Some once commented on Henan Jianye Group:
The group is breathing when a hundred players are activating on the battlefield; still the group takes a place without any doubt when there are only three alive.

Holding fast to the market position in Henan province for 26 years, Hu Baosen has been firmly committed to maintaining his own pace and remaining unchanged no matter what has happened in the ever-changing environment.

Faced with the competitive pressure brought by large real estate companies such as Vanke, Hu Baosen, three years ago, announced blatantly that Henan Jianye Group was going to transform from a real estate developer to a new lifestyle service provider.

As three years went by, the 2017 annual report showed that with a market share of 4.3% in Henan province, Henan Jianye Group realized contract sales volume of approximately RMB 30.415 billion yuan in 2017, an increase of 51% year-on-year.

Since its establishment in 1992, Henan Jianye Group has developed from striving to survive in the extremely harsh environment to ranking the 26th place in the “Comprehensive Strength List of China's Listed Real Estate Enterprises”. Instead of being eliminated from the market, Henan Jianye Group keeps living with growing competitiveness. Having grown from a newborn calf to a real estate baron, Hu Baosen is always striving to practice all he preached in developing real estate and commercial civilization of Chinese private enterprises.

Going deep into Henan Jianye Group, Gloria Ai, the founder of iAsk Media, explores the secret of “keeping alive” from its ups and downs in the past three-year transformation.

Does China have enough houses?

The real estate tycoon Ren Zhiqiang made it clear in a recent interview that China does not have enough houses yet.

He explained rather directly that although many families have two or more apartments under the name of household heads, a large number of houses, as a matter of fact, are registered under the household heads but occupied by their children due to bank mortgage loan limit to young people. China has about 75 million households of solitary, growing at an annual rate of about 30%, all of which are covered by more than 300 million urban registered residence.

As early as in July 2017, an article published on the official website of the National Bureau of Statistics stated that the per capita housing area of Chinese residents was 40.8 square meters in 2016.

Nevertheless, thousands of people are competing for one house" has not become a past tense yet and the housing demand maintains strong. The current amount of the real estate fails to meet the needs of the majority of people. The whole country is full of the predicament of supply falling short of demand. On April 26, 2018, 449 suites for public lottery of a real estate company in Chengdu attracted more than 22,000 people to register for purchase. On April 29, 2018, 700 new apartments in Changan District, Xi'an entered the market, attracting 5,000 people to register for purchase.

The strong housing demand of the public can be seen from the data of real estate enterprises. The latest quarterly sales performance of 30 real estate enterprises showed that the sales amount reached RMB 1098.8 billion Yuan, an increase of 33% on the previous year.

Even so, the real estate market is far from saturated and the housing demand has not yet been fully released. With the advancement of urbanization, a large number of people have been flooding from the third and fourth-tier cities into the first and second-tier cities. The population transfer has brought a lot of housing demand, and the real estate industry has become the ultimate carrier and the most direct beneficiary of population urbanization.

Gloria Ai: Mr. Ren Zhiqiang said in a recent interview that there are still not enough houses in China. I feel housing has always been a pressing issue in China. What’s your view on whether China has enough houses?

Hu Baosen: Over the past three decades, the housing problem has been increasingly better resolved. For example, in 1990s, when China’s market-oriented real estate industry just took off, the per capita living space then was almost the same as in Hong Kong, about a dozen square meters per person. Now it is more than 25 square meters, close to 30 square meters. I think it’s good. Over the past 30 years, we have built over 20 billion square meters of houses. This is absolutely a miracle for mankind.

Although the current supply of housing looks quite large, the imbalance has not been changed that demand is exceeding supply. As a matter of fact, the commercial housing available for trading in cities is still far from enough.

“35 million people in Henan are going into the city in the next 15 years, requiring another one billion square meters of new housing”, Hu Baosen wrote in his article Looking for the Blue Ocean for Henan Jianye Group in 2015. What he has seen is the hundreds of millions of housing needs in the course of urbanization in central China. The dividend period of Chinese real estate has not reached the peak, and there is still room for continued growth in the capacity of the real estate market.

As Hu Baosen said, it is truly a human miracle that China has built housing over 20 billion square meters in 30 years.

But it is also true that housing price in China has been another growth miracle in the past decade.

For housing, more limits, more competing; more expensive, more purchasing?
The average sales price of newly built commercial housing was not more than 10,000 RMB per square meters in Beijing, Shanghai, Shenzhen and other first-tier cities in 2007, while that figure exceeded 50,000 RMB per square meters in 2017. From 2007 to 2017, the average house price among the nation increased by more than three times and the national average land price increased by approximately four times.

If the continuous rise in housing prices under the marketization confirms the rapid development of Chinese economy, what really surprises the public is that the housing price remains high after the government introduced many real estate regulatory policies in September 2016.

In accordance with the statistics from research institutions, as many as 159 real estate regulatory policies have been introduced across the country in the first five months of this year, including the implementation of house purchasing lottery system in first and second-tier cities, the extension of restricted sales to third and fourth-tier cities, etc.

However, housing price has risen steadily throughout the strict regulation and ushered in a new round of major outbreaks. Real estate expert Xie Yifeng said that the prices of commercial housing and residential housing rose by 6.6% and 8.7% respectively compared with a year earlier. The crux of the problem is that the current market for real estate is not normal, and it is now a market restrained by policies.

