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Blue Whale News, November 18 (Reporter Cui Lupeng) What are real estate companies busy with as they gradually reduce new projects after reducing land acquisitions?

According to Blue Whale News, against the backdrop of shrinking real estate development businesses, earning a certain profit from asset-light operations has become the choice of most real estate companies today. Among them, project management and commercial asset-light operations are regarded as important development directions.

'This year, our main focus is on project management. Except for those left to handle the wrap-up work, the rest of the staff from the original development department have shifted to project management,' said the person in charge of relevant businesses at a troubled real estate company to Blue Whale News.

Additionally, according to incomplete statistics from Blue Whale News, more than 70% of the top 50 real estate companies have added project management businesses as of now.

Moreover, some developers who originally had rich experience in managing commercial assets are gradually expanding their business scope, from traditional commercial complex operations to leasing more commercial streets in residential areas and other assets, thereby increasing profit channels.

Project management absorbs the 'outflow' of development personnel

This year, after experiencing industry adjustments, Sunac established a new platform called Erjin Capital with project management functions. Recently, Sunac also renamed this platform Erjin Management. According to reports, this platform will be independent of Sunac's original real estate development system, with its main task being to introduce external investors and integrate the project management system.

An insider from Sunac told Blue Whale News that non-performing assets are a derivative of Sunac's project management business. The specific approach may involve Erjin Management seeking investors to collaborate and jointly invest in non-performing asset projects, with Sunac's project management platform, Rongzhe Gongchuangjian Guan Group, handling the specific operations.

Unlike Sunac's newly established platform, an insider from Longfor told Blue Whale News that the company's internal project management platform, Longzhi Zao, has been established for over two years and its importance within Longfor Group is continuously increasing. This platform is personally managed by Song Hailin, who has been with Longfor for 13 years, and is on par with asset operation channels such as commerce and asset management. Starting last year, Longfor further expanded its asset operation scope to include the operation of commercial streets in residential areas and other assets.

Data shows that in 2023, Longzhi Zao achieved revenue of 1.97 billion yuan, an increase of 66% year-on-year; in the first three quarters, Longzhi Zao added 41 new project management projects with a total construction area of 6.28 million square meters, far outpacing the growth rate of the real estate main business.

In 2024, CIFI Construction Management also achieved rapid expansion in management scale and quickly seized an important position in the project management field. On the list of project management enterprises released by the China Index Academy, CIFI Construction Management ranked first in the first nine months with a newly signed planned construction area of 9.52 million square meters.

According to the relevant person in charge of the CIFI Group, in the first half of 2024, CIFI Construction Management achieved nearly 50 new management projects and newly signed an area exceeding 7 million square meters. The proportion of government and state-owned enterprise project management contract amounts was over 50%, setting new highs for both management scale and operating quality.

'In the past three years, a large number of real estate development talents have flowed out, and project management is the field that has absorbed the most talents.' According to the person in charge of relevant businesses at the aforementioned troubled real estate company, on the one hand, development enterprises regard project management as a 'back door' with the goal of retaining, nurturing, and storing development capabilities for a comeback; on the other hand, the mainstream project management model is closely related to traditional real estate development, except as an upgraded version of asset-light and management models.

Asset-light operations become an important source of profit

Besides project management, in the era of stock assets, commercial asset operations are also regarded as a second growth curve by more enterprises. Currently, for some real estate companies that transformed earlier, commercial operating income has become the cornerstone of their development. For example, China Resources Land, which owns the MixC series, achieved a core net profit of 10.74 billion yuan in the first half of this year, of which the core net profit from recurring businesses was 5.52 billion yuan, accounting for 51.4%.

Longfor reaps stable cash flow through its Times Square series of commercial complexes. The interim report showed that rental income during the reporting period was 5.32 billion yuan, an increase of 6% year-on-year; at the same time, Longfor's operating business and property management services also contributed a profit of 6.8 billion yuan, accounting for over 80% of the group's profit composition.

