Vanke moves against market downtrend
Updated: 2015-04-01 07:36
By Yang Ziman(HK Edition)
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Construction workers leave the construction site of China Vanke Co's "Fun City" apartment complex in Beijing. The property developer is edging toward service-oriented products, giving priority to apartment quality, service and the community. Keith Bedford / Bloomberg |
China Vanke Co Ltd - the mainland's largest property developer by market value - will go against the current downtrend in the real estate market and focus on residential apartments in the next decade, the company's top executives said on Tuesday.
"As the housing sector cools down, residential development still offers huge potential and sustainability," said Vanke's Chief Executive Officer Yu Liang. "Over the next 10 years, residential development will remain our most advantageous product."
The People's Bank of China moved to lift the mainland property market on Monday by easing home mortgage rules, saying the minimum down payment for a second flat purchased for residential purposes will be lowered from 60 percent to 40 percent of the property's price. The transaction tax for sales of residential homes by individuals will be exempt if the property has been held for two years - down from five years.
"The authorities said the latest moves are aimed at supporting the ever growing demand for homes," said Zhu Haibin, chief economist at J.P. Morgan China.
"It's in line with the policy that 'affordable housing development could partly take the form of transforming some existing housing stock to public rental housing and resettlement housing' as stated in the annual government work report presented to the National People's Congress last month. The policy is good news for real estate developers as it will help the existing high inventory in the market."
According to Tan Huajie, the board chairman's secretary, the market value of new homes takes up about 50 percent of the people's maximum purchasing power - below the 60-percent alarm level. "Although the residential housing market is generally safe, the rapid rise in property prices and the industry's boom have ended," he said.
Zhang Dawei, chief analyst at Centaline Property Agency Co Ltd, said: "The latest bank stimulus will serve as an impetus for real estate developers in general. Vanke, as a leading market player, will also be able to take out some of the pressure on sales this year."
Last year, the overall sales area of residential apartments on the mainland slipped by 9.1 percent, compared with the same period in the previous year, while the total sales volume fell by 7.8 percent.
Vanke has outperformed the general market as its sales area went up by 21.2 percent to 1,806 square meters in 2014, while the sales volume grew by 25.9 percent to 215 billion yuan ($34.7 billion).
Vanke will now place greater focus on service-oriented products. It will announce its proposed plan for the next decade before housing prices fall further, with an eye on its "Three Quality" apartment concept. The company proposed the concept in 2013 - giving priority to apartment quality, service and the community. The concept puts heavy emphasis on details in interior design and property management in order to make residents' lives as convenient as possible.
It also proposes to build a friendly neighborhood so that residents can feel more at home living in large cities.
"Vanke is preparing for a further cooling down of the market," said Zhang. "It's more difficult for such a large company to react when the turning point comes. Therefore, it has to prepare itself long before any significant changes come along. So far, the company has been doing very well in its innovation of customized services."
Vanke's net operating cash flow reached 41.7 billion yuan in 2014. It held 62.7 billion yuan in monetary resources at the end of last year, while the company's net debt rate stood at 5.6 percent - the lowest since 2006.
Vanke will recommend a 5-yuan remuneration for every 10 shares, or a total of 5.5 billion yuan for shareholders.
The builder's land reserve amounted to 38 million square meters at the end of 2014 - down 15 percent from 45 million square meters at the same time in the previous year. Tan explained that the drop was due to rising land prices.
"The surge in property prices has slowed down," said Tan.
"The market will manifest more fluctuation in future. Those who buy up the largest pieces of land do not necessarily have the best assets. Vanke's existing projects will be sustainable in the next two or three years. We're able to replenish our land reserves in a timely and moderate manner. There's no need to purchase land in large quantities when prices remain high."
yangziman@chinadaily.com.cn
(HK Edition 04/01/2015 page9)