2014-05-28

Developer Reveals the Bottom Line: It Can Still Break Even With 30% Price Cuts

This is a hot topic at the moment. A developer has revealed that it can break even on a project even at 32% off. For Chinese, the news is a sign that price cuts will continue.

It's unclear how the number is calculated; they may only be counting costs directly tied to the project and not overhead from the firm. The second article below says that some costs are variable, such as sales costs.

The more important story is the differing balance sheets in the industry. For developers deep in debt, paying 10-20% or higher interest rates, simply getting their capital back is not a promising outcome.

中天城投公告泄漏房企底线:房价降32%仍可保本
There are signs that, after years of policy control, the once "bohemian" prices, and finally to lower the high head. But for housing prices, the "price" is still a very sensitive word, can lower how much? We are concerned about this issue, but it became the industry can not be said of the secret.

Because of this, when the listed room rate city transit investment (000,540, closing price 5.30 yuan) for its A project to make "When the project sales price fell 32.93%, the project can still break even" position, the immediate cause of the "Daily Economic News" reporter's attention.

Supplemental Notice breakeven point estimates project

In the recently published "the State Council on Further Strengthening the capital market protection of the legitimate interests of small investors view" (hereinafter referred to as the "new country nine "), emphasizing the common interests of the protection of investors, and as the implementation of the policy, many have planned refinancing of listed companies, have combined with their own situation, refinancing programs supplement. As the leading real estate development in Guizhou enterprises city transit investment , is one of them.

Under the program previously disclosed, the city transit investment plan non-public issuance of not more than 45,380 shares (the controlling shareholder of Jin Shi Qi Holdings intends to subscribe for the number of commitments not less than 10% of the total issued shares of the non-public offering definitive and not higher than 35% ). The financing obtained in no more than 3 billion yuan will be used for an international financial center in Guiyang Business District Project (hereinafter referred to as the financial center project), Yue On Guiyang dolomite, Yasui Resettlement residential area E group (group public rental ) projects and supplement working capital. Among them, the estimated total investment of 7.443 billion yuan, plans to use the funds raised 2.4 billion yuan financial center project in the refinancing plan has a very important position. Because of this, the city transit investment over the weekend for a special Again, where, for the price changes to the project benefits estimates , causing the "Daily Economic News" reporter's attention.

City transit investment, said, according to an international financial center in Guiyang Business District project feasibility study report, project type for commercial real estate projects, feasibility study report predicted commercial real estate average selling price of 7933.20 yuan / square meter. According Hopefluent "Guiyang City real estate deal in March 2014 Report", raise investment project in Guiyang International Finance Centre Business District project site view Lake District, Guiyang City office in March 2014, the average transaction price of 9108 yuan / square meter.

Taking into account a certain project development cycle, the city transit investment projects final sales price assumptions vary within the range of plus or minus 15%, in the case of project benefits were estimated. The results of calculations, when the financial center project sales price decreased by 15%, the overall project sales margin was 10.83%, is still profitable. In addition, the city transit investment project pointed out that when the average selling price fell 32.93%, the project can still achieve breakeven.

Under no doubt that the face of the city transit investment estimation results, indeed somewhat surprising, because even in the financial center of the project is forecast to average selling prices (7933.20 yuan / square meter) was significantly lower than the average transaction price of office space in the area where the situation is still has about 30% of the sales price downward adjustment, will reach the breakeven point. And I need to highlight that the above is only a financial center for the city transit investment project price forecasts, does not mean that the final sale price, but reflect the Company's expectations, and the approximate cost of the item.

Rhine home exposes the "bottom line."

In fact, although the "nine new countries," the official publication time is not long, but the city transit investment project is not the only one pair of price changes in listed real estate sensitivity analysis. "Daily Economic News" reporter noted, Rhine home , has recently announced that, in order to further implement the "State Council on further strengthening capital markets protection of the legitimate interests of small investors view" to protect small investors' right to know, to maintain small the interests of investors, on matters related to non-public offering to be further supplemental disclosure.

Rhine home, said combined 2013 annual sales of commercial property prices in Hangzhou, after the January to March 2014, the transaction price down then up, Change rate has narrowed, indicating that real estate sales prices in the short term there is no substantial Hangzhou decreased risk. Hangzhou recent price volatility in the real estate market in the long term this is the healthy development of the market's performance. But the real estate business for the completion of the capital return, such as volume remains in the doldrums, the market price for the amount will increase the likelihood, so the company's new product development at risk of falling prices.

Rhine home based on Feng County project feasibility study report, the project type is mainly residential, residential forecast average selling price of 10,314 yuan / square meter. According transparent network information, maple comparable projects around the county real estate project in April 2014 the average transaction price of about 10,600 yuan / square meter. Estimates showed that when the project sales price decreased by 15%, the project overall sales margin was 6.39%, still profitable, when the project sales price fell 23.22%, the project will reach breakeven.

Meanwhile, the Rhine home also announced a measure circumstances Rhine confidant projects, mainly residential project types, the feasibility study report predicted residential average sales price of 9262 yuan / square meter. Rhine confidant comparable real estate projects around the project in April 2014 the average transaction price of about 9,150 yuan / square meter. When the project sales price decreased by 15%, the overall project sales margin was 2.69%, the project is still profitable. When the project sales price fell 18.44%, the project to achieve breakeven.

