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Gemdale’s Pathway Towards Sales Volume of RMB 60 Billion

2016-07-28

(Guandian.cn) After a series of changes and adjustments in product structure and operational strategy, Gemdale achieved a rapid growth in its sales volume, making a new record in the history.

As shown from the sales data disclosed by Gemdale, in 2015, the company had an accumulated contract amount of RMB 61.67 billion, increasing by 25.75% as compared with RMB 49.04 billion last year; a contract area of 4.455 million m2, increasing by 14.52% as compared with 3.89 million m2 last year. The sales performance of RMB 61.67 billion made Gemdale one of the “50 billion +” real estate enterprises. When promoting itself to the public, the real estate enterprise from South China was well-prepared and ambitious, “Among 13 ’50 billion +’ real estate enterprises, Gemdale was among the top with a growth of 25% in its contract amount, which was almost three times as much as last year.”

The dramatic rise of the performance reflected the strategic adjustment of Gemdale. Mr. Ling Ke, Chairman of Gemdale once told the Guandian that the main focus of the company in 2015 was: First, to do a good job in investment and management; second, to acquire more lands; third, to achieve internationalized areas of investment, and diversified products of investment and channels of financing.

Besides the residential business, Gemdale has also started its exploration in WeWork apartments in the aspect of commercial real estate, which was considered as “the future strong point of growth”. In addition, it has planned to invest USD 2 billion in the U.S. market, which is expected to reach a total amount of USD 10 billion with the addition of the construction loan.

Three-year Strategic Adjustment

For the past three years, Gemdale has been strengthening the management mechanism of the company and sticking to the operation concept of returning to the first and second-tier cities.

In the development history of Gemdale, events like land acquisition at a high price back in 2009-2010 and price adjustment for sales volume made in 2012 once led to the dropping of the company’s profitability. According to the statistics, the company’s overall gross profit rate was respectively 32.2%, 26.9% and 28.9% in 2012, 2013 and 2014.

In the shareholders’ meeting held in 2014, Mr. Ling Ke once stressed upon that Gemdale had endeavored to promote the strengthening of the company’s management mechanism in the past, and would further control the management cost in future. “The real estate industry has slowed down its pace of growth from the rapid growth earlier before, which turns to be more challenging for the management level of the industry.” He said.

Under the slogan of “controlling the management cost”, Gemdale had started a series of adjustments. As told by the company, specific measures included adjustment of investment pace based on cash flow, improvement of various operational indexes, and further strengthening the building of the organizational and operational system and the cost control.

It was also shown in data disclosed by Gemdale that in the first half of 2015, Gemdale’s real estate development cost was RMB 5.259 billion, with a year-on-year decrease of 19.84%. The main reason was that dynamic costs of projects under construction were reduced significantly while new projects were strictly compliant with the city limits. The settlement gross profit rate of the real estate business was 26.26%, with a year-on-year growth of 4.91%.

The practice of “cost reduction” worked, but only in slowing down the drop of the profitability. When being interviewed by the Guandian, the marketing guy of the company said that, to solve the profitability problem, Gemdale should first promote its sales.

In response to that, Mr. Ling Ke said that in recent two years, the company had been enhancing investment in different aspects, including more involvement in regional urban construction and acquisition of more lands, and the total net investment amount made in 2014 was about RMB 1.53 billion. “Basically the company would be involved in 70%-80% of the bidding projects in the region. ”

Regarding the overall sales compromised by the high-end property business that was used to be of a higher percentage, relevant person from Gemdale said earlier that after a year’s digestion in 2014, the company had took a favorable turn in its early high-end inventory.

According to incomplete statistics of Guandian, Gemdale acquired a total number of 36 lands after entering into 2015, with a year-on-year growth of almost 100%, and sought to explore an innovative mode of cooperation. The total land price of accumulated projects was RMB 27.134 billion, amounting to 44% of the sales amount of RMB 61.67 billion in the same period. The total construction area of projects acquired was 4.0023 million m2, which was slightly less than the sales area of 4.455 million m2 in the same period. 

Among lands acquired, five were located in Shanghai, two in Beijing, and a majority of the rest in major second-tier cities such as Tianjin, Hangzhou, Nanjing, Shenyang, Wuhan, Changsha, Suzhou, Qingdao, Dalian and Ningbo.

As explained by Gemdale, the company pushed to convert a large number of newly acquired lands to products for sales in a short period of time by speeding up the development and improving the project value within the period of time, and eventually achieved a sales breakthrough of RMB 61.67 billion.

