Longfor Management: The real estate market is still in the stage of "quantity and price adjustment"
2024-08-23
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"The real estate market is still in the stage of quantity and price adjustment, which contains both opportunities and challenges. Real estate companies must bid farewell to the three highs development model and achieve high-quality development." On August 23, at the Longfor Group's 2024 mid-year results conference, management expressed their views on the current real estate industry.
In the first half of this year, there were frequent regulatory policies for the real estate industry. Stimulated by multiple favorable policies, the real estate market in first-tier cities showed signs of recovery in June, but it turned weak again in July. How will the real estate market trend in the future? It has attracted much attention in the industry.
Zhang Xuzhong, executive director and senior vice president of Longfor Group, said that in the first half of the year, the sales amount of commercial housing nationwide was 4.7 trillion yuan, a year-on-year decrease of 25%. The overall performance of the second-hand housing market was slightly better than that of the new housing market. The scale decreased slightly year-on-year, but the price dropped significantly. Therefore, the current real estate market is still in the stage of "quantity and price adjustment", and market confidence needs to be restored.
At a press conference held by the State Council Information Office today, Ni Hong, Minister of Housing and Urban-Rural Development, also said that the current supply and demand relationship in my country's real estate market has undergone major changes, and the market is still in a period of adjustment. With the implementation of various policies, the market has seen positive changes. Judging from my country's urbanization development process and the people's new expectations for good housing, the real estate market still has great potential and space.
Recently, the Political Bureau of the CPC Central Committee made arrangements for real estate work. How will the market develop in the future? In Zhang Xuzhong's view, in the second half of the year, the real estate industry should actively focus on digesting the stock and optimizing the increment to meet the rigid housing demand and diversified housing demand of residents. Real estate companies need to bid farewell to the "three highs", accelerate the construction of a new development model, and achieve high-quality development. "Under the current transition from the old to the new model, the market recovery has experienced fluctuations, which are both challenges and opportunities."
In the first half of this year, Longfor achieved contract sales of 51.12 billion yuan, corresponding to a sales area of 3.655 million square meters. In terms of regions, contract sales in the western region, the Yangtze River Delta, the Bohai Rim, southern China and central China accounted for 28.1%, 27.0%, 20.1%, 14.3% and 10.5% of the total contract sales in the first half of the year, respectively. The top three cities with the highest sales were Chengdu, Xi'an and Suzhou.
How will Longfor arrange the supply and sales rhythm in the future? Zhang Xuzhong replied to China Business News that the group will firmly implement the strategy. On the premise of ensuring financial security and quality delivery, it will focus on inventory clearance, orderly reduce liabilities, and optimize asset quality. At the same time, it will ensure that new projects have good performance when entering the market. Two of the seven new projects this year have already entered the market, and another five will all enter the market in September. In addition, it is necessary to continuously improve operational efficiency, adhere to long-termism, and promote high-quality development with endogenous motivation, which is highly consistent with the current new normal in the industry.
In terms of land acquisition, Longfor acquired 7 new plots of land in Beijing, Shanghai, Suzhou and other cities in the first half of the year, with a total construction area of 600,000 square meters of newly acquired land reserves, an equity area of 350,000 square meters, and an average equity acquisition cost of 14,946 yuan per square meter. As of the end of the period, Longfor had a total land reserve of 41.41 million square meters, an equity area of 29.59 million square meters, and an equity ratio of 71.5%.
In terms of profitability, Longfor's overall operating income in the first half of the year was 46.86 billion yuan, of which the operating and service business income was 13.10 billion yuan, a year-on-year increase of 7.6%; the profit attributable to shareholders in the first half of the year was 5.87 billion yuan, of which the operating and service business contributed more than 80%. The gross profit was 9.64 billion yuan, with a gross profit margin of 20.6%; the core after-tax profit margin was 11.7%, and the core equity after-tax profit margin was 10.1%.
In terms of debt, Longfor further reduced interest-bearing debt in the first half of the year and continued to optimize its debt structure. As of June 30, 2024, Longfor's total comprehensive borrowings were 187.42 billion yuan, down 5.2 billion yuan from the beginning of the year; cash on hand was 50.06 billion yuan, the net debt ratio was 56.7%, the cash-to-short-term debt ratio was 1.7 times, and the asset-liability ratio excluding prepayments was 58.6%, maintaining the green file of the "three red lines".
Longfor Group Chief Financial Officer Zhao Yi said that in the first half of the year, the group's operating property loans increased by 21.9 billion yuan, of which the increase in existing projects through the increase in mortgage rates exceeded 14 billion yuan, the average financing cost was about 4.16%, and the average loan period was extended to 9.19 years. "The group will steadily arrange debt repayment. As of now, there is a remaining 1 billion yuan of domestic bonds due in 2025, and the money is ready; there are no overseas bonds due before 2027. In the second half of the year, the group will continue to make orderly progress and repay the debt due next year in advance."
Chen Xuping, Chairman and CEO of Longfor Group, said that the high-leverage, high-turnover model is unsustainable even in mature global markets. The real estate development business is cyclical, and as urbanization enters a steady stage, the scale of new home development will inevitably decline. In the past, Longfor did not blindly pursue scale rankings and prudently controlled its debt level. Now, with the transformation of new and old momentum in the industry, the most critical thing is still to handle the debt problem well. On the one hand, the group has reduced the scale of debt, and on the other hand, it has lengthened the debt cycle, while continuously increasing operating business income. "To become a century-old real estate company that can cross cycles, low debt levels and high operating income are two necessary conditions."
(This article comes from China Business Network)
