Dalian Wanda Group (hereinafter the Wanda) took a decisive move in the cold winter of the real estate industry. In less than one month, Wanda Chairman Wang Jianlin spent 5 billion yuan purchasing land and kicking off projects.

At a time when the whole real estate industry is short of money, Wang’s move looked so strange. But Wang explained this way, “If everybody waits till the optimal time comes before making any investment, what he can earn will be an average profit. Only those braving big risks can win fat profits.”

Expand against Market Trend

On October 27, Wanda signed a Jinniu Wanda Plaza contract with Chengdu’s Jinniu District. The project is expected to require a total investment of 8 billion yuan and a initial outlay of nearly 2 billion yuan.

On October 28, Wanda acquired a 300-mu core lot in the city of Tangshan at a price of 1.88 billion yuan. The project, involving a total investment of 8 billion yuan, will build a Wanda commercial plaza.

On November 19, Wanda as the sole bidder successfully acquired a lot in Shanghai at the price of 990 million yuan. The lot, which was the largest auctioned by the city in 2008, will be used for general operation.

One may still remember that on October 10, Wang Jianlin said in an interview that in order to save food for winter, Wanda must slow down its pace of development and the first step was to reduce cash investment in land acquisition.

Half a month later, Wanda made three major investments in north China, east China and south China, by spending a total of 5 billion yuan. Wanda General Manager Shi Xueqing indicated that this remained within Wanda’s budget. “We just spent the limited amount of money where it was most needed.”

It is learnt that originally, Chengdu was not the target city of its next project. But when Wang Jianlin held business talks with Chengdu Mayor Ge Honglin while attending the West China Trade Fair, the latter expressed the hope that Wanda would invest in another two or three projects in Chengdu in order to stimulate local economic development. “The total investment of the Jinniu Wanda Plaza project is bound to exceed 8 billion yuan and may possibly reach 10 billion yuan.”

As to the Shanghai project, Wanda has been repeatedly mentioned as the lone bidder for “acquiring a lot at a rock-bottom price”. In the area along Jinsha Road in Shanghai where the project is located, the price paid by Wanda for the lot is equivalent to a converted accommodation value of 2,400 yuan per square meter. But in the rivalry for the Changfeng 7C lot which was close to Jinsha Road, the converted accommodation value was 14,000 yuan per square meter, or six times what Wanda paid.

The Shanghai acquisition was not the only “one-man show” staged by Wanda. In April this year, the auction of an 8-hectare lot in Dalian’s Donggang District was also a “one-man show” staged by Wanda, which acquired the prime lot at a price of only 1.57 billion yuan.

It is understood that about 90% of Wanda’s commercial plaza projects have been invited by regional governments. “It is only too natural to acquire land at low prices at a time when the regional governments now need investment and the economy is in the doldrums.”

Where the money comes from

When the economy is in the doldrums, steady cash flow has become the greatest headache for a real estate enterprise. To Wanda, cash flow also constitutes the basis for everything.

Wanda’s income mainly comes from the sales of its pure residential buildings and the residential part of its commercial plazas. Although Wanda’s cinema network claims a 15% market share in China, its cash support to Wanda Group is less than 1%. Wanda’s hotels and department stores are all sideline businesses and are mostly the supporting facilities of the urban complexes, their cash support to the owners of these properties is very small.

Currently, Wanda’s pure residential projects in Kunming, Nanchang, Beijing and Dalian are all generating steady cash flow. At the same time, the sales of the residential buildings of the commercial real estate projects, on which Wanda has focused its efforts for eight years, are not seriously affected.

According to Mr. Liu, a salesman of the project of the Beijing Shijingshan Wanda Plaza, 45 units of commercial properties were sold in November, a 50% rise over the 30 units sold in October. The project was expected to sell 600 units in 2008, and so far, over 80% have been sold.

Wanda’s steady sales performance in a volatile market was no surprise to Shi Xueqing. He said, “Our commercial plaza is a city center. The primary concern for a home buyer is about the supporting facilities in the surrounding area. The residential building in a commercial plaza is just like a candle on top of a cake. As sales are brisk, we have no reason to low our prices.”

No doubt, Wanda has benefited from its mode of commercial real estate operation. At the same time, Wang Jianlin also personally most emphasized sales.

Before 2007, Wang Jianlin managed the group in several capacities. In 2007, Wanda introduced the position of executive president and Ding Benxi was personally picked up by Wang Jianlin to be directly in charge of sales project. In that year, Wanda’s sales reached over 20 billion yuan. “Wanda entered the year 2008, wearing a warm coat,” Wang Jianlin said.

In 2008, Wanda’s sales slowed down due to the constraint of external economic environment. But the over 98.5% of the sales target for the first half of the year was fulfilled and the sales for the whole year is expected to rise at least 30% over last year. “This should be entirely attributed to our efforts at the end of last year to emphasize sales,” Wang Jianlin said.

Going public in 2009?

Wang Jianlin believed that the whole real estate industry will be even more sluggish in 2009. “2008 certainly was not the worst year for the real estate industry, and I expect things will be even worse in 2009,” said Wand Jianlin. “A reshuffle of the real estate industry is 100% inevitable.”

In 2009, Wanda will inaugurate six projects, including the Zhoupu Wanda Plaza in Shanghai and the CBD Wanda Plaza in Qingdao. At the same time, it will launch nine other projects. In the previous eight years, Wanda generally inaugurated three projects a year. Wang Jianlin once indicated to his employees that next year would be the most crucial one for Wanda and would determine whether Wanda could climb up a new peak.

"With the inauguration of these projects, Wanda’s leasing properties will increase by 3 million square meters in the year of 2009,” Shi Xueqing said. At present, Wanda’s leasing properties totals only 5 million square meters. That means that Wanda will accomplish a task in a year, which would require three years to accomplish in the past. “By then we can claim we are the true leader in the commercial real estate sector."

"Wanda is in a period of rapid development and will launch many projects each year. That requires the support of real money. To Wanda, the best way to maintain this development speed is to go public," the real estate analyst said.

As early as at the end of 2005, Wanda planned to cooperate with the Australian investment bank, Macquarie Bank, in issuing a 10-billion-yuan REIT (real estate investment trust) product on the H-share market. But this plan ran aground in July 2007.

After the attempt to list overseas failed, Wang Jianlin turned his attention to China’s A-share market. In January 2008, he openly indicated that he was actively and steadily pushing A-share listing in China.

"Eventually, Wanda must go public. We are fully qualified for public listing and we are choosing the right moment," Shi Xueqing said. "A good story can claim to be a good story only when you have listeners."