Human resource challenges for property developers and related response mechanisms  

Since the COVID-19 epidemic, the real estate industry has experienced direct impacts on land acquisition, contract sales, new project launches, and asset price, as well as greater significant effects that have become gradually noticeable. How to transform and upgrade, increase efficiency and resolve the crisis is an urgent problem for management. For human resource managers, they need to consider how to deal with the adjustment to employment strategies, salary incentives, and talent training caused by the epidemic.

At the same time, while performing our social responsibility to jointly fight the epidemic, Deloitte provides insights into the human resource challenges currently facing property developers and gives related recommendations on the response mechanisms for human resource management, based on Deloitte Consulting's years of service experience in the real estate industry.
 

I. The short-term shock and long-term impact of the epidemic on the real estate industry cannot be ignored

Affected by the COVID-19 epidemic, the government has reduced land supply. The tight cash flow facing property developers has diminished their willingness to replenish inventory, and land acquisition has also been contained. At the beginning of February 2020, the land supply and deals made in the 100 large and medium-sized cities declined significantly. Even after work resumption, the construction progress of most projects were affected. Due to a short supply of steel and other building materials from upstream suppliers, new project commencement will be restrained during the short term. Although various provinces and cities have gradually resumed work, sales activities have not picked back up. Since January 23, 2020, commercial real estate transactions in the 30 largest cities have hovered around zero. It is expected that the sales performance for the entire industry will be greatly impacted in the first quarter. Some large-scale real estate developers have introduced polices such as guaranteeing returns without giving any reason as well as promotional discounts, in order to sell quickly and accelerate payment collection through the strategy of "lowering price to boost sales".

To prevent the spread of COVID-19, certain shopping malls chose to temporarily shut down operations or shorten the business hours, which has also hit the online business. Over the short and medium term, prospects of the retail industry will remain unclear. It is expected that the vacancy rate of large shopping centers will increase and the average property rent will drop. Some commercial property developers have provided rent exemption and various flexible rent reduction measures for small and medium-sized enterprises.

How to deal with the short-term shock of the epidemic on business operations and its long-term impact on business models has become the urgent problem for property developers.
 

II. The epidemic promotes smart and digital transformation and upgrading of property developers

Although the short-term shock and long-term impact of COVID-19 on the real estate industry cannot be ignored, challenges are always accompanied with opportunities. The epidemic is a good opportunity for developers to reform and upgrade.

Affected by the epidemic, buyers have been less willing to have a home tour in person, which poses many challenges on sales. To cope with the impact of the epidemic, major real estate businesses have taken measures such as online sales and VR tours. In fact, online home tours are by no means a "desperate" move for developers due to the suspension of offline business. Major businesses have been preparing for digital transformation. As the real estate industry has entered into the stage featuring an existing market, demand side upgrading and financial deleveraging, "agility, focus and innovation" become the key factors to test a developer's response to challenges as well as its capabilities to make breakthroughs. More and more property developers have begun to choose digital transformation as a new way of survival. As a matter of fact, new technologies such as cloud computing, Internet of Things, big data, and artificial intelligence have provided extensive opportunities for the real estate industry. Eventually, it will be the main theme to actively embrace new technology and integrate digitalization, intelligence as well as for real estate businesses to foster new business models.

(I) During property development, digitization can help businesses reduce costs and improve efficiency, while cultivating the core capacity to transform from real estate development to operation and services. For project management, the standardization of project plans, costs, sales and other processes as well as data management can realize the refinement and real-time monitoring of project progress and key indicators, to improve the controllability of project income and manage cash flow.

(II) During the sales process, online marketing channels can contribute to branding, traffic generation, and sales conversion. Actually, major developers have already launched online sales offices. According to CRIC statistics, more than 150 among the top 200 real estate developers have launched online sales outlets, the top 100 developers are the biggest promoters of such online platforms. Although currently most of the online sales offices can only generate traffic and the effect is not yet apparent, in the future, intelligent sales offices can provide scenarios that support online contact with customers. The online demand of customers can be met through the online opening of presales supported by mobile terminals, such as Apps and mini programs. And through cooperation with banks and other external supporting service providers related to property purchases, we can provide better services to customers. In that way, we can reduce the conversion process from property tour to final transaction, and improve the sales conversion rate. At the same time, we can build a big data platform to explore related applications based on user features and behaviors, and achieve targeted sales.

