Real Estate Vanke Hog-Breeding

Pig Raising Deemed More Profitable Than Developing Real Estate: Developers

Rebbeca Ren

posted on May 19, 2020 9:48 am

Vanke, the second largest Chinese property developer by sales, announced a plan last week to raise 250,000 pigs. The company already started recruiting specialists for its pig farms in China's Guangdong Province.

The jaw-dropping decision from a top developer came after COVID-19 took a toll on the once most lucrative real estate industry. 

Yu Liang, Chairman of Vanke, once claimed that there is no other industry that can be as profitable as real estate. However in In the first quarter of 2020, home transactions volume in China declined by almost 24.7%, the steepest plunge since 2013, according to the National Bureau of Statistics (NBS).

In a filing to the Shenzhen Stock Exchange, Vanke said that it achieved a contracted property sales of 47.95 billion RMB, or about $6.76 billion in last month, compared with 60.17 billion RMB ($8.48 billion) the same month last year.

In comparison, listed pig breeders enjoyed a remarkable upswing in profit as China was faced with pork shortage in the past year. Industry behemoth Muyuan Foods Co Ltd reported a first-quarter net profit of 4.1 billion yuan ($580 million), making a U-turn from last year's first-quarter loss, according to China Daily.

Vanke is not the first real estate company to foray into pig raising. Other top developers, including Country Garden, Evergrande, and Wanda, all enrolled the business before it. Although Yu stated in 2019 that no industry can be as profitable as property, that idea may have changed now.

The move, recognized as a desperate measure for developers trying to maintain operations amid a bleak outlook on the real estate market, was met with all kinds of opinions on China's social networks. Some even joked that human beings are no more valuable than pigs anymore, since it looks like that it's more profitable for developers to use lands to house pigs than human.

A sales manager of a Wuhan-based local developer told PingWest that the entire real estate market was frozen in 1Q20 when the pandemic was raging in the epicenter. Her company is under tremendous pressure and spare no effort to promote sales, but the results were not satisfying, "During the Labor's Day holiday, the regular peak season, sales reached only 30% of the same period last year," said the manager.

The person said that while exploring various profitable approaches, her CEO believes that raising pigs may be a promising alternative to selling apartments to the economically-stricken people of Wuhan, since China is actually the world's largest pork consumer, "people's demand for pork is much greater than apartments." 

China consumed 55.95% of the 113 million tons of pork produced globally in 2018. As a vital component of the CPI (Consumer Price Index), fluctuations in pork prices have an outsized impact on inflation. Since the first cases of African Swine Fever in China were reported in August 2018, the virus spread to every province by mid-2019, bringing pork production in many places across the country to a halt. The NBS estimated that a 97% increase in pork prices accounted for more than half of the 4.3% increase in the CPI of December 2019 from a year earlier. 

In order to stabilize the pork supply, the central and local governments have implemented multiple policies and provided subsidies to support the pig raising business. It also calls on well-funded enterprises to join the industry, improving the level of large-scale production.

However, the blueprint may not be as feasible as expected, according to some analysts. "I am not optimistic about it. Not everyone can start to raise pigs all of a sudden, even if you are a property developer loaded with cash," a senior agricultural analyst at Changjiang Securities told PingWest under the condition of anonymity. Large-scale pig raising calls for experience and high-tech management, which outsiders are less likely to master in the short term, the analyst explained, adding that for real estate developers, raising pigs is more like a response to the country's call, presenting a signal of support.

"After all, the developers need to build good ties with governments," said the analyst.

Vanke did not issue more details regarding its plan to build a pig farm. Analysts have estimated that the cost to build a medium-capacity pig farm hosting 250,000 pigs from scratch could reach 200 million RMB, which is no sweat for a developer of Vanke's scale.

Ma Guangyuan, a well-known economist in China, also thought it's not reliable for property developers to step into the breeding sector. "These companies should focus on what they specialize in, for instance, building modern pigpens is more convincing than actually raising pigs" the economist said.

Real estate accounts for more than 10% of economic growth and 25% of GDP of China generally, a report from the Academy of Finance and Economics of the Chinese Academy of Social Sciences revealed. 

Although China's economy is experiencing a slowdown due to the pandemic, the loose monetary environment and ample liquidity are leading to rising housing prices in some key cities. New home prices in four first-tier cities, Beijing, Shanghai, Shenzhen, and Guangzhou, stayed unchanged in February and went up slightly in March, according to the data from the NBS.