Take Qingdao for example. Gemdale made its first land acquisition in Qingdao on January 29, and nine months later, it managed to put the project “Gemdale Yuefeng”  into the market and made sales of RMB 1 billion.

Hiding behind the fast turnaround strategy was Gemdale’s setup of the sequence management mechanism. Citic Securities pointed out that Gemdale tried to make ends even in the aspect of investment and managed to maintain a positive figure on the net amount of the operational activity cash flow in September 2015. Meanwhile, as of the third quarter, the company had a with-interest property debt rate of 31.2% and a net debt rate of 56.8% which was slightly reduced as compared with the middle of the year.

Breakthrough and Diversified Exploration

On the basis when the inventory available for sale was sufficient, Gemdale managed to expect a stable increase on top of the sales amount of RMB 60 billion. According to the announcements accessible on Guandian, during January – February, 2016, the company had accumulated a contract area of 667,000 m2 with a year-on-year growth of 199.1% and a contract amount of RMB 10.56 billion with a year-on-year growth of 304.6%.

Someone from Gemdale said that the company had always been stressing upon the professionalism of real estate, and currently the Green, Eminence, Aristo, Azure, Future, China Chic and Gemdale Commercial under its product portfolio were fully capable of covering the all consumer groups society-wide, so was optimistic about the future development of the company.

Under the strategy of “One Core Business and Two Branches” proposed by Gemdale, besides the residential real estate, a continuous growth of size was also seen in commercial real estate and financial business (two branches) in the past 12 months. This set a basis for Gemdale’s investment, development and operation management of the commercial real estate.

Mr. Xu Jiajun, Senior Vice President of Gemdale and CEO of GPI, once said in his speech in Harvard University, “For the previous 30 years, we have been developing the residential real estate business, but in future, the development of the commercial real estate will become more important.”

As shown in the data, in 2015, GPI affiliated to Gemdale achieved a revenue of RMB 4.241 billion with a year-on-year growth of 95.53%, and an after-tax profit of RMB 1.375 billion, including a profit of RMB 1.056 billion that should be taken by the company’s holder.

Meanwhile, GPI significantly enhanced the efforts in investment, acquired 16 lands through bid, auction, listing and cooperative development within the year, negotiated the acquisition of 76% of the equity held by GD House Group, and obtained projects in Guangzhou and other cities. As of January 22, 2016, the company has had a total construction area of land reserve of approximately 5.17 million m2, including 34% in Beijing, Shanghai and Shenzhen.

Mr. Xu Jiajun said during his interview with Guandian that Gemdale had already started the planning for the new business forms of the commercial real estate and would launch more new concepts and business forms to the market in future.

By now the company had set up 4 “IBASE” shared office projects in Beijing, Shanghai and Shenzhen mainly to provide start-up enterprises and SMEs with office sites and value-added services, and explored the forms of apartments for white-collar workers in cities like Hangzhou, Chengdu and Nanjing. In addition, the company also planned to promote the industrial park mode of “Gemdale Vision Park ” in Shenzhen to the whole country.

In Shanghai, Gemdale acquired the lot in Changshou Community of Putuo District at a price of RMB 1.005 billion in last December, representing its first tap into the commercial real estate business. It was disclosed that the company would actively get involved in the commercial market in Shanghai and target at the long-term leased apartments that were increasingly popular in recent two years.

As said by Mr. Xu Jiajun, besides the existing cities for deep ploughing, Gemdale had started to think about the internalization. “The group has invested some projects in Los Angeles, Boston and other cities in the United States, including office buildings, apartments, and co-working business, and will do the same thing in United Kingdom if possible.”

According to what he said before, Gemdale would invest USD 2 billion in the U.S. market, which was expected to reach a total amount of USD 10 billion with the addition of the construction loan.

In addition, to catch up with the trend of “Internet +”, Gemdale also seeks to explore the diversification of products. It was said that in 2015, the company successively worked with enterprises like Xiaomi, ZTE, Tencent and UBER to introduce them to some projects and try to testify the feasibility of an all-round housing eco-chain.

Gemdale also disclosed that the company had made relevant explorations in financing innovation within the period, including Gemlend incorporated in February, Renovation Fund  established in October, and an Internet financing company to offer financial channels to house buyers. However, the company also admitted that the exploration of the new mode “real estate + finance” was mainly for the purpose of reducing the capital cost, and hoped that the financial tools could become “something that facilitates the sales increase” and a new point of profit increase in the financial section.

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