Fast, but fatal?

Country Garden curbed after construction deaths


Property tycoon Yang Guoqiang

Yang Guoqiang views his time as so valuable that he is said to spend no more than 10 minutes a day eating, shunning dinner banquets because they take too long.

The same focus on time is reflected in the business model of his company, Country Garden. The developer, known for completing its projects quickly, is said to push some of its teams to deliver projects within three months of the land being bought (see WiC416).

But lately that model has come under fire after a series of fatalities at its construction sites. In late July torrential rain and wind caused the collapse of a worker dormitory at a construction site in Anhui province, resulting in the death of six people.

The tragedy followed a similar incident in June, when a concrete slab landed on six workers, killing one, at a construction site of another residential project in Shanghai.

The local safety bureau criticised Country Garden for “blindly” accelerating building work.

“In view of recent safety incidents at our construction units, we are deeply saddened and admit that we have unshirkable responsibility for the inadequate supervision and management,” the company said in a statement.

After the accidents, Country Garden announced that it was temporarily halting all 2,200 of its projects nationwide for safety checks. The delay – unheard of from a firm that has pushed the boundaries to achieve record sales velocity in the real estate sector – wiped $6 billion off its market value in a week.

To stem the landslide of negative publicity, the developer invited a group of local reporters to Shunde in Guangdong, where the company is based, for a two-day review of its new projects. When reporters arrived at the venue, they were given welcome gifts including a bottle of Chanel cologne, as well as cash payments of Rmb2,000 ($290) to cover “transportation fees”. After the press event, the developer treated the reporters to a day at Chimelong Safari Park in Guangzhou. Sohu, a portal, reckons that the weekend junket cost at least Rmb1.4 million.

Pan Shiyi, chairman of developer SOHO China, reacted to the event with distaste. “Fatalities from construction-related accidents are particularly painful. It is inappropriate to be giving gifts during a meeting that should be used for reflection. Joking and laughing, that’s just not very serious,” he lambasted.

According to Bloomberg, Yang told 4,000 employees in April that the company’s sales turnover was becoming “too slow” and Country Garden’s president, Mo Bin, also complained that the firm was losing its edge, threatening to fire heads of residential projects if sales started any later than seven months after a land purchase.

The emphasis on speed highlights concerns about the property cycle. Huxiu, a portal, reckons that the developer is worried that demand in third- and fourth-tier cities – where the developer has most of its projects – could cool before 2020, as the current wave of urbanisation starts to slow.

Still, industry observers say the accidents are forcing the developer to rethink its aggressive approach. “Blindly pursuing high turnover is a total disregard of science. After all, there is a limit to how far you can push. For instance, cement takes time to harden. Mortar takes at least eight to 10 hours to dry. But right now it [Country Garden] is pushing for it to dry in less than five hours. What do you think is going to happen?” an unnamed insider told Sohu.

“In many cases for Country Garden, a project has been sold before the building is even constructed. In order to achieve high turnover, the developer needs to finish construction as quickly as possible and sometimes working overnight is normal,” added China News Service. “However, property is a durable consumer product. If it is built too quickly in a short period of time, quality can be at risk. For Country Garden, which has faced a lot of problems with the quality of its housing projects, it is best to slow down.”

Country Garden has defended its high-speed strategy, however. “With regard to the turnover, I feel that efficiency is pursued in all walks of life. In the past six months, Country Garden has paid more than Rmb30 billion in taxes. If we didn’t strive for such high turnover, we would not have paid so much and made other contributions to society,” countered its chief financial officer Wu Bijun.

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