Country Garden Shifting its Investment Focus to First- and Second-tier Cities

BEIJING, March 31 (TMTPOST) —— Country Garden, nicknamed the “King in Third and Fourth-tier Cities” in the property industry, announced it would resume land acquisition but shift its investment focus to first – and second-tier cities. 

The switch to the first- and second- tier cities was announced in speeches made by Mo Bin, president of Country Garden, and Cheng Guangyu, executive vice president of the company, in an earnings conference on Thursday. 

Country Garden’s strategic change also means that the land market in third – and fourth-tier cities will remain sluggish. 

Country Garden’s business benefited from urbanization in previous years, with a focus on third and fourth-tier cities. From 2015 to 2017, there was a wave of monetary housing compensation for people displaced by the rebuilding of housing in rundown urban areas in China, which led to the boom of third- and fourth-tier property markets. Country Garden rode the momentum and successfully topped the list of real estate enterprises in terms of sales, and has been the top seller since then.

The company was not immune to the downturn in the property sector in 2022. According to the financial results, Country Garden achieved sales of 357.5 billion yuan ($52 billion) in 2022, down 36% year-on-year. Its revenue was 430.371 billion yuan ($62.6 billion), down 17.72% year-on-year.

About 63% of Country Garden’s sales came from third – and fourth-tier cities and 37% from first- and second-tier cities. Cheng said that this ratio was roughly in line with the company’s current land bank distribution. By the end of 2022, Country Garden’s marketable resources are about 950 billion yuan ($138.18 billion), and other potential marketable resources are about 250 billion yuan ($36.36 billion), totaling about 1.2 trillion yuan ($174.56 billion).

The first- and second-tier cities and third – and fourth-tier cities have different ways to acquire land according to a large leading real estate investment and development department.  Housing in first- and second-tier cities is in short supply. Previously, the price of new houses was not capped, and the real estate enterprises did not need to consider reducing inventories, and the profit margin was considerable. However, the high land price in the first and second-tier cities tests the financing ability of real estate enterprises. While the low land price in the third-and fourth-tier cities and relatively sufficient housing supply test the real estate enterprises’ ability to sell.

“The supply and demand relationship in third – and fourth-tier cities deteriorated significantly during last year, inventories were high and housing prices fell sharply. The area of third- and fourth-tier property transactions across the country grew steadily to 70%, but the sales of transactions shrunk to 40%,” said Cheng.

A person in the marketing department of a real estate company said that at present in the third and fourth tier, “the house can not be sold unless a significant price reduction.”

Country Garden’s investment has gradually tilted toward first- and second-tier cities. Mo said Country Garden acquired nine land parcels in the first half of the year with a total interest of 6.09 billion yuan ($885.84 million) at the 2022 interim results press conference, of which 71 percent went to second-tier cities and only 29 percent to third-tier cities.

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