Industry Interpretation: "profit and loss point" there are differences

Estimates from the final results, the city transit investment breakeven financial center project (project sales price decreased 32.93%), and the Rhine home Feng County (Project sales price decreased 23.22%), Rhine confidant Project (Project Sales average fell 18.44 percent when) there is a clear difference.

In this regard, a real estate industry on the "Daily Economic News", told reporters that the so-called project benefits estimates, in fact, is expected to affect the price changes on profits, which involves two aspects, costs and prices. In terms of cost, including land cost, construction cost, etc., but specific to the various real estate projects, the cost of each link are inconsistent, the back section is also difficult to control the situation, plus the price of the lot between projects being designed impact, etc., will be different. For example, the financial center of the city transit investment projects in commercial real estate, located in Guizhou, but Rhine home of two projects for residential, located in Hangzhou, obviously a different type of project.

For the same types of projects (commercial, residential) and the profit and loss point of reference price if there is space, real estate insiders pointed out above, it is difficult to say that all items priced commercial housing prices decline in third achievement is the cost line, residential and commercial projects more volatile items more large.

Furthermore, the real estate industry insiders point out that the two projects is estimated that housing prices out of their "breakeven point" itself may also be less accurate, because calculations must also consider the sale of the project, the longer sales cycles, cost higher, even late in the delay in completing the sale of the possible scenarios. Overall, the two housing enterprises benefit estimates for each project are relatively optimistic.

中天城投暴露房企“底线”引争议
Yesterday, a "city transit investment announced that the project is estimated price is still down 32 percent guaranteed" message, once again stirred the market price for the real estate project space imagination. However, many industry insiders yesterday told reporters that they do not agree with such early estimates, referred to by many factors influence the final project and forecast sales situation often huge difference, but each situation is very different real estate projects, some companies gain or loss on the line or even Paul up to 40% -50%.

□ Event

Three percent still profitable price

Recently announced the "new country nine" emphasizes the average investor rights protection, for the implementation of the policy, there are many refinancing plan listed real estate company, have combined with their own situation, refinancing programs supplement. City transit investment, Rhine home, etc., in a recent project conducted a sensitivity analysis of price movements.

Under the program previously disclosed, the city transit investment plan non-public issuance of not more than 45,380 shares, Guiyang International Finance Centre in the business district project refinancing plan has a very important position. Because of this, over the weekend, the city transit investment for a special Again, highlighted the benefits of the rates of changes in estimates of the project.

City transit investment, said, according to the Guiyang International Finance Centre Business District project feasibility study report, forecast average selling price of 7933.2 yuan / square meter, the price is much lower than where the project area 9108 yuan / square meter average price . Taking into account a certain project development cycle, the city transit investment projects final sales price assumptions vary within the range of plus or minus 15%, in the case of project benefits were estimated. Estimates showed that when the financial center project sales price decreased by 15%, the project overall sales margin was 10.83%, you can still achieve profitability; When the project sales price fell 32.93%, the project can still achieve breakeven.

In the forecast average selling price was lower than the average price of a case where the regional office, the city transit investment in the project still has nearly 33% of the sales price downward adjustment, the news came out, the real estate market once again stirred the imagination of the project price cut .

Coincidentally. Rhine home has also released two residential projects in Hangzhou, the feasibility study report, after estimates showed Rhine home Feng County project forecast average selling price of 10,314 yuan / square meter, when the project fell 23.22% while the average selling price, still can reach breakeven; Rhine confidant project forecast average selling price of 9,262 yuan / square meter, while the average selling price fell 18.44% Project, the project to reach breakeven.

□ sound industry

Less accurate estimation results

"Enterprises such a sensitivity analysis, in fact, is more interested in the theoretical nature of the measure to speed the process of the project, pricing is hypothetical, but the end result is not necessarily so." Same strategy consulting market research director Zhang Hongwei said. In his opinion, this price cut is estimated in accordance with the high point, the calculation results are somewhat optimistic.

Housing prices insider who asked not to be named, told reporters, from which estimates Amagi cast details, the sales price when the project is within plus or minus 15% change in the scope, cost, and cost of the project is fixed, but In fact, if the price changes, then the corresponding sales and management costs will change. Simple truth, sent a commission to the sales staff turnover is calculated in accordance with, and if prices rise, then the cost is bound to increase sales. From this perspective, the result of this calculation is not entirely accurate.

In addition, the sub-director Guo Yi Hao agency also believes that real sales cycle determines the reimbursement rate, but also to ultimately determine the cost, generally requires at least two years to complete development to take land from owners to stay the course, if you sell a prolonged period of slightly , then in equal shares to each year's net profit margin is even lower.

Different projects in different situations

Housing prices above said, the city transit investment estimates for the project is just one example, does not have the industry universality. In general, the average net profit margin high turnover of enterprises around 12%, if you do not consider the turnover rate, so if the company cut prices by 10%, it unprofitable. However, due to take place in different costs and development cycle, product positioning, velocity and other factors go, "different companies, different projects, different market environment, can not be generalized." Vanke, for example, on the basis of the Group's overall net profit margin of 12% last year, the performance of each region are not the same, profit margins in Beijing would be relatively higher.

In addition, these people said, there are a few great places to take advantage of in terms of cost, management control and product positioning and other real estate companies and projects, the line can protect gains and losses even reach 40% -50%.

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