On November 5, the 10th China Real Estate Investment and Financing Summit and 2018 Property Finance Case Conference was held in Beijing. The meeting was co-sponsored by Gemdale and brought together professionals from well-known property enterprises, banks, asset management companies, fund companies, media and other industries for the grand event. Mr. Xu Yafeng, President of Gemdale WINS Investment, was invited to attend the meeting and delivered an opening speech on the theme “Current Situation and Practice of China Real Estate Finance”.

The Current Situation of China Real Estate Market

Since 2018, what is the current situation of China real estate market under the circumstances of Sino-US trade friction, US Federal Reserve raising interest rate and the pressure of RMB devaluation? Manager Xu explained his views to everyone.

The ratio of fixed assets investment to GDP remained relatively high, while real estate investment accounted for about 21.8 % of fixed assets investment in 2017, and the real estate industry still accounted for a large proportion of China’s economy. From the current situation of the real estate market, on the one hand, under the control of the policy, the sales growth rate of brand real estate enterprises has slowed down, and the speed of land acquisition and development investment of real estate has also been significantly controlled. On the other hand, although the sales growth rate of large-scale real estate enterprises is slowing down, it is still in a moderate growth stage. However, the trend of market resources moving closer to the head real estate enterprises is becoming more and more obvious, and the concentration of the whole industry is further improving.

Three Contradictions in China’s Real Estate Industry

At the meeting, Manager Xu also said that there are three contradictions faced by the current development of China’s real estate industry.

First of all, it is the contradiction between the rapid development needs of real estate enterprises and the asset-liability ratio. Real estate enterprises raise their debt ratio in pursuit of faster development. High-speed growth requires a large amount of capital. However, in the current environment, many brand real estate enterprises have begun to control their debt ratio.

Secondly, it is the contradiction between equity financing difficulties and deleveraging. On the one hand, enterprises hope to develop relatively fast, but equity financing is very difficult, which is solved only through debt, i.e. borrowing from financial institutions, thus bringing about an increase in debt ratio.

Thirdly, it is the contradiction between investors’ investment needs and the lack of investment channels. In recent years, the wealth of domestic individuals and institutions has grown rapidly, and property income such as investment and wealth management has become a common demand of the people. However, the current investment market is either difficult to participate in or have no ideal return on investment. Therefore, both for institutions and individuals, the market will need to provide more diversified products to meet different investment needs of investors and provide professional investment management services to ensure investors to obtain a stable and relatively ideal return on investment.

Opportunity for China Real Estate Finance

Next, Manager Xu threw out a thought: What was the source of the real estate industry development in the past 20 years? It came from the reform and opening-up of the entire Chinese economy, from the earliest coastal opening cities, including the Pearl River Delta, Yangtze River Delta, and Beijing-Tianjin-Hebei Core Area. However, what change will the industry have after the whole real estate industry has developed for 20 years?

”The real estate industry will develop with China’s economic transformation and industrial transfer.” Xu said. With the transformation of China’s economy, the transfer of China’s industry and the improvement of transportation facilities, many inland core cities are also developing rapidly, and the real estate has developed business from coastal cities to inland cities in the central and western regions. Compared with the traditional coastal first-tier and second-tier cities, with the development of the city entering a mature stage and the adjustment of urban supply and demand, there will be more times of stock assets and urban renewal. In the stock market, the development of offices, regional commercial centers and long-term rental apartments will usher in a new stage, which is a challenge and opportunity for the real estate finance industry.

At present, the domestic voice for REITs is getting higher and higher. Xu also expressed his views on REITs at the meeting. Compared with the United States, REITs in the United States are already very developed and involve a wide range of property types, including commercial, office, apartment, industrial logistics, and pension facilities and so on. China’s asset securitization has developed very rapidly, but it is still in its initial stage. The advantage of REITs is that investment enterprises in the future can build up the scale of asset rights and interests, form a large-scale platform effect and complement the traditional capital operation mode, rather than relying solely on debt to develop. Therefore, China’s REITs market holds a very big prospect.

On the future development direction and investment strategy of real estate finance, Manager Xu said that, as a real estate finance team with Gemdale background, WINS will firmly establish a sustainable financial brand in the real estate finance field relying on core competitiveness and brand influence of Gemdale Corporation. On the one hand, WINS can create competitive returns for investors of real estate private equity investment funds. On the other hand, WINS will insist on innovation and strive to provide investment channels of REITs products for stable diversified investors in the future. WINS has had the corresponding capital operation ability, opened up the traditional real estate private equity fund and asset securitization product model, and formed the platform complementary cooperation effect of property financial capital operation, which provides more diversified products for investors with different investment needs, and ensures efficient capital operation at all stages of assets. In the future, the real estate market will be a more diversified and more open era.