Chinese real estate developer Country Garden achieves 50% of this year's sales target in first four months

Country Garden Holdings Company said recently in an announcement published on the Stock Exchange of Hong Kong's news website, HKEXnews, that for the four months ended April 30, 2017, the company and its subsidiaries, joint ventures and associates, achieved contracted sales of 204.2 billion yuan. The sales represented an aggregate gross floor area (GFA) of approximately 22.56 million square meters. Contracted sales and contracted sales GFA attributable to owners of the company for the four months stood at 146.4 billion yuan and 16.67 million square meters, respectively.

In early 2017, when the company released its financial results for 2016, chairman Yeung Kwok Keung and president Mo Bin, said the company aims to achieve sales of 400 billion yuan (approx. US$58 billion) this year. To date, the company has already achieved more than 50 per cent of that annual sales target.

What's the secret behind its outsize growth? A review of Country Garden's strategy shows how the company smartly chose to focus on development in three areas, as explained by Zhu Jianmin, the group's spokesperson and vice president: traditional real estate development, real estate projects outside of the developer's home market and urban centers that smartly integrate industry with residential communities, including Forest City and several Tech Towns.

Aggressive land acquisition strategy for 2017

Country Garden set a budget of 150 billion yuan for new land acquisitions in early 2017 to support its full-year sales targets. In the first four months, the company moved aggressively by acquiring lots in Chinese cities at all tier levels.

According to Country Garden's newsletter, the company acquired land lots across several Chinese provinces, including Anhui, Guangdong, Henan, Hunan, Jiangsu and Zhejiang, in the first quarter of this year, with a GFA target of 20.35 million square meters valued in the aggregate at roughly 67 billion yuan. The target would yield a GFA attributable to owners of the company of 16.04 million square meters valued at 59 billion yuan. The Chinese real estate developer has established a footprint in more than 400 cities and towns across the country.

A decade ago when the company went public in Hong Kong, Country Garden was a local, Guangdong province-based, mid-sized builder with annual sales of only 15.8 billion yuan. Five years later, in 2012, annual sales had already grown to 49.2 billion yuan. The following five years saw sales move from just under 50 billion yuan to over 300 billion yuan, within 2016, the company reporting sales of 308.8 billion yuan, representing annual growth of more than 100 per cent and assuring its position as one of China's leading real estate developers.

Country Garden, which had, for several years, taken the lead in initiating projects in China's third and fourth-tier cities, shifted the strategy over the last few years to include expansion in first and second-tier cities. The developer spent 70 per cent of its land acquisition budget on buying land in first and second-tier cities in the first quarter, with the remaining 30 per cent dedicated to purchases in third and fourth-tier cities.

A focus on building multiple Techtown projects across China

The outsize growth of Country Garden is very much an outlier. One of the company's focuses is to build across China a series of Techtowns, in effect, small cities designed to attract start up technology firms, and place them in a cluster so that they can benefit from each other, while continuing to develop and execute on traditional projects. In August 2016, Country Garden announced the Residence-Industry Integration strategy with the aim of building cities that bring together all the resources needed by both residents and businesses that choose to live or set up operations in one of the cities and followed up by launching the Techtown project. The company plans to invest over 100 billion yuan (approx. US$14.5 billion) building multiple Techtowns in suburban areas adjacent to first-tier cities and in the core built-up areas of second-tier cities across China.

Currently, the company has formulated an initial plan for its Techtown projects in the Pearl and Yangtze River Delta regions as well as in Beijing, Tianjin and Hebei province. In addition, Country Garden has also signed strategic partnership agreements with over 30 leading domestic and international organizations, including Silicon Valley tech giant Cisco, Tsinghua University and the Beijing Advanced Sciences and Innovation Center of Chinese Academy of Sciences, with the goal of building a platform to drive economic growth across China. The Country Garden  Innovation Town in Huizhou, Guangdong province has been granted a section of land for the initial stage of the project. According to the plan, 70 per cent of the land will be allocated to businesses, with the remaining 30 percent reserved for residential projects.

"We give priority to business over residential. Residential has no value without the success of the local businesses," said Lin Zhaoxian, chief strategy officer and general manager of the Strategic Development Center at Country Garden Group. Previously, Xiang Junbo, assistant president and general manager of residence-industry integration business unit at the group, disclosed that the company aims to identify leading industries and, for each Techtown, bring together several leading technology firms within one of the identified industries to form an industry cluster.

The Industry Innovation Development Center at The Country Garden  Innovation Town is scheduled to finish construction and open in late July, with the companies that have already signed to come on aboard prepared to move into the first completed space for commercial use once the construction of the space is completed. Completion is scheduled for the first half of 2018.

Forest City is just the first of similar efforts in Country Garden's pipeline of development projects outside of the home market

In addition to continuing to expand its coverage in the domestic market, Country Garden is also making inroads into overseas markets, including Malaysia, Australia and Indonesia, as well as into other countries along the One Belt, One Road route.

Notably, Forest City, the company's benchmark project, with its location in Malaysia's Iskandar Development Region just across a narrow strait from Singapore, is a model for future such developments. Designed to be a city delivering enhanced industrial capacity on an international scale, Forest City provides superior living facilities, while focusing on the planning and development of eight select industries: conventions and exhibitions, education and training, healthcare, near shore finance, residency for foreign companies, e-commerce, emerging technologies, as well as environmental services and green technologies. Unlike similar developments in China, Forest City has access to a substantially more diversified base of buyers from 23 countries across the globe, including the US, Russia, the UK, France, Australia, Japan and Indonesia.

Based on information provided by Country Garden, the first apartments were delivered to their owners on May 1, 2017, with the owners taking possession of residences that had just been completed at Country Garden Kylin Apartments, located on the grounds of Forest City Phoenix Hotel. When completed, new homeowners will occupy 132 apartments with gardens looking out onto the sea, a rare find for a buyer. Homeowners received their new apartments in just one year following purchase. The on-time delivery demonstrated Country Garden's determination in meeting its commitments as well as excellent performance in terms of services. The construction of a world-class golf course, as part of the next stage of the project, Forest City Phase Two, will commence soon after the first completed apartments are delivered. Country Garden signed the agreements with the contractors responsible for the construction of Phase Two at its headquarters in Shunde, Guangdong province, China, on March 11. Sultan of Johor and member of the Malaysian royal family mem Ibrahim Ismail ibni Sultan Iskandar attended the signing ceremony.

Country Garden is now well on track to complete the construction of Forest City on schedule while pushing ahead with the ongoing build out of its three core businesses. Looking ahead to the next few years, the company fully expects to continue achieving the same level of positive results as it has accomplished over the past few years.

SOURCE Country Garden Holdings