Caixin
Dec 31, 2012 11:26 AM

Winter in the Real Estate Industry

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With real estate macro controls becoming the norm, winter in the real estate industry will be here for the long-term. It is difficult to see an end. According to the temperature, winter can be subdivided into early winter, winter and severe winter. We have passed early winter and are entering into a long period of winter.   

For Vanke, winter is a strategy. In winter, we need to exercise actively and strengthen our power to resist the cold; otherwise, we will freeze to death. More important, we must have money on hand. Money is the warm coat of winter. These two winter strategies are Vanke's long-term task.   

Clear Secondary Positioning

Large real estate developers have done pretty well in 2012. Of course some companies have opted to withdraw from the industry. Everyone has begun to wonder: Will things get better soon? Will future real estate control policies raise the stakes further? I think this depends on whether developers are being obedient. Rapid price increases and the frequent emergence of buying land plots with astounding prices are not the results of "being obedient."  

In 2011, I posed the theory that Chinese real estate had entered the second half of its industry development. The so-called second half doesn't mean that the golden age of real estate has passed, just that in contrast to the glory of the first half, corrections need to be made for the second half. The central conclusion of the correction is that the real estate industry cannot have extravagant hopes of becoming a pillar of the national economy and must be willing instead to become a supporting industry in the process of urbanization and development.  

In the past, the real estate industry has been called a pillar industry, but there are problems with this positioning. Upon sober reflection, it is more appropriate for the real estate industry to be a supporting industry in the national economy.

When a city begins to expand, the first thing needed is housing, so developers emerge that concentrate on housing. When a city develops into the stage of attracting investment, developers are needed to construct industrial parks to meet this demand. In the stage of upgrading the industrial structure, a city needs commercial real estate developers. When it comes time to update a city's image, cultural and sports facilities and high-end buildings are needed.  

One can see that in each step of the process, the real estate industry exists as an industry to support urbanization and development. A clear head will see that even if real estate is involved in the development of dozens of industries, it is not the main actor, but a supporting player. With this positioning, the real estate industry in China may perhaps be able to discover more opportunities.   

As a supporting industry, how big are the things that we can do? First, there is still sufficient room for the development of the entire real estate industry. In cities like Shenzhen, for example, there will still be numerous opportunities for the real estate industry in residential fields in the next 15 to 20 years, as well as in many areas that have not been covered, such as residences for the elderly and real estate for tourism.  

Each city is going through this process of changing development stages and constant escalation. After market competition has stabilized, future development for a good real estate developer will still be limitless.  

Second, in the process of industry development, one result of market competition is the constant increase of the intensification of the industry, which plays an important role in promoting the health of the overall market by reducing the risk of vast vacant buildings and increasing product service. If developers want to survive among the competition and survive to live well, they must approach every problem with an attitude of responsibility. 

With the increasing intensity of the industry, a question emerges: Will the future real estate industry in China be monopolized by a few developers? I don't think this is a worrying problem. Today there are more than 80,000 real estate developers in the country, and new companies enter the market all the time. We are far from the era of oligarchs.  

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