But the key question is, in situations like Jianwai SOHO, not only is it difficult to increase the property value, but it also faces a situation of continuous decline. For individual investors, once such a situation occurs, they will find it hard to sustain relatively high investment returns. This is also the hidden risk of the scattered sales model. Recently, SOHO China purchased another office building - Jia Sheng Center - on the east 3rd ring road in Beijing. Pan Shiyi stated that the property had already been divided into many small ownerships, and the company would soon put it up for sale. The office building of Sanlitun SOHO, which is not far from Jia Sheng Center, is also being sold under this scattered sales model at an average price of 40,000 yuan per square meter.
For Pan Shiyi, who is "good" at aggregating small amounts into large sums, his consistently upheld scattered sales model of commercial properties has made him one of the richest developers in the country. Despite his decision to establish his own property management company and plan to manage the developments under his company uniformly, whether he can turn the tide remains uncertain at present. Perhaps when making this little joke, Old Pan thought this way: the bustling commercial district seems unattainable, but in fact, sharing its prosperity only requires crossing a "low threshold". At least in SOHO China's projects [4.14 -1.90%], which have been divided into many small units for sale, the funds required by the investors to hold one unit are not too much.
This seems like a win-win outcome for everyone, but the recent "power outage scandal" incident at Jianwai SOHO exposed the drawbacks of this business model: these scatteredly sold properties are very difficult to manage, and it's hard to escape the fate of chaotic management and declining standards. However, a personal investor in Beijing CBD Wanda Plaza told reporters that purchasing such commercial central area properties for investment is very profitable. All the first batch of Wanda Plaza property buyers could make a lot of money, recovering their costs within ten years without doubt. This person bought a commercial-residential property in Wanda Plaza at 9,000 yuan per square meter, with a total price of about 730,000 yuan. Currently, the annual rent is approximately 80,000 yuan. He is very optimistic about the project's investment return and future prospects.
Especially against the backdrop of increasingly scarce urban land resources, if a commercial property cannot appreciate in value with the development of the city after its completion, but instead sees a reduction in value, it undoubtedly represents a waste of precious urban land resources. That is to say, the undirected scattered sales model of commercial properties will disappear in new areas. "This is a huge victory for residential developers! It is a great success of land reserves (the capital market calls it a land bank)! It will surely spark a new wave of learning from Evergrande and surpassing Evergrande among all residential developers across the country!" Regarding Evergrande Real Estate's recent "billionaire creation movement", Pan Shiyi made the above evaluation.
In fact, Old Pan does not hoard land, nor does he hoard projects. Whenever he obtains land or unfinished building projects, SOHO China always tries every means to start construction as soon as possible, sell as soon as possible, earn money as soon as possible, and then invest in the next project. Owners often lack enthusiasm for the management of the neighborhood, while the actual users have no say in the management of the neighborhood, causing difficulties in managing the neighborhood. Over time, Sephora’s status gradually declines. In fact, apart from Jianwai SOHO, many similar projects face the same issues. A direct proof is that bathrooms in properties held uniformly are generally cleaner than those in scatteredly sold properties.
Pan Shiyi's myth of the scattered sales model may be coming to an end. Recently, with the Ministry of Land and Resources repeatedly emphasizing the prohibition of developers stockpiling land, Old Pan has also repeatedly reiterated that SOHO China will not stockpile land. Implicitly, SOHO China has never sought large-scale land reserves. Old Pan specifically pointed out that the main characters of the "new climax of learning from Evergrande and surpassing Evergrande" are residential developers. In other words, SOHO China will not participate in this.
In addition to property management, mutual competition and price undercutting among small owners, as well as differing expectations and requirements, are also reasons why it is difficult to rent out scatteredly sold properties. An industry insider told reporters that companies generally do not like to move frequently, but small owners might arbitrarily raise prices, forcing the company to look for new places in the short term, causing significant difficulties in company operations.
The logic of the city started early in Beijing CBD, initially granting land zero-scattered to developers, most of whom were mainland Chinese developers. These developers, lacking long development history and financial strength, had to resort to selling properties piecemeal to maintain normal company development unless they did so. Developers like Wanda, whose commercial complexes have blossomed in dozens of cities nationwide, would also find it hard to sustain the company's rapid operation without selling some shops and commercial buildings.
Developers have made money, and individual investors have also made money, but beneath this seemingly win-win scenario lies risks. As seen in the recent "power outage scandal" incident at Jianwai SOHO. Although Pan Shiyi feels frustrated about the disputes arising from this project that has been delivered for more than five years, he feels even more helpless about the impact it has on SOHO China's reputation.
However, it cannot be avoided that adopting a scattered sales model for mainly commercial properties has long set the stage for today's disputes. In the eastern district of Jianwai SOHO, there are hundreds of owners, most of whom do not live in this community but instead rent out their properties.
In fact, the Beijing CBD Management Committee, which has walked hand-in-hand with SOHO China for ten years, has kept its distance from this old friend. The newly expanded Beijing CBD plans to eliminate the scattered sales model in the new area, covering three additional square kilometers.
At first glance, Pan Shiyi's Chaoyangmen project appears startling, with emotionless people climbing over the not-so-high project fence in various postures. Upon closer inspection, they are all model figures, which brings a smile to the lips.
Because many built office buildings have been sold piece by piece, both in terms of management and commercial conditions, it is difficult to develop a new outlook. Therefore, Beijing CBD has decided to expand eastward by three square kilometers. Chen Gang, the Secretary of the Chaoyang District Party Committee of Beijing, expressed that the land development in the eastern expansion area will not follow the original mode. After primary land development, enterprises intending to relocate to Beijing will be invited to propose construction plans, customizing aspects such as building height, scope, appearance, and ancillary facilities.
The commercial logic of scattered property sales: Pan Shiyi locks his customers in the "Jin-Cha-Ji" region, where many wealthy classes are followers of SOHO China. Pan Shiyi stated that in the past decade, more than 7,000 customers of SOHO China have shared the property appreciation and returns brought by this successful business model. Their rental returns are significantly higher than those of properties purchased during the same period, forming cases where old customers continuously repurchase SOHO China products.
Within Beijing CBD, the rents of office buildings uniformly held by developers are generally higher than those of scatteredly sold properties. The two office buildings of GEMdale Center adopted both scattered sales and unified holding models. Whether it is rent or occupancy rate, the unified holding building is much higher than the scatteredly sold one.
In fact, among mainland Chinese developers, SOHO China is not the only one adopting the scattered sales model. In Beijing CBD, a large part of office buildings and commercial-residential buildings adopt this model, containing many historical reasons. According to another story, a family purchased three Wanda Plaza shops at a total price of 10 million yuan around the same time. Even based on the then-rent, this family could recover all investments within five years.
Regarding the company's business model's risk resistance capability, Pan Shiyi said that if the real estate market continues to be optimistic, the company will use existing cash for the construction of existing projects. From the amount, there will be sales exceeding 50 billion yuan, ensuring the company maintains growth for more than four years. Conversely, if the real estate market performs poorly, the company will fully utilize its own funds and bank loans to take advantage of low opportunities to absorb land and projects worth more than 30 billion yuan. This is SOHO China's maneuvering space in August 2008.
This rapid turnover in projects allows SOHO China to achieve sales volumes akin to residential developers. In the first half of the year, SOHO China's sales reached 7.2 billion yuan. Huifu Finance [0.22 -4.35%] Services Company estimated based on SOHO China's current properties that the value of salable properties in the next three years would reach 46 billion yuan.
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