China Vanke Says Beijing Real Estate Has Bottomed Out

China’s biggest property developer is saying that the country’s biggest real estate market has bottomed out, but one of China Vanke’s top officials cautions that no quick rebound is in site.

Speaking at the company’s annual meeting with securities companies, Mao Daqing, an executive vice president with the Hong Kong-listed firm and the head of Vanke’s Beijing operations was cautiously optimistic about the Beijing market.

“The market bottomed in June and things are improving,” Mao was quoted as saying of Beijing’s housing sales in The Wall Street Journal. The real estate executive pointed to improving resales of homes and the promise of better mortgage terms from domestic banks as reasons to expect a market upturn.

During the most recent two months the rate of decline in China’s half-year long housing slump has begun to slow, encouraging some analysts to foresee a market rebound, especially after the central bank moved to cut interest rates last Friday.

However, despite this most recent news and Mao’s tempered optimism, Beijing housing prices still declined 1.09 percent on a month to month basis during October, and are now down by 1.34 percent compared to the same period last year.

Vanke Exec Continues to Sound a Note of Caution

Mao made major headlines in the second quarter of this year when his private remarks about China’s housing market to a group of investors in Beijing were recorded and republished online. At the time the Vanke executive said that China’s housing market is saturated and that without further stimulus by the government there would be no chance of further price increases.

Even after the People’s Bank of China applied some gentle stimulus on Friday, Mao is continuing to sound cautious about the future potential of the market.

According to Mao, China’s real estate industry, and the country’s real estate investors, need to adjust to a “new normal.” Under these new market conditions, companies might expect annual growth of five percent or more, but real estate developers will need to be more creative and agile to maintain growth.

The remarks by the company vice president are consistent with comments by Vanke CEO Yu Liang who earlier this year said that China’s real estate industry was transitioning from its “golden age” into a “silver age” where profits could still be had but companies would need to be more innovative to achieve them.

It’s Time for Developers to Diversify or Die

In his remarks to the investment professionals, Mao stressed the need for diversification. According to the property executive, “Out of the RMB 150 trillion in assets held by Chinese people, RMB 100 trillion have been invested in real estate. In the world, only China has this situation, and this can cause problems.”

This over-concentration on a single investment strategy needs to change if companies are going to survive, Mao said.

“At present our country has thousands of real estate companies,” Mao said. However, he foresees that the market slowdown would see cause many of these developers to disappear.

“I believe that after this market transformation, many companies will disappear. In their place there will be better brands, better service and more educated customers,” Mao predicted.

As China’s real estate market has slowed down, Vanke has moved beyond its core strategy of developing homes for China’s middle class and has begun branching out into other areas. During the last two years the Shenzhen-based company has invested in residential projects in New York and San Francisco, as well as exploring opportunities in retail and industrial real estate development.

Vanke has also become notably more conscious about mitigating its investment risk by taking on partners and adopting a more “asset-light” strategy. During the past eighteen months the developer has formed a partnership with Canada’s CPPIB for residential developments in China, with Blackstone for warehouses and with Carlyle for commercial development.