Original title: real estate bid farewell to high gross margin and low speed forward head housing enterprises re-talk about the second growth curve

Our reporter Wang Lixin

"Today, 'living' is still very important." "We need to be safe now." "from attack to defense, harden the ability of sustainable management." The first sentence comes from the mouth of Zhu Jiusheng, president of Vanke, the second sentence comes from Sun Hongbin, chairman of Sunac China, and the third sentence is said by Xu Shitan, vice chairman of the board of directors of Shimao Group's second generation successor.

In three words, the clear understanding of the real estate enterprises on the present and the future of the industry has also described the direction of efforts to move forward. In this regard, Pan Hao, a senior analyst at KE Holdings Inc. Research Institute, told the Securities Daily that the era of management dividends after land dividends and financial dividends, the era of profits and dividends brought about by rapid scale growth is no longer there. Next, the industry as a whole will enter a stage of steady development, prudent management is the first, non-real estate development (non-real estate development) business is very likely to become a profit point.

After attending more than 30 mid-term performance presentations of benchmarking housing enterprises in 2021, the reporter found that in addition to collective leverage reduction is a top priority, there are two key understandings: one is that the real estate industry has bid farewell to the era of high gross interest rates, and there is no hope that profits will pick up in the short term. Housing enterprises will move forward at a low speed; second, with the advent of the era of subdivision of the real estate industry, a number of head real estate enterprises have readjusted the proportion of business on the second growth curve, and accessories have become popular.

The overall profit margin of the industry has fallen back.

In 2021, the hidden danger of the radical expansion of the real estate industry gradually surfaced.

Even the "top students" who have been self-disciplined for many years are still caught in the whirlpool of "increasing income without increasing profits". China Real Estate, which is regarded by the industry as the "profit king", saw both gross profit margin and net profit margin fall in the first half of the year, and Vanke experienced a decline in net profit in its interim results for the first time in 13 years. Even so, the profitability of small and medium-sized housing enterprises can be imagined. Net profit margins of 54 property companies fell to 9.3 per cent in the first half of 2021 from 10.4 per cent a year earlier, falling below 10 per cent for the first time in five years, according to Wind.

"the decline in gross profit margin is an industry trend." Zhao Yi, chief financial officer of Longfor Group, said that in the price-limited environment, a gross profit margin of 20 per cent and 25 per cent may be the trend of the entire real estate industry in the future, which will make the industry develop more steadily and sustainably.

As Pan Jun, chairman of the board of directors in the mood for years, said, in the past, people thought that the larger the scale, the safer it was, but now it emphasizes cash flow and profits.

So, where are all the profits? Zhu Jiusheng attributed the decline in Vanke's net profit to three reasons: first, the limited growth of sales scale; second, the rapid decline in gross profit margin; third, the effect of the transformation of the business has not really been reflected.

"the parallel state of high land prices and limited house prices since 2017 has led to continued pressure on corporate gross margins." Liu Shui, deputy director of the Enterprise Department of the Middle finger Research Institute, believes that.

Pan Hao also said that the current housing enterprise settlement project consists of high premium land projects from 2016 to 2018, when the real estate market was booming, the land market was active, high premium land and "king of land" projects were frequent, and this land entered the sales cycle with regulatory upgrades. In the policy environment such as price-limited sales, the high land-to-sales ratio (land costs accounted for a proportion of the sales price) affected the overall profit level of real estate enterprises.

When will you return to the uplink? The industry consensus is that in the long run, the real estate industry will maintain an average profit margin that is relatively higher than the social average profit margin of other industries.

"there will be no more exorbitant profits in the real estate industry. after entering the era of management dividends and brand dividends, the industry has entered a stage of all-round high-intensity competition, and the decline in profit margins is inevitable. It is expected that this round of decline will see the bottom at the end of next year." Lin Zhong, chairman of the board of directors of Xuhui Holdings, said.

Re-recognize the second growth curve

The local property development business has irreversibly stepped off the altar of high profits. Housing enterprises not only regard fine management as the standard, but also strive to find and cultivate the second growth curve. These past accessories have become the main waterway business. However, there are still not many enterprises with a certain income scale for non-real estate business.

Longfor Group is one. In the first half of 2021, Longfor Group's operating business income was 8.78 billion yuan, an increase of 49 percent over the same period last year. Today, Longfor Group business operations, rental housing, smart services and other businesses have been among the top of the industry, housing rental and sale, housing decoration and production city, medical care and other businesses, also began to contribute operating income. In the first half of the year, Longfor Group put forward a light asset export strategy in commercial, rental housing and other waterways to enhance value-added income.

In Longhu's view, if the development engine represents the present, the service engine represents the future of the company. According to people close to Longfor Group, Wu Yajun set a service engine business target of 30 per cent growth, much higher than the development engine business target. At the same time, it is an iron rule to invest 15% of sales in non-housing business every year, and innovative dim sum business is set up internally.

Shimao Group is also one. In the first half of 2021, Shimao Group's non-housing income was 6.6 billion yuan. Xu Shitan said that the target for the next three years was 15 billion yuan, and that he was considering a split into business segments for listing.

According to Kerry statistics, in many housing enterprises, non-housing business is no longer an accessory of real estate development, the degree of attention and investment scale are far more than in the past.

"the development of diversification is a good way of thinking, and it is the development direction of housing enterprises to comply with the trend. At present, the profit margin level of many non-housing opening business has exceeded that of the housing opening business, and the non-housing opening business can boost the overall profit level of real estate enterprises. " Pan Hao said, however, due to their own physical differences, may not be suitable for every enterprise, need to be combined with their own strategy to make a choice.

"some real estate enterprises have explored a successful multi-wheel drive model of 'residential plus multi-business'." Liu Shui told the Securities Daily that when the industry enters an era of full competition, on the one hand, real estate enterprises need to strengthen their foundation and fine management to improve operation quality and efficiency; on the other hand, they should strengthen the ability of supply chain integration and industrial chain control to create a second growth curve and increase new profit growth points.

Generally speaking, the backward production capacity of the real estate industry is being cleared, and the industry is in a process of rebalancing, with the scale increment gradually peaking, and at the same time, in the case of limited debt scale and profit margin, ensuring the safety of cash flow and improving operational efficiency. Changing the concept of making money and expanding the scale of profits is the only way for real estate enterprises to change from attack to defense.