16 July 2019

Vanke builds its future on communities

No doubt it was a remarkable feat. Chinese property titan Vanke (000002.CN, 200002.CN), the world’s largest of its kind, sold 171 billion yuan (US$28.25 billion) worth of homes in 2013, up 21 percent year on year.

Already, analysts are predicting sales of up to 200 billion yuan this year.

These will come from 305 billion yuan worth of sellable units with a total floor area of 27.5 million square meters, UBS figures show. With such big numbers, sales could easily top 215 billion yuan.

You’d expect these prospects to reflect on Vanke’s share price but the reality is a little less promising.

The stock has lost 19 percent over the past year thanks to some worrying sell-offs by institutional investors. If being No. 1 couldn’t help Vanke’s shares, who knows what will happen if it loses the crown this year?

Conceivably, it could. Greenland, last year’s runner-up, was just 11.5 billion yuan behind Vanke in 2013. Its stellar growth — 51 percent year on year — was more than twice Vanke’s.

Vanke president Yu Liang {郁亮} has been pondering how the developer’s ultra high sales target can survive any slowdown in China’s urbanization in the next five to 10 years.

China’s housing boom will produce a 10 trillion yuan market in a decade but there will be a “glass ceiling” after the peak, Yu reportedly told a recent internal meeting.

More than one million homeowners and their families in various Vanke housing developments across the country could help soothe these concerns. Vanke has started to offer these communities more than just homes but a long-term business relationship.

Yu told 21st Century Business Review that Vanke projects house more than 1.2 million people, the equivalent of a major city such as San Francisco. These are people with spending power waiting to be tapped.

The company’s latest offering is a free smartphone application named Zhuzheer (living here) {住這兒} launched during the Single’s Day shopping festival on Nov. 11 last year.

The app, reputedly the first of its kind, features an all-in-one mobile service portal for Vanke homeowners. On top of the usual bulletin boards and property management service inquiries and complaints, it provides a detailed shop directory on everything from restaurants and supermarkets to drug stores and banks on a Vanke estate. The app also supports online purchases and reservations. Customers can give feedback and rate a particular shop.

Although still being tested, the app has been downloaded by 300,000 users since its release.

The service dovetails with Vanke’s aggressive strategy to transform itself into an integrated service provider catering to homeowners’ daily needs.

Vanke already works with supermarket chain Vanguard to operate convenience stores on some estates in Shenzhen, the company’s home base. Minsheng Bank (01988.HK, 600016.CN), which has ambitions to tap community demand, has been invited to open branches in those locations.

In addition, Vanke is the largest shareholder in Huishang Bank (03698.HK), one of the largest commercial lenders in central China; it’s likely Huishang will use the opportunity to penetrate Vanke’s communities. Among other things, Huishang is expected to pitch Vanke to its customers.

Vanke is so determined to make a success of its new strategy that Yu has proposed a separate listing of Vanke’s property management division.

A visit to Tencent (00700.HK) headquarters in December potentially paved the way for a partnership in which Vanke residents near and far can be connected to each other by social media.

However, not everyone is convinced about Vanke’s move from developer to provider of community services. Some analysts say the new business can be too insignificant from the start and it could drain money before it brings in any, if at all.

With a robust cash reserve, Vanke can afford a setback or two. A few pockets of success also offer some assurance. For instance, Fantasia Holdings (01777.HK), a much smaller developer, said in its 2012 annual report that profit from community services was 50 million yuan, 45 percent of the year’s total.

– Contact the writer at [email protected]



EJ Insight writer

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