New Model for Chinese Real Estate Developers: Fast-turn Around

BEIJING -

Evergrande Real Estate, seeking accelerated growth, sold 4.537 million sqm of floor space during the first three quarters of this year, with sales revenue of RMB23 billion, a year-over-year increase surpassing 150 percent. During the third quarter, the developer sold 2.303 million sqm of floor space, with sales revenue reaching RMB12.33 billion. As such, the real estate player is expected to easily achieve its sales targets of 5 million sqm and RMB30 billion for 2009. Going forward, the developer plans to adopt a “scale plus brand” strategy, maintaining land reserves of around 50 million sqm at any time, accelerating construction of new houses and expanding sales, while improving quality of its products, with the goal of achieving an annual sales target of RMB50 billion by 2011. Sina Leju was the first media source to announce the release of this report, part of which is as follows.

Fast-rising companies have always sought fast expansion based on a rapid turn around in the sale cycle, allowing them to gain market share and build up positions in the industry. Evergrande adopted this strategy in a move to drive significant increases in results.

In the real estate sector, implementation of such a strategy calls for a sustained healthy supply of land reserves and construction starts. Since 2006, Evergrande has maintained its leading position in land reserves and the area of new houses under construction across China. The report released by CRIC (China) shows that as of the end of the third quarter, Evergrande owned land reserves reaching 51 million sqm, becoming the largest landholder in the Chinese property market. Adequate land reserves can help companies avoid risks resulting from price fluctuations. Price increases in buildings always lead to price increases in land, so healthy land reserves can provide a guarantee that a company can maintain steady growth. However, Evergrande doesn’t maliciously hoard the land it buys. According to a CRIC (China) report, Evergrande now has approximately 17 million sqm of floor space under construction, becoming the developer owning the largest area under construction in China.

The CRIC (China) report shows that companies seeking fast turn around of assets don’t look for huge margins on their sales, but rather seek a high volume of sales, garnering larger market share and speeding up the turn around through lower prices. Data shows that the average price for homes put on the market by Evergrande was RMB5,329.5 per sqm for the first three quarters.

“Projects initiated by Evergrande are commonly cheaper than their surrounding ones,” said one market participant. Obviously, the developer’s marketing strategy is in line with its concept of “properties for the common people”.

At the beginning of 2006, Evergrande had on hand land reserves of only 3.1 million sqm, increasing to 51 million sqm by the end of Q3 2009. At the same time, the property developer expanded its presence from Guangzhou and Foshan to 23 cities. Evergrande’s rapidly expanded sales results and land reserves are mainly located in the country’s second-tier cities.

A study pointed out that the large number of land reserves, an operating model based on fast turn around and the impending IPO are driving companies, such as Evergrande, to achieve a quantum leap in their development. Evergrande is planning to achieve its annual sales target of RMB50 billion by 2011. At that point, the real estate sector’s competitive pattern may change in China.

For more information, please contact: Kevin Fax: +86-10-5895-1005 Email: Kevinmts@sina.com

Source: Sina Leju

Kevin, +86-10-5895-1005 (Fax), or Kevinmts at sina.com