How will real estate money be earned in the future? ——An exciting excerpt from the 2020 Vanke Annual Report

After reading Vanke’s 2020 annual report, I found the section “To Shareholders” very exciting, so I specially excerpted it.

"Vanke Enterprise Co., Ltd. 2020 Annual Report" to shareholders:

For the real estate industry, 2020 is the end of an era and the beginning of an era.

If we only look at sales figures, real estate is one of the few industries that can still maintain growth despite the epidemic. In 2020, the sales amount of commercial housing nationwide increased by 8.7%. However, more important than sales figures is that the rules of competition in the industry are undergoing profound changes.

From the past to the foreseeable future, competition in the real estate industry can be divided into three eras: land dividend, financial dividend, and management dividend. In the early years, the value of land was not widely recognized, and some companies that obtained large amounts of cheap and high-quality land received gifts from that era. In 2002, after the implementation of the “land bidding, auction and listing” system, the industry entered the era of financial dividends, and financial resources became a key factor in helping enterprises achieve leapfrog development.

In August 2020, the People's Bank of China, the Ministry of Housing and Urban-Rural Development, and relevant departments jointly launched fund monitoring and financing management rules for key real estate enterprises, known as the "three red lines" in the industry. The introduction of the "Three Red Lines" has once again rewritten the industry rules, and its impact is no less than that of the land bidding, auction and listing system of the year. The model of achieving high growth relying on high leverage, high debt, and high inventory is unsustainable, and the industry has officially entered the "management dividend era" from the era of financial dividends.

The era of management dividends is characterized by "full competition", and the intensity of competition will increase significantly. If the era of land dividends and financial dividends determines the amount of harvest and the speed of development, then the era of management dividends determines the survival of enterprises. Failure to win means being eliminated. Facing the knockout competition in the new era, we must abandon the idea of scale expansion under the old model and pay more attention to the quality of growth.

The era of management dividends has put forward higher requirements on the capabilities of enterprises. On the one hand, companies need more complete capabilities. "Land" and "finance" are individual key resources, while "management" is an all-round capability requirement. On the other hand, companies need more extreme advantages. When the industry tends to be homogeneous in terms of business models and products and services, if you want to stand out from the competition, you must create your own unique competitive advantages. In the face of higher-level competitions, while achieving "all good points and no shortcomings", we must also build "winning strengths" that will help us achieve a jump in our development track.

The era of management dividends is full of unknowns and challenges, but crisis and opportunity are always two sides of the same coin. After facing changes and risks, we must also ask ourselves a question: "Where are the opportunities in the industry?"

Opportunities come from customer needs.Enterprises exist to meet customer needs, which is the eternal and basic business logic. But customer demand is not a constant, but a colorful rose of time. When the internet-native generation becomes the mainstream of the market, their preferences bloom into unprecedented diversity. All companies face a new canvas. Whoever can more deeply understand the inner yearnings and expectations of customers can become a more outstanding designer of beautiful life scenes.

Opportunities come from urban development.Population and production factors are both rational rivers, and they always flow towards more efficient places. The past cities have accumulated into traditions, while the future cities are nurtured in the continuity. The flow and agglomeration of population and resources bring about the evolution and upgrading of industries, and the tillering and upgrading of consumption. Especially in the process of leading cities evolving into world-class metropolitan areas, TOD, organic renewal, industry-city integration, smart cities, large-scale complex comprehensive projects, new city/new area planning, etc., will all be necessary elements of future cities.

Opportunities come from tapping the value of existing stocks.With the expansion and development of cities, residential, commercial, and office spaces, and various forms of urban space have accumulated over time and have formed a huge scale. But they are not only solidified cement and steel, but also have countless values waiting to be activated. Better services, more exciting content, and more efficient interactions can turn quiet hardware resources into a more vivid carrier of a better life. With the emergence of REITs, managers with truly long-term asset management capabilities will gain huge room for growth.

Opportunities also come from the value unleashed by technology.Human progress comes from imagination, and technology is the wing that allows imagination to truly fly. Technology makes the impossible possible and the possible easy. The industrial revolution that began two hundred years ago gave weak human beings the power to surpass the physical body, and gradually got rid of hunger and poverty; and the artificial intelligence that is quietly coming will enable thinking to penetrate the limitations of biological nerves, allowing human beings to usher in the A more elegant and refined life. For industries, knowledge and creativity are replacing funds and energy as the core resources.

As Peter Drucker wrote in Managing in Turbulent Times: “The greatest danger in turbulent times is not the turmoil itself, but the continuation of the logic of the past.” For enterprises, the really important question is not whether there are opportunities in the industry, but "Can we seize the opportunities?"

Only those who actively adapt to changes can get through the thorns and reach the other side of success. Looking back on Vanke's 36-year history, we can reach today by relying on self-examination and vigilance under the sense of crisis, and by working together to overcome challenges and adventures. Facing the knockout rounds in the era of management dividends, continuing to lead and be among the best is still our constant pursuit. We believe that every insurmountable high wall will be a barrier to widen the gap between us and our opponents; every unpredictable sea area will be a new continent of unlimited hope; every rugged mountain will be difficult to overcome. A vast oasis will usher in spring with blooming flowers.