"Minority" Longfor's Victory

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

The old era of real estate has come to an end. As the sprint for scale turns into a marathon, former leaders may not be the winners at the finish line, and the market begins to scrutinize a company's true physical condition and endurance with a more critical eye.

The mid-term results released by Longfor Group on August 29th are an atypical answer sheet.

If the giant ships of the past real estate companies relied on the strong engine of real estate development, then in today's turbulent waters, a steady "ballast stone" has become particularly precious. Longfor's ballast stone is its continuously growing operational business.

In the first half of 2025, the operational business composed of commercial investment and long-term rental apartments, along with the service business consisting of property management and smart construction, contributed a total revenue of 13.27 billion yuan, setting a historical high for the half-year period, accounting for 22.6% of the group's total revenue.

This is not just a simple numerical increase. What is more noteworthy is the profit structure and cash flow contribution behind it. Against the backdrop of declining gross profit margins in real estate development due to market price pressures, this operational business has become the main character and stabilizer of profits.

The financial report shows that the gross profit margin of the operational business reached 77.7%, while the service business gross profit margin was also at 30.0%. Longfor's management revealed at the earnings conference that these four major channels contributed 4 billion yuan in profits in the first half of the year.

As JP Morgan analysts pointed out, the profitability of Longfor's operational business effectively offset the impact of the pressure on profits from the development business. Moody's industry report expressed a similar view, stating that the continuously growing operational income enhances the profitability stability and financial resilience of developers.

The quality of this "ballast stone" is reflected in the operational improvements brought about by the renovation of Chongqing North City Tianjie, in the 127,000 operational units of Guan Yu with a rental rate as high as 95.6%, and in the 65% year-on-year revenue growth of Longfor's Longzhizao in the first half of the year. Together, they form a strong endogenous "blood-making" system, providing Longfor with the confidence to navigate through cycles.

In the first half of the year, Longfor Group achieved a net inflow of over 2 billion yuan in operating cash flow, including capital expenditures—this is undoubtedly a golden indicator for measuring the true health status of a real estate company.

If operational income is the ballast stone, then prudent financial discipline and continuously optimized debt structure are the solid safety cushion that Longfor has built for itself.

As early as mid-2022, when the industry had not yet experienced subsequent severe shocks, Longfor proactively proposed a debt reduction strategy and took the initiative to hit the brakes. The results of this strategy were clearly reflected in the mid-term report for 2025.

As of the end of the reporting period, Longfor's total interest-bearing debt was 169.8 billion yuan, successfully reduced by 6.53 billion yuan compared to the end of 2024.

This is not only a reduction in total amount but also a profound structural reshaping. Zhao Yi, the group's executive director and CFO, provided a clear roadmap at the earnings conference: to replace credit bonds with loans from operational properties, promoting the transformation of the debt structure Data shows that currently, Longfor's bank financing ratio has reached 87%, while domestic credit bonds will only remain at 4.4 billion by the end of the year. The proportion of foreign currency debt has dropped to 14%, and 100% of it has been swapped to avoid exchange rate risks. This shift from short-term, high-cost public market financing to long-term, low-cost, collateralized bank financing has greatly enhanced financial stability.

This stability is reflected in a series of key indicators: the average financing cost has decreased to a historical low of 3.58%, and the average contract loan term has been extended to a historical longest level of 10.95 years. The "three red lines" continue to remain in the green zone, and the net debt ratio has further decreased to 51.2%.

What reassures the market even more is Longfor's resolute attitude towards debt repayment. As of now, all domestic bonds maturing this year have been fully repaid.

Longfor has demonstrated through action that credit is the most valuable intangible asset for enterprises during the industry's clearing process. DBS Bank of Singapore commented that Longfor's balance sheet optimization is progressing smoothly, and after clearing recent offshore debts, its financial situation will be even more stable.

While safeguarding the safety bottom line, Longfor has not given up on future layouts. Although the investment strategy is extremely cautious, emphasizing "spending within means," Longfor still seized opportunities to acquire four plots of land in core cities such as Shanghai, Chongqing, and Suzhou in the first half of this year.

Chen Xuping, Chairman and CEO of Longfor Group, believes that "there is still a lack of good houses in core locations of first- and second-tier cities, and the demand for improvement in core locations remains very strong." This positioning determines the future direction of Longfor's real estate development business.

From the "three openings and three sellouts" at Chongqing Liangjiang Yuhu to the counter-cyclical hot sales of the "good houses" sample project in Beijing, Longfor is responding to the structural demands of the market with product strength.

In the first half of the year, 90% of sales came from first- and second-tier cities, with a cash collection rate exceeding 100%, proving that the strategy of focusing on high-energy cities and improvement demand is effective.

Looking ahead, as inventory gradually decreases and new projects are steadily launched, the drag of the real estate development business on Longfor's overall profits will gradually weaken and is expected to recover. At the same time, the planned opening of about 10 shopping malls in the second half of the year will provide new momentum for the growth of operating income.

After four years of deep adjustment in the industry, Longfor's report card can be summarized by the core logic: using positive operating cash flow as the foundation to drive debt structure optimization and cyclical development.

It has bid farewell to the old model of "financing-driven growth" and turned to rely on the business's own "blood-making" ability, which is particularly valuable in the current environment.

Indeed, the short-term pressure on profits is a reality that all real estate companies must face. However, compared to losing oneself in the illusion of scale, Longfor has chosen a more difficult but more stable path. As the management stated, with the peak of debt repayment past, Longfor's debt structure and repayment pressure will significantly decrease, while positive operating cash flow will continue to be maintained, forming the basic support for Longfor.

When a company has a solid ballast, a sufficiently thick safety cushion, and a clear engine knowing its future direction, it possesses the capital to move forward calmly, regardless of how the external environment changes In front of the "narrow door" in the real estate industry, Longfor is steadily making its way through.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk