In the “black iron era” of real estate, are there any new opportunities and new tracks for real estate enterprises?
In 2021, the real estate industry entered a period of in-depth adjustment. Many real estate enterprises are facing the cruel reality of land acquisition suspension, debt storm, large-scale layoffs and stock price collapse. However, the first financial reporter learned that the agent construction business of some real estate companies has shown obvious “countercyclical” characteristics. The more difficult the real estate is, the more prosperous the business is.
“There are too many new businesses to be busy. We not only don’t lay off staff, but also recruit large numbers of people!” Recently, an agent construction industry practitioner told reporters.
At present, there are not many companies engaged in agent construction business in real estate enterprises, and only two are listed separately. Among them, the share price of “agent construction first share” Greentown management increased by more than 100% from September last year to February this year.
An insider said that agent construction, that is, the real estate enterprises turn from developers to service providers, from Party A to Party B, and earn management fees by operating projects for land holders. This transformation will be an inevitable trend. In Europe and the United States and other developed countries, after the real estate market is mature, there is also a law of gradual separation of investment, development and operation. In the future, real estate agent construction will be more and more recognized.
the crisis of private real estate enterprises boosts the growth of agent construction
“Since the second half of 2021, we have been too busy! Our business has expanded very fast.” Insiders of a real estate agent construction enterprise told China first finance and economics.
Real estate agent construction refers to a cooperative development mode in which the party owning the land initiates the demand, and the agent with project development and construction experience undertakes the demand and finally realizes common profits. Generally speaking, the land owner has land acquisition channels and resources and pays land funds and other capital costs, while the construction agent has mature trading experience and brand premium. Through professional ability, the project obtains development profits, from which the construction agent earns construction management fees.
For the agent construction party, this is a completely asset light mode. Compared with the traditional real estate development mode, the agent construction business does not need to occupy a huge amount of funds and the risk is low.
Since the second half of last year, due to financial pressure, many real estate enterprises have “laid flat” in the land market and stopped taking land. Therefore, it is generally speculated that the total sector of the agent construction market is also decreasing due to factors such as centralized land supply and frequent auction. However, the real situation of the market is just the opposite.
“The whole market is accelerating expansion. Since the implementation of the ‘centralized land supply’ reform, we have too many businesses to finish. At present, the average annual growth rate of the whole market scale is more than 20%.” The person in charge of a construction related enterprise.
She said that many of the bad news for the real estate industry is just the good news for the agent construction industry, and the two sides have formed a counter cycle. Central enterprises and state-owned enterprises have become the main force of land acquisition, local urban investment has taken all the land, real estate leading enterprises have been shut down due to thunderstorms, and the government has strengthened the construction of affordable housing, all of which have contributed to the outbreak of the scale of agent construction industry.
2021 is the first year of implementing the reform of centralized land supply. Starting from the second batch of centralized land supply, many private housing enterprises are not willing to participate in the auction. Central enterprises and state-owned enterprises have become the main force of land acquisition, and local urban investment in many cities has taken the land. Taking the third batch of centralized land supply as an example, according to the data of Shengang securities, the proportion of land taken by central enterprises and state-owned enterprises in Changchun, Changsha, Shenyang and Beijing is as high as 100%, 82%, 75%, 72% and 75% respectively.
In addition, the urban investment company has also been active in the second and third batches of centralized land supply and made frequent moves, mainly because the local government wants to “rescue the market” and maintain the stability of the local land market.
“This has brought great opportunities to the agent construction company. Because many central enterprises, state-owned enterprises and urban investment companies did not have so much strength in the past, they swallowed so much land at once, and finally had to find a reliable agent construction party to deal with it.” People in the industry said that in the past, most of the customers of the agent construction enterprises were small and medium-sized and local real estate enterprises, accounting for 90%. Now they are vigorously expanding the customers of state-owned enterprises and central enterprises, with remarkable results. At present, the customers of state-owned and central enterprises account for more than 40%.