(III) Asset operators need to build a digital asset operation system. The so-called operation digitalization means that, with the support of big data algorithm modelling and a standardized indicator system for commercial asset operation, the original "dead data" will empower the management responsible for asset management and operation, investment attraction and property management to understand the asset status, rentals, property management fees, parking fees and other business data more clearly. It also enables the benchmarking of key indicators such as income, cost, profit and return on investment with market data and market average level, to realize reduced cost, increased efficiency and added value of services during asset operation, as well as improve asset return and promote asset "financialization" through data enablement in the whole process of development, investment attraction, operation and services.
 

III. Improve management efficiency to cope with business transformation and upgrading

The digital transformation and upgrading with property developers promoted by the epidemic has imposed higher requirements on their strategies of short-term and medium-term employment, talent-training, and incentives.

(I) Flexible employment strategy

During the epidemic, construction was halted and it was almost impossible for workers to return, which made it incredibly difficult for property developers to start or resume work. In the future, there may be two opposite situations in employment. One, slowing operations and delayed business will tighten company staffing and change employment strategies. The other, the risk of "labor shortage" may appear in frontline employees and property management staff. In order to respond to those challenges mentioned above, real estate businesses can work on the following aspects:

• Over the short term, property developers need to accurately predict the impact of the epidemic on production and operations, and accordingly adjust business plans and staffing arrangements, especially for small and medium-sized developers or those who face high capital pressure. For non-core positions, the headcount may remain the same or cut, while for some positions, the demand may increase after the epidemic. Take the big health industry for example, the demand for products and space related to health services has increased, which will create more jobs. Therefore, human resource managers should make plans based on the company's business development needs and carry out talent recruitment for relevant positions.
• Over the long term, businesses should take full advantage of big data analysis for human resources, to make overall arrangements and dynamic adjustments to personnel capacity and effectiveness, which enables more flexible, data-driven talent management decisions to avoid operational risks. Today, the traditional employment relations are changing rapidly. The conventional internal organizational structure of businesses will be divided into internal and external structures while work in the future will be finished by corporate employees, freelancers, outsourcing partners, human resource platforms, and artificial intelligence collaboratively. Moreover, the development of technology and gig economy provides businesses with a variety of choices when they hire contract employees. Given that, real estate developers can adopt more flexible and temporary employment arrangements in the future. By introducing crossover thinking into talent management, establishing a talent resource ecosystem, making the best of external talent management platforms and the self-employed workforce in the digital transformation of human resources, businesses can address such problems as labor shortage, short supply of talent and difficulties to train high-end talent in hiring permanent employees.

(II) Talent management strategies under digital transformation

In the digital era, human resource management will gradually shift from being process-based to scenario-oriented, from hierarchy to network, from modularization to interaction while the people-oriented management model will become the trend. What digitalization brings to human resources is not only continuous technological evolution, but also unprecedented opportunities for innovation and revolution.

It is imperative to start digitizing human resource management in order to keep pace with the digital transformation of property developers. It is recommended that developers optimize HR services by establishing a high-impact human resource operational model, taking full advantage of digital characteristics and behaviors, HR customer-oriented thinking, and advanced technology, so as to continuously support the growth of organizational performance, and focus on realizing the full life cycle management of talent by digital tools:

(i) Provide online monitoring of HR key indicators for decision-making and management: Use human capital big data analysis modeling and digital tools to manage and control talent planning, head count and the number of managers, adjust various organizations and positions online, search and analyze organizational structure and job information to realize employee life cycle information management. Conduct multi-department cooperation in key business activities and alert the maturity of various operations.

