New Model for Chinese Real Estate Developers: Fast-turn Around
BEIJING, Oct. 18 /PRNewswire-Asia/ -- Evergrande Real Estate, seekingaccelerated growth, sold 4.537 million sqm of floor space during the firstthree quarters of this year, with sales revenue of RMB23 billion, a year-over-year increase surpassing 150 percent. During the third quarter, the developersold 2.303 million sqm of floor space, with sales revenue reaching RMB12.33billion. As such, the real estate player is expected to easily achieve itssales targets of 5 million sqm and RMB30 billion for 2009. Going forward, thedeveloper plans to adopt a "scale plus brand" strategy, maintaining landreserves of around 50 million sqm at any time, accelerating construction ofnew houses and expanding sales, while improving quality of its products, withthe goal of achieving an annual sales target of RMB50 billion by 2011. SinaLeju was the first media source to announce the release of this report, partof which is as follows.
Fast-rising companies have always sought fast expansion based on a rapidturn around in the sale cycle, allowing them to gain market share and build uppositions in the industry. Evergrande adopted this strategy in a move todrive significant increases in results.
In the real estate sector, implementation of such a strategy calls for asustained healthy supply of land reserves and construction starts. Since2006,Evergrande has maintained its leading position in land reserves and the areaof new houses under construction across China. The report released by CRIC(China) shows that as of the end of the third quarter, Evergrande owned landreserves reaching 51 million sqm, becoming the largest landholder in theChinese property market. Adequate land reserves can help companies avoidrisks resulting from price fluctuations. Price increases in buildings alwayslead to price increases in land, so healthy land reserves can provide aguarantee that a company can maintain steady growth. However, Evergrandedoesn't maliciously hoard the land it buys. According to a CRIC (China)report, Evergrande now has approximately 17 million sqm of floor space underconstruction, becoming the developer owning the largest area underconstruction in China.
The CRIC (China) report shows that companies seeking fast turn around ofassets don't look for huge margins on their sales, but rather seek a highvolume of sales, garnering larger market share and speeding up the turn aroundthrough lower prices. Data shows that the average price for homes put on themarket by Evergrande was RMB5,329.5 per sqm for the first three quarters. "Projects initiated by Evergrande are commonly cheaper than theirsurrounding ones," said one market participant. Obviously, the developer'smarketing strategy is in line with its concept of "properties for the commonpeople".
At the beginning of 2006, Evergrande had on hand land reserves of only 3.1million sqm, increasing to 51 million sqm by the end of Q3 2009. At the sametime, the property developer expanded its presence from Guangzhou and Foshanto 23 cities. Evergrande's rapidly expanded sales results and land reservesare mainly located in the country's second-tier cities.
A study pointed out that the large number of land reserves, an operatingmodel based on fast turn around and the impending IPO are driving companies,such as Evergrande, to achieve a quantum leap in their development.Evergrande is planning to achieve its annual sales target of RMB50 billion by2011. At that point, the real estate sector's competitive pattern may changein China.
For more information, please contact:
Kevin Fax: +86-10-5895-1005 Email: Kevinmts@sina.com
SOURCE Sina Leju
Kevin, +86-10-5895-1005 (Fax), or Kevinmts@sina.com
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What goes up must come down. Remember this law of gravity? If you send something into the air, it must eventually come back down. How far up it goes determines how fast it will fall. This is the case with real estate in Florida, particularly along the west coast.
Boom has turned to bust
Housing prices were rising at a record pace, in some cases double or more in 2-3 years. This was the best time for real estate investors in Florida to buy. Or was it? When the peak arrived in mid-2006, the market never saw a plateau. It started dropping, and hasn't stopped yet. People have mortgages that are higher than the value of their house. Homes that had a lot of equity now have little or none. Foreclosures have sky rocketed.
Interest-only mortgages-great in the short term
When looking for a mortgage, first consider a couple of things. How long do you plan to live in or own the subject real estate? Will the market value increase in this time frame so you can make a profit at the closing table? These are things that many people never take into consideration when buying real estate. Interest-only loans are great in the short term, 2-3 years maximum. If you can re-finance the mortgage after a year, then it is a great thing. But, right now, many people have the interest-only option, and can only afford the lowest amount. This leads to increasing the balance of the mortgage, instead of reducing it, with each payment made. That is because there is no money applied toward the principal. So, in the very short term, the interest only loan is ok. If you plan on making it your homestead for life, then find a more conventional real estate loan.
Flipping real estate in Florida
Five years ago, one could purchase a home dirt cheap, fix it up, and resell it for a good profit. As the years went along, the law of physics became more evident. The asking prices were higher, so the after repair prices were higher. Now the property has nearly doubled in the selling price from the original price. People can't afford to buy a house because of this staggering increase. Flipping has almost come to a stand still. A house that was a 'fixer-upper' with a market value of $100,000.00 now has a price of $140,000.00. And if it needs $20,000.00 worth of repairs, it will have exceeded the market value, rendering it useless to an investor or flipper. It is a shame, because it is a lot of fun.
Taxes and Insurance are resistant to the laws of physics
When the real estate market in Florida was zooming upward, the taxes and insurance did not keep up the pace. This is because property taxes are based on the market value of the home. Then the taxes are reduced by a homestead exemption for people owning 1 house. There is also an exemption for keeping your house, a 'save our homes' break. But as the resale prices went up, counties decided to re-assess these properties, every year. They used to just build in a small factor for sheer market value adjustments. Now that county property appraisers statewide are actually appraising these properties, and going on actual sale prices in a comparable area, the taxes have doubled-in 3 short years. Insurance is based largely on what it would cost to replace the house in the event of a catastrophe. The appraised value also plays into the equation by placing a price on the home. These two large pieces of the Florida real estate owners pie are getting too much to handle, and will resist dropping anytime soon.
Florida has a lot of houses for sale
Real estate professionals in Florida will tell you that the prices are beginning to level off. Every street has at least 1 house for sale. Some have every one for sale. The more competition there is, the lower the price goes. With the real estate for sale inventory the largest ever, the prices just keep dropping. For some property owners, it is a wait and see game. For others, which have been slapped with the highest tax and insurance bills ever, they have given up. Foreclosures are the highest they have ever been. Low-interest and interest only option ARM's have been adjusted to the point of breaking. And with no equity in the house to refinance, the mortgagee gives the house back to mortgagor. So many in fact, that some of the smaller, sub-prime lenders have filed for bankruptcy, or just closed their doors. It is a real estate buyer's market right now. You can certainly find one that suits your needs, and for a pretty good price.
Real estate in Florida has been through a lot of changes over the years. Development, both residential and commercial, has hurt the market. The new housing market has almost dried up, like the land and lots that were cleared for new houses. But, barring any natural disasters, it will come back to life. Buying and selling real estate in Florida is fun and challenging. Do your homework-now more than ever. Don't be a victim of gravity on the real estate market in the future.
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