Longfor | Governance and Financials
A two-tier approach to managing a growing business portfolio
Property owners and developers the world over know that “real estate is local.” The expression refers to the fact that, unlike other assets, land and the fixed property that sits on it cannot be relocated. That means its value is captive to the supply and demand factors that influence its immediate surroundings. So how does a real estate company with growth ambitions assure that its properties in every locality are meeting its high standards?
Ask Longfor Group Holdings Ltd. (Longfor), one of China’s biggest real estate holding companies and a recent addition to the Hang Seng Index. Since its establishment in 1993, Longfor has developed its business nationwide, with a presence in more than 60 cities and properties spanning sectors as diverse as residential, shopping malls, and rental apartments. On a day-to-day basis, its headquarters in Beijing must oversee six core business units covering property development, commercial property, rental housing, property management, housing agency service, and housing decoration.
To effectively manage its sprawling operations, Longfor deploys a two-tier approach that splits decisions between its headquarters and more than 20 regional companies. The headquarters delegates substantial power to the regional management teams in making project-specific and city-level operational decisions, while retaining decision-making rights with respect to strategy, risk control, financing, investments, and brand control, among other functions.
“We empower our regional companies to make rapid and flexible decisions because they're the ones on the front lines.”
“We empower our regional companies to make rapid and flexible decisions because they’re the ones on the front lines, getting close to customers and the markets in which we compete in,” says Longfor executive director and Chief Financial Officer Yi Zhao. “The purpose is to shorten the span of control, reduce costs, speed up decision-making, and thereby improve our operational efficiency.”
Take the company’s land acquisition process as an example. It is up to the regional companies to identify and analyze opportunities in their local markets, but headquarters arms them with research resources such as data-fueled city maps that help them focus on high-quality subdivisions and other sections of the target city. Once an opportunity is identified and submitted to headquarters, the group’s investment committee meets regularly to assure that the property meets its affordability and other financial targets, and aligns with its long-term views on the outlook for the area. It’s an approach that has become increasingly valuable to Longfor at a time when the Chinese government is instituting steps to slow the nation’s red-hot real estate development market and arrive at a more sustainable pace of growth.
“The governance structure continues to ensure the supply of better land reserves with high quality and low cost, which is an important driving force for the company’s future growth in terms of both scale and profit,” says Zhao. “This mechanism also enables us to acquire land irrespective of some negative influence of individual markets and fluctuating short-term policies.”
Technology plays a vital part in assuring information is shared and consensus-building happens quickly. A sophisticated operating system and the resource and business platforms help headquarters and the regional companies interact in real time in a controlled and transparent way. It has also helped Longfor rein in costs. Since the launch of four finance shared service centers, the company’s financial system has been able to eliminate some basic financial positions such as cashiers. Today, all receipts, payments, and basic accounting processes have migrated to the sharing platforms, and reimbursement between headquarters and the regional companies often occurs within a single day.
Finally, to make the company healthier and stronger, Longfor has implemented institutionalized management with an industry-leading corporate management system and a professional management team. It hired professional managers to manage the company instead of members of the founder’s family to ensure that the company’s culture remains fresh amid organizational expansion.