indicators such as interim total assets, turnover, profits of its core business and cash reserve are all in the leading position in the industry, respectively surpassing Vanke by 287 billion 600 million yuan, 12 billion 700 million yuan, 2 billion 500 million yuan and 140 billion 100 million yuan.

How to make a new leader in global real estate market?

Founded in 1996, Evergrande has showed a momentum of rapid growth since its listing in market since 2009.

Compared with Vanke which has been ranked the first place among the global real estate companies for so many years, Evergrande’s sales reached 30 billion 300 million yuan in 2009, while Vanke’s was 63 billion 400 million yuan in the same period, twice than that of Evergrande. Over the next few years, there was still a difference of 70%, 62%, 30% in the amount of their sales for the last three years although the gap between the two companies continued to be narrowed. In the year of 2016 when the property market in China was booming, Evergrande overtook its rival in only 9 months.

There has actually been an obvious sign in the sales amount for the first eight months this year that Evergrande would surpass Vanke completely – there was only a 1.88% gap in sales between the two companies, which was 4 billion 460 million yuan; yet for the housing areas, Evergrande sold more of 11 million 632 thousand square meters than Vanke, which was 1.65 times more than the latter’s.

It’s absolutely not occasional that Evergrande takes the place as the new leader in the world’s real estate market, in the opinions of analysts.

“This relates to Evergrande’s project layouts in the city, its strategy for land purchasing, the product strategy, and its business mode.” Shanghai E-House Real Estate R&D Institute’s director Yan Yuejin told Oriental Outlook.

Firstly, Evergrande possesses sufficient land resources and capital reserve, which will promote its sustained and rapid growth in the future. According to its Interim Statements, Evergrande had launched a total of 454 projects that cover 175 cities in the country as of the first half of 2016, which makes it the property company with the widest distribution of business, and 73% of the cities are first-tier and second-tier; it holds the cash balance of 212 billion yuan, with a total of 338 billion 10 million yuan of funds available together with the unused bank line of 126 billion 10 million yuan.

Secondly, the typical feature of "Evergrande Mode" is to build the quality residential property in a popular style and constantly optimize its product mixes and regional layouts by the means of dynamic adjustment, which enables it to sustain its sales boom under the condition of intensified property market differentiation and new regulatory policies in many places, as financial observer Qin Shuo analyzes. With middle end and middle to high end products accounting for 85% of Evergrande’s product line and high-end and tourism products taking up 15%, Evergrande is the only enterprise in the country that delivers housing of refined decoration and recalls the houses at the customer’s request out of no reason, thus making it win a big share of the market due to this kind of rigid demand-oriented tactic.

In addition, what makes the other property companies far lag behind is the standardized rules that Evergrande has developed over the years. “The company strictly applies standardized management of land purchase, design, bid inviting and sales, plus its power of execution, to ensure that its projects can usually be opened after 4 to 6 months, which makes it turn over efficiently." said Yan Yuejin.

The success of Evergrande greatly depends on Chairman’s Hui Ka Yan’s business philosophy. Starting his business in the real estate market in 1996, Mr. Hui Ka Yan used the sales strategy of “short, adaptable and fast” for the first project, and thus quickly opened up the market. Since then, he has adapted to the market trend more than once and led Evergrande on its way to the national market expansion, the listing in Hong Kong, diversified growth, and made it the industry leader.

As a believer of Konosuke Matsushita’s “Running Water Philosophy”, Hui Ka Yan has faith in "providing the customers with commodities at affordable prices and of excellent quality successively like running water", from which his basic guideline for management is that the quality must be prior, the prices must be set low and the service must be satisfactory. This kind of "Real Estate of the People’s Livelihood" is Evergrande’s basic philosophy and is also considered to be the magic weapon for its achievements.

Evergrande will be grander

Making a "Three-year Plan" every three years is Evergrande’s practice to carry out its forward-looking development strategies. On October 3, 2016, it issued an announcement that predicts its sales from 2017 to 2019 will annually reach 450 billion yuan, 500 billion yuan and 550 billion yuan, with turnover of 280 billion yuan, 348 billion yuan, 380 billion yuan and net profits of 24 billion 300 million yuan, 30 billion 800 million yuan and 33 billion 700 million yuan.

The prediction is relatively rational, or it even can be said to be conservative, as Qin Shuo commented in his article. He analyzed in the article that Evergrande will develop more than expected if it further strives for it. With many operating indicators exceeding Vanke, Evergrande has established itself as the leading player on China's real estate stage and it seems difficult for the latter to overtake.

There is a big possibility that Evergrande’s goals of sales amount, sales revenue and net profits from 2017 to 2019 will be exceeded, as financial commentator Ye Tan recently said in his article. "Restructuring with Shenzhen Real Estate and the return to A shares makes its valuation reach up to 220 billion yuan. Evergrande has become the winner in the business world in contemporary China, and no one can beat it except itself.

Of course, the success of Evergrande is not only reflected in its own speed and scale and it means more as for providing good reference for the industry’s supply-side reform.

More affordable livelihood products of high quality will be produced to meet the real demands in the market by the means of continuous reform, perfection of the supply-side and adjustment of the industrial structure, and Evergrande orientates its products to the people's livelihood and provides high-quality and cost-effective products for the market, which is highly compatible with the supply-side reform.

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