CIFI’s Beijing chief Kong Peng is on his way as sales slide
China’s sixteenth largest property developer by sales CIFI Holdings will cut up to eight percent of its workforce, according to a report on Friday in mainland news site thepaper.cn, as the developer fights for profitability amid China’s real estate slowdown.
The layoffs at the Shanghai-based developer were revealed during the same week that CIFI, which has cooperated on a number of mainland projects with Hong Kong heavyweight Henderson Land, announced the resignation of the head of its Beijing office head, Kong Peng, amid falling home sales in the nation’s capital region.
The signs of stress at CIFI come as reports have emerged that a number of other developers, including China Vanke, China Fortune Land Development (CFLD) and Country Garden have all been reducing their headcounts in recent months.
The quantity of homes sold in China dropped during September and October, in what traditionally are the busiest months of the year for developers, putting financial pressure on the homebuilders as mainland authorities clamp down on credit and strictly enforce home purchase restrictions in an effort to tame home price inflation.
Beijing Office Goes From Hero to Zero
CIFI attributed the departure of company’s Beijing chief Kong Peng to “personal reasons,” with the former HNA Group, Gemdale and Longfor executive departing after joining the developer in 2013 to run its operation in Beijing and the surrounding area. In his first three years’ on the job, the Tsinghua University graduate increased annual sales in his territory from RMB 200 million to RMB 8.75 billion, accounting for 16.5 percent of overall CIFI’s revenue.
Conditions changed, however, in 2017 when authorities rolled out new housing policies to restrict the sales of new office properties to individuals as homes. The move immediately hindered the growth of Kong’s team which had been aggressively buying up office sites with plan to divide them into smaller units for sale as homes. Consequently, CIFI’s sales in the Beijing area fell to RMB 5 billion in 2017, accounting for just 4.9 percent of CIFI’s RMB 104 billion revenue last year.
As of June 2018, CIFI Beijing’s sales dropped even further to RMB 3.5 billion, accounting for 0.5 percent of the group’s total revenue.
Cost Control Campaign Kicks In
Prior to Kong’s departure, on October 25th, the Hong Kong-listed developer circulated an internal memo launching a company-wide campaign to reduce expenditures, reported The Paper. The highly leveraged company reported liabilities of RMB 117.48 billion at the end of 2017.
The local media account cited unnamed CIFI employees who said that, without prior warning they had received emailed termination notices from the developer, which had previously been voted one of China’s “Best Employers” for two consecutive years by global human resources firm, Aon Hewitt. A source familiar with the cost reductions said that the layoffs were not limited to any particular geographic region, and would reduce CIFI’s total headcount by eight percent.
A spokesperson from CIFI dismissed the report of the lay-off plan, insisting that CIFI strictly adheres to its human resources policies and strives to maximize efficiency through a “staff optimization/elimination rate” of five to eight percent annually.
Layoff Reports Spread as Sales Slide
The reports of layoffs at CIFI are echoed among the other giants in China’s development world.
Slower home sales add to the financial woes of China’s debt-laden developers
In August, top three mainland developer, Country Garden denied “rumors” that it planned to cut its staff levels by up to 30 percent, but confirmed the group will continue to optimize its “team structure”, according to reports in the local Chinese media. And just last week, Beijing-based CFLD, reportedly made 900 employees redundant within three days following the sale of stakes in five of its subsidiaries to property giant China Vanke.
The downsizing wave in the mainland development world comes as Chinese regulators continue to step up enforcement of home sales restrictions in a crackdown first launched in June. In October, the volume of new homes sold fell 1.3 percent from a year earlier, accelerating a contraction that saw sales drop 0.8 percent in September, according to data released by the National Bureau of Statistics.
The slower home sale has added more financial woes to the debt-laden Chinese developers as they face the further reduction of liquidity and acceleration of industry consolidation.
China’s property developers have been facing financial challenges since late last year, as Beijing pushes forward deleveraging campaign to reduce the country’s total debt and rein in an overheated property market.
This is grim news indeed. Government policy should focus on increasing supply not strangling legitimate business by market controls.