Date
14 November 2018
Country Garden's Yang Guoqiang is known to have pushed the build-fast-and-sell-fast business model to the extreme. Photo: Reuters
Country Garden's Yang Guoqiang is known to have pushed the build-fast-and-sell-fast business model to the extreme. Photo: Reuters

Should Country Garden rethink its super-fast project speed?

Chinese property firm Country Garden witnessed a series of work-site accidents since last month, prompting the developer to halt construction at numerous projects for a few days as it sought to conduct safety inspections.

Given the accidents, which even led to worker fatalities in one serious case, the company and its operations have come under scrutiny. Meanwhile, the incidents are prompting observers to raise this question: Is the firm’s super-fast development model at fault?

To accelerate capital turnover and keep the funding pressure down, a fast turnover business model — build fast and sell fast — was introduced into China by Hong Kong developers in the 90s.

This quickly became the standard among mainland developers and Country Garden is known to have pushed that model to extreme in recent years.

Earlier this year, Country Garden architects were said to have been told to put out design plan on the same day that the developer obtains the land. The project has to be ready for sale within three months, according to the reported directive.

Although the net worth of founder Yang Guoqiang has long exceeded 100 billion yuan, the farmer-turned-developer remains thirsty for more.

While some property tycoons have diversified into other fields, Yang is still 100 percent focused on the core business.

A workaholic, Yang still chairs meetings on a daily basis. He works long hours and would often discuss business strategies with senior management until late at night.

The recent urge for the company to speed up the development pace is mostly about tapping the short window of opportunity offered by the country’s policy to renovate housing in run-down areas, in particular in small third- and fourth-tier cities.

Previously, the government would demolish those run-down areas, build new affordable housing nearby and then relocate the households evacuated.

But since the second half of last year, authorities changed the approach and offered monetary compensation to let households affected buy their own home instead.

This policy shift created sudden, huge demand for housing. Country Garden wants to get into the market ahead of its rivals and capture homebuyers ahead of competitors.

By moving fast, the company already has lots of projects ready to sell, when most others are still in the planning phase.

Given the rapid surge in home demand and spiking home prices in low-tier cities, the central government has decided to slow down the pace.

Although Country Garden is having some construction issues, it does prove that Wang was right in the relentless push for speed, as market situation and policy does change rapidly.

The company has reported first-half sales revenue of 412.4 billion yuan this year, which is equivalent to 75 percent of the full-year figure of 2017. In 2015, Country Garden’s revenue was only 140 billion yuan.

Perhaps Yang’s style is a bit outrageous, but that is how his company zoomed to the top in just a couple of years.

This article appeared in the Hong Kong Economic Journal on Aug 2

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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