On the one hand, limited price of first-hand housing leads to the property hoarding of many property developers, and the newly opened housing properties were thus substantially reduced, resulting in insufficient supply. On the other hand, with relative loose policies, the second-hand housing is of even a much higher price than that of the first-hand housing. The serious upside down prices of first and second-hand housing make the public believing that “buying is earning”. The great mass fervor of the public continuously boosts the increase of house prices.

“Where there are more policies, there is more price increasing.” The housing prices fell into a strange circle.

Gloria Ai: We can say that almost all that can be done has been done in China to regulate the real estate industry. Houses are built to be inhabited, not for speculation. This policy led to the strict control of the house prices in the first and second tier cities. But still new houses are far cheaper than second-hand ones. People are still enthusiastic about drawing lots so as to buy new houses, convinced that to buy houses is to earn money. Do you think so? How do you predict the housing price in the future?

Hu Baosen: In the cities where house prices caps are imposed, the price is obviously far from the reasonable market price. And obviously the price is kept low intentionally. That leads to people’s conclusive views about houses that it is definitely profitable to buy a house. It is true in fact that you gain profits by buying a house and then selling it as a second-hand house. It is common. I think from a neutral point of view, if full marketization is realized, is the current market able to stay rational? Are people able to accept this kind of irrationality? For example, if the house prices in Beijing, Shanghai and Shenzhen climb to 300, 000 Yuan per square meter, how will people take it?
“What do ordinary people think?”The rhetorical question put forward by Hu Baosen deserves our consideration.

Disconcertingly, how much does “our consideration” worth for in a mindset of " for housing, more limits, more competing; more expensive, more purchasing"?
Is the high debt ratio of real estate enterprises a land mine? Will it explode?
The real estate enterprises are definitely able to see through the truth that ordinary people could get as well.

According to Wind, 130 real estate companies realized revenue of RMB 299.884 billion Yuan and net profit of RMB 33.457 billion Yuan in the first quarter of 2018, an increase of 18.87% and 39.93% year-on-year respectively.

Behind the super-fast growth is the aggressive expansion of real estate enterprises for catering to the buying enthusiasm of the public and seizing market share. As a result, the asset-liability ratio of the real estate industry continues to rise. In 2017, the total liabilities of 136 listed real estate enterprises in A-share market exceeded RMB 6.58 trillion Yuan, an increase of 34% year-on-year, and the average debt ratio reached 79.1%. That means the assets of every RMB 100 million Yuan corresponds to the debts of RMB 79.1 million Yuan, which was the highest record since 2005.

Vanke, which has always been known as the industry leader, had a total debt of a staggering RMB 1028.927 billion Yuan by the end of the first quarter, exceeding the GDP of New Zealand, Kuwait and other countries.

Real estate is a capital-intensive industry with debt ratio staying a high level, which is obvious to whole society. The debt and scale of the real estate enterprises of various echelons increase at almost the same pace. In addition, the business financing for real estate enterprises has entered into the toughest period of supervision since 2018, and the cash flow has become increasing tighter. The real estate companies that are short of money may now be at a critical juncture and be anxious about their own living conditions.

Gloria Ai: Statistics show that with the rising revenues and profits of China’s top 100 property developers comes their growing liability ratio that is the debt ratio caused by increasing leverage.

I noticed the average debt ratio in Q1 of 2018 was 79.2%. Is this a huge potential pitfall for the real estate industry?

Hu Baosen: For this industry, around 80% is a normal level. Many companies that are rapidly growing, has higher debt ratio, up to 100% for some of them. Some companies’ financial reports show debt ratios even higher than 100%. From another perspective, these top 100 developers are over 20 years old on average. Under this circumstance, they have basic judgments for their own debt ratios, financing methods and capacity. And I think when there is a lack of capital in the market, they have their own mature ideas about how to control their speed and debt ratio. I mean industry insiders and outsiders don’t have to worry for them. They take this matter more seriously than the outsiders, for it puts their survival at risk.

Gloria Ai: So for operating a company or a Chinese property company, what is the most important element, scale, speed or safety?

Hu Baosen: It depends on a company’s long-term goal. I personally think that Jianye has always been a typical value-driven and strategy-oriented enterprise in China’s real estate industry. Our value is “Taking roots in Henan to benefit the local people.” The deeper my roots go, more people I benefit. Now I have over a million direct clients. And I hope by our 30th anniversary, we can have three or four million clients and ten million by the 40th anniversary. This is my ultimate goal. To achieve this goal, I have to survive for a long time. So healthy and sustainable growth is the long-term goal I pursue.

In the past 10 years, the development mode of real estate enterprises has been in scale wars. Competitors have competed for being large-scale and top-level real estate enterprises. “It will not be difficult to become a 50 billion-scale enterprise if Henan Jianye Group has been committed to the development in first-tier cities”, said Hu Baosen. However, he chose to “further expand the market in Henan”and to "benefit the people of the central China". The gimmicks in the eyes of others are the unaltered original intentions for him.

This year, Hu Junsen is 63 years old and Henan Jianye Group has been founded for 26 years. During the past 20 years, 90% of the top 100 real estate companies have been replaced while Henan Jianye Group has never been edged out from the list. Hu Baosen said that he will continue to lead the development of Henan Jianye Group for about three, ten, or even twenty years, being firm and calm with no intention of quitting at all.