Yuan Yihong: The world has changed, and real estate is still very good

Text/Yuan Yihong

On April 9, the "Opinions of the CPC Central Committee and the State Council on Building a More Perfect Factor Market-oriented Allocation System and Mechanism" was very thirst-quenching. Among them, the four articles to promote the market-oriented allocation of land elements are of great significance to the real estate market. However, many real estate developers think that this is more of a matter for government departments, and they still bury their heads in building houses and selling houses. But many people did not expect that this file opened another window.

For real estate developers, the most important thing at present is still sales, cash flow.

Recently asked some real estate practitioners a question: After the epidemic, did the boss lower his performance target for this year? Almost unanimously: No.

Overall, the annual sales tasks of housing enterprises have basically been determined and issued as late as before the Spring Festival holiday. At that time, the vast majority of housing companies did not expect the new crown epidemic to be so serious, but judged according to the general operating trend of the market and formulated a plan for 2010. But after being stuck at home by the epidemic for so long, why didn't you change your original plan?

Because the views of real estate developers on this year's property market are generally the same, that is, the impact of the epidemic on real estate in various industries is relatively small, and the recovery is relatively fast. This can be seen in the transaction situation after the gradual opening of sales offices in various places after March. There is even a phenomenon that the real estate is sold out in half a day.

In fact, the first wave of transactions after the opening of the sales office in March was a concentrated release after suppression. It can be understood that this group of consumers was originally ready to buy a house, but it was delayed by the epidemic. More than two months of demand was released in one month, and comparing it to February, it is not comparable. And the snapping up of individual real estate is only a case, and even the worse market has "individual stocks" up and down, not to mention the differentiation of regional performance.

March is still the time when the annual reports of more listed real estate companies are released. I don't know whether it is affected by the market recovery, or observing the trend of the industry to reach an optimistic conclusion, in addition to the above, the owners of housing enterprises generally insist that the task is not relaxed, and some housing companies have put forward short-term and medium-term performance targets that can be said to be radical.

I won't name these companies. Anyway, the characteristic is to run to the scale, run to the ranking. The reason why their goals are "radical" is because most mainstream housing companies have abandoned the practice of scale theory and can maintain positive growth or a few percent growth; a small number of housing companies hope to maintain a growth rate that matches their array without falling behind.

Housing companies with aggressive targets choose an average growth rate that is much higher than the average growth rate of the array in which they are located. In the current situation, there is this confidence, in addition to based on their own company's layout, cash flow, talent and other factors, there is also a judgment that the epidemic provides an opportunity to overtake in the corner.

As mentioned earlier, the COVID-19 pandemic has had varying degrees of impact on almost all industries outside of the healthcare industry, but the impact on real estate may be small. The epidemic has only delayed the transaction, and has not eliminated the demand for housing, especially the rigid demand. Therefore, whether the epidemic has aggravated the downward momentum of a number of housing enterprises and become an opportunity for other enterprises to forge ahead, it remains to be proven.

In fact, since the property market in the second half of 2018 has entered the adjustment, a number of housing enterprises, especially small and medium-sized housing enterprises, have encountered difficulties in cash flow. Some of the equity of these difficult enterprises or their projects are the targets of mergers and acquisitions of large housing enterprises. For example, on the evening of April 7, China Aoyuan announced that it intends to acquire 29.99% of the share capital of Jinghan for 1.16 billion yuan. After the completion of the acquisition, Aoyuanhui became the largest shareholder of Jinghan Shares.

On the surface, this is the first case of mergers and acquisitions of well-known housing enterprises under the influence of the epidemic, but after checking public information, it will be found that Jinghan shares have long been on the decline, and the performance of 2016-2019 has declined continuously, and the net profit attributable to the mother in the first three quarters of last year even lost more than 40 million yuan. Obviously, this merger cannot be attributed to the results of the impact of the epidemic.

For more than 10 years before June 2018, real estate companies have been living very well, which has led some housing companies to have the illusion that their decisions are so great, but in fact, it is likely that the industry and the market are carrying them forward, and the speed of development masks the inherent defects of enterprises. When the market really turned to the downside, all of their shortcomings were exposed.

In the early years, every time the regulation came, public opinion liked to say that "the great reshuffle is coming", but why is only this round of regulation and control considered a shuffle? The main reason may be that under the effect of strict purchase restrictions and loan restrictions, the speculative demand for real estate has finally been squeezed out. The external support force is no longer there, and it is necessary to rely on internal strength, and some housing enterprises have lost.

The consensus of experts is that the number of housing enterprises in China is still too much, and a number of them need to be eliminated, and it is not a bad thing that the market share is concentrated in the hands of high-quality enterprises. Mergers and acquisitions are an important way to increase the concentration of mainstream housing enterprises, and we should be happy to see them succeed.

As I have said many times, China's real estate market still has a long period of development, because the rigid demand for housing and the demand for improvement are quite large, which is enough to support the stable growth of a number of mainstream housing enterprises. However, the growth of mainstream housing enterprises is, to a certain extent, based on the withdrawal of a number of poorly managed enterprises from the market to give up their shares.

However, when the overall development of the industry slows down, it is another matter for housing companies to still pursue extraordinary growth rates. Scale often means leverage, and extraordinary scale growth means extraordinary leverage. When M&A opportunities come, it is normal to use leverage, but tightening finances, leveraging, taking land in a big way, and looking around for M&A targets is worrying.

High leverage must be characterized by high turnover. While rigid demand and improvement demand won't disappear, they will slow down, and in a market where black swans will suddenly fly out at any time, you can't predict whether this delay will be two months or six months. The longer the delay, the greater the pressure transmitted to the lever. Sacrificing profits is a small thing, if the price of the harvest is that the company has to adjust for one or two years, the resulting loss may offset your 5 years of efforts, and major decision-making mistakes may be out.

So, my personal advice is still safety first. Cash flow to ensure absolute safety, product competitiveness, brand connotation, service without obvious flaws, this should be the next stage of housing enterprises to adhere to the principle. On this basis, we will seek quality growth. Or that sentence, in addition to the boss, how many people now care about which housing enterprise is the first in scale and which housing enterprise is the eleventh?

To add another sentence, housing enterprises above the level of 100 billion, in addition to the main business of real estate development, if they have the spare strength to find a new competitive track, it is worth encouraging.

The world has changed, but real estate is still not too bad.