(ii) Talent cultivation: In the past, real estate developers mainly provided centralized offline training and courses. Since the epidemic, it has been difficult for developers to carry out centralized and unified training. Under such circumstances, businesses can develop or introduce online training courses, such as micro classes and live broadcasts. Developers can also organize internal learning activities such as subject research, benchmarking research, project life cycle AAR mechanism, and experience sharing. Over the long term, based on the workforce requirement of digital transformation, businesses should target digital talent, re-examine and optimize talent standards and fully apply digital technology and platforms to drive employees (trainees) to participate in learning more voluntarily while improving learning efficiency and experience through digital learning.

• First, talent standard: With the rapid changes in business environment and the arrival of the VUCA era, real estate developers are increasingly aware that now is time to build an agile talent team, and adapt to the rapid changes of the times. The outbreak of COVID-19 has made it necessary for many business managers, especially human resource managers, to address the sudden crisis. However, many HR managers have reported that such an epidemic was totally unexpected and they did not have equivalent experience and flexibility to deal with the situation, which is why they felt overwhelmed. Thus, businesses need to identify and develop agile talent in the future to tap into their potentials to flexibly respond to uncertainties.
• Second, establish digital learning and improve learning efficiency and experience: Deloitte believes that it is necessary to start with top-level design to create a panorama of digital talent development and growth model. The panorama is described as below:

• Third, apply digital technology and platform in depth and adopt digital learning: The application of more intelligent technology (self-adaptive, virtual reality, simulation system) emphasizes the deeper, voluntary participation of employees (trainees) in learning whereby learning efficiency can be improved.

(III) The adjustment of assessment and incentive strategies

• First, property developers should increase attention to overall rewards: In the past, developers used to focus on material incentives, instead of non-material incentives, which were rare or relatively simple. Since the epidemic, businesses have been more aware that non-material incentives such as humanistic care, telecommuting, empowerment training, as well as honors and rewards programs are also important future employee incentives. Therefore, it is important for real estate businesses to consider formulating a competitive and comprehensive reward scheme and providing attractive salary incentive mechanisms for employees in the future.
• Second, formulate salary management measures to respond to future uncertainties in the real estate industry
  (i) Optimize the proportion of the salary structure as appropriate.
  (ii) Pay attention to future personnel and organizational effectiveness, and integrate personnel salary incentives into the operating efficiency of the company.
  (iii) Make up for possible deficits with surpluses by creating a bonus pool or other means.
  
• Third, tilt salary resources towards scarce and core talent: For certain functions that are greatly affected by the epidemic and market supply and demand, such as engineering, investment attraction, commercial operation, and property management, real estate businesses need to adopt well-targeted salary incentive policies to attract and retain talent in such functions in the future.
• Fourth, adopt a flexible benefit program: The security benefits and humanistic care provided to employees in the real estate industry were previously prevalent. Due to the impact of the epidemic, in addition to providing statutory social insurances and housing funds, real estate businesses have also increased their attention to supplementary welfare such as health management and risk insurance to some extent.
  

(i) Health management benefits: Including health checks, fitness plans, mental health counselling, and supplementary medical care.
(ii) Risk insurance benefits: Including accident insurance, collective life insurance, etc.
(iii) Consider adopting flexible benefit schemes. The importance of flexible benefit schemes is that instead of providing every employee with the same health and medical insurance, now employees can freely choose their own benefits from the options provided by the company. Each employee can have an insurance benefit portfolio according to their own needs and preferences.

• Fifth, adjusting performance targets: It's highly probable that the real estate industry will slow in the first half of this year. The industry expects that the impact of the epidemic on the annual operating performance of property developers will be controllable, but short-term performance will be affected. Therefore, businesses need to fully assess the impact of the epidemic on business operations and adjust corporate performance targets for 2020 accordingly.

Conclusion

For property developers, the COVID-19 epidemic has created challenges and increased pressure during the economic downturn, but it also brings opportunities and changes despite the headwinds in the industry. During this time, businesses should proactively respond to seize opportunities and rise up to the challenges.