It is worth noting that in recent years, Wanda Group, Vanke, China Resources Land, Longfor Group, Joy City, and Powerlong Real Estate have accelerated their asset-light project layouts.

The relevant person in charge of a real estate company's commercial group told Blue Whale News that asset-light operations have become one of the important channels for real estate companies to seek profits.

On the one hand, under the heavy asset development model, high-energy cities or core regional projects require a large amount of capital to sink in for development and operation. However, currently, corporate financing is tight and liquidity is under pressure. The asset-light model has relatively lower costs and risks; on the other hand, as commercial real estate competition intensifies, higher requirements are placed on operation and management capabilities. The commercial management team under the asset-light model has mature operational experience, a rich and complete product line, standardized and normalized operations, which can meet market demands.

The aforementioned head of the commercial group said that in the medium to long term, commercial real estate in first- and second-tier cities is entering the 'stock era', and consumption in third- and fourth-tier cities is expanding and improving in quality, both of which bring potential growth space to the asset-light model's commercial management format.

Intensifying internal competition; the transformation path is not easy

Asset-light operations seem to achieve great things with little effort, but when everyone sits at the 'table,' the probability of outperforming the market is easily diluted.

Compared to project management, the threshold for entering commercial asset operations is currently higher if one only starts now. According to the person in charge of a shopping center, the MixC series focuses on the high-end consumer market in core cities, with MixC as its core product; Longfor targets the middle class with Times Square as its core product; and Sunac Real Estate mainly occupies the third- and fourth-tier markets with Wuyue Plaza as its core product. All three have formed a scale. Compared to other enterprises, these early entrants into the commercial sector have certain advantages in terms of brand awareness, operational capabilities, and partner brands.

At the same time, the current domestic commercial entities tend to be saturated, and industry differentiation and competition are intensifying year by year.

'There is a threshold for commerce. For development enterprises, the transformation to project management can be said to have no threshold at all,' but the aforementioned person in charge of relevant businesses at the troubled real estate company said that everyone can see the direction, which is bound to be crowded, especially now when there are not many options left for real estate companies.

More and more project management enterprises emphasize seeking efficiency through management and enhancing their competitiveness by reducing costs and increasing efficiency.

'We have all been engaged in real estate development for many years, and the gap is not that obvious,' a person who once worked at a real estate company for many years and is now employed at a co-construction platform told Blue Whale News. In the past, real estate practices such as 'low-price bidding' and 'over-promising' have spread to the project management field. 'Some real estate companies would rather sacrifice profits to rapidly expand in the project management field and secure future survival opportunities.'

According to statistics from the China Index Academy on typical project management enterprises' project management projects, about 80% of current project management projects have a project management fee rate of less than 4%.

Data released by the Mingyuan Real Estate Research Institute shows that in the first half of this year, the newly signed project management construction area increased slightly year-on-year, but the project management fee decreased by 18.1% compared to the same period last year. Among them, the top representative enterprise, Greentown Management, collected a project management fee of 1.414 billion yuan in the first half of the year, a year-on-year decrease of 27.7%.

Compared to a price war that constantly lowers corporate profits and the industry's average profits, it may be more difficult for enterprises to focus on how to operate.

'Central enterprises, state-owned enterprises, etc., have directed their investments to core cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, and Suzhou. Investment and development are highly aligned, and project management can hardly enter these cities. Currently, more project management enterprises can only undertake projects in some second-tier or even lower-tier markets,' said the aforementioned head of the co-construction enterprise. In these cities, there are not many project options to choose from in the first place, the project expectations of the party A (client) are not low, and competing enterprises are still raising prices to increase the expectations of party A.

Ding Zuyu, Dean of the Shanghai E-house Real Estate Research Institute, said that as the number of project management enterprises tends to 'saturate,' competition in the project management industry is also intensifying. Intensified competition due to rapid expansion and continuous market share capture has led the industry to gradually move towards a new stage of stable differentiation, reshuffling, and clearing out.