At the time of major changes in the real estate market, government subsidized affordable housing has also become a major trend. Around the new year, all provinces and cities are releasing large-scale affordable rental housing plans. On February 24, Ni Hong, Vice Minister of housing and urban rural development, pointed out that the supply of affordable rental housing will continue to be greatly increased in 2022, and 2.4 million units will be raised nationwide, a significant increase over last year.
“The government is bound to find the agent construction party to complete this large-scale livelihood project. After the local policies have been released one after another, it has attracted the great attention of financial institutions and securities analysts. Everyone believes that the agent construction industry will win major opportunities.” The above agent construction industry said.
The person judged that the transformation of real estate enterprises from developers to service providers will become an inevitable trend. “In the past, real estate enterprises were Party A, and they should gradually get used to becoming Party B in the future.”
IPO of spin off agent construction business may become a trend
From 2019 to 2021, the “trend of property spin off and listing” of real estate enterprises was vigorous, and property management services became the second track pursued by real estate. Now, with the frequent problems such as the capital chain of real estate enterprises, the property track has cooled down greatly.
“The property is closely related to the real estate parent company, and the property management area basically comes from the parent company. Problems in the parent company will immediately drag down the property, while the agent construction business is different. The agent construction is a thorough asset light business, which is not so deeply related to the parent company.” An insider told reporters.
The person believes that the next step is to vigorously develop the agent construction business and spin off the agent construction company for listing, which will become a new trend, which is more favored by the capital market.
So far, there are only two listed agent construction companies in China – Greentown Management (09979. HK) and Zhongyuan construction industry (09982. HK). Greentown management was listed on the Hong Kong Stock Exchange in July 2020, while Zhongyuan construction industry was listed in May 2021.
As the “first share of agent construction”, the total contract area of new extension agent construction projects in 2021 reached 22.78 million square meters, a year-on-year increase of 22%, and the agent construction fee of new extension agent construction projects is estimated to reach 7.1 billion yuan. The share price of green city management has risen by more than 100% from the low point in September last year to the high point of HK $7 / share in mid February this year, which is completely opposite to most real estate stocks.
Liu Shui, head of enterprise research of China Index Research Institute, said that the agent construction business is anti cyclical and can resist the downward risk of the market. Especially under the situation of poor prosperity of the real estate industry, small and medium-sized real estate enterprises with poor anti risk ability will choose the agent construction mode development project to bring benefits to the agent construction service providers.
According to the data of China Index Institute, the agent construction business has the characteristics of high profitability. Since 2017, the compound growth rate of the total construction area of newly signed projects in the agent construction industry has reached 21.3%, and the net profit level of real estate agent construction business has reached 25.4% in 2020, which is more than 10 percentage points higher than that of traditional real estate.
A central enterprise agent construction business staff said that according to his observation, a large number of real estate enterprises are involved in the agent construction industry, there are many new entrants, and the competitive pressure of the industry has increased, but there are also many opportunities for the development of the industry.
In 2018, real estate enterprises Gemdale Corporation(600383) established Jindi development management company (hereinafter referred to as “Jindi management”) and began to deepen the agent construction business. At present, it has been distributed in more than 30 cities across the country and more than 70 management service projects. According to an insider, Jindi management is likely to become the next agent construction enterprise to spin off the IPO.
In addition, China Resources, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , poly, contemporary real estate, Landsea and Yajule are also vigorously developing agent construction business. According to incomplete statistics, more than 30 brand real estate enterprises have developed agent construction business.
However, some insiders pointed out that the threshold of the agent construction industry is also high. The success of the agent construction business depends very much on the brand premium and trading ability of real estate enterprises. This requirement eliminated many real estate enterprises. In serving the government, government departments pay more attention to the qualification, scale, past trading cases and process specifications of agent construction enterprises. Therefore, it is difficult for small companies to eat the “cake” of government public construction and affordable housing business. With the intensification of industry competition, if high profits are unsustainable in the future, the agent construction industry may also enter a bottleneck period of development.
