Economic Observer reporter Tian Guobao

On March 31st, Ya Life Services (3319. HK) released its 2025 annual performance report, showing a year-on-year decrease of 3.1% in property management service revenue, 15.1% in urban service revenue, and a sharp decline of 17.9% and 75.5% in owner value-added services and non owner value-added services, respectively. At the same time, its net profit attributable to the parent company turned losses into profits, with a year-on-year increase of 103.2%.

Ya Life attributed the fluctuations in performance to the overall downturn in the real estate industry, proactive optimization of inefficient business structures, pricing pressure caused by intensified industry competition, and cost increases resulting from improved service quality. By 2025, the company has voluntarily withdrawn from 548 projects under its management, resulting in a year-on-year decrease of 4.82 million square meters in the managed area and a reduction of 12 cities covered.

Proactively withdrawing from inefficient businesses has become the most common action for property companies in 2025. The performance report shows that the terminated management area of Caisheng Life is 61.249 million square meters, the projects of Zhonghai Property that are not renewed or withdrawn after the contract expires are 55.6 million square meters, and the under management areas of Shimao Services and Yongsheng Services that have withdrawn also exceed 30 million square meters.

From 2015 to 2024, benefiting from the rapid growth of real estate and high valuations in the capital market, the scale of property enterprises has rapidly expanded. Ya Life's management area has increased by 18 times, Yongsheng Service has increased by 17 times, Country Garden Service has increased by 16 times, Rongchuang Service has increased by 13 times, and Jinke Service has increased by 11 times; The growth rates of enterprises such as Wanwu Cloud, Poly Property, and CR Vanguard Life have all exceeded 5 times.

Affected by a series of factors, many property companies will experience a decline in profits or even losses in 2024. Entering 2025, most enterprises will shift towards strategic contraction, actively withdraw from inefficient projects, and cut off unprofitable value-added businesses. A major industry retreat from 'scale is king' to 'survival by cutting off arms' is reshaping the entire property market.

Collective Retreat

The Fuli Xibaishui Town where Zhang Yue resides is located in Gangnan Town, Pingshan County, Hebei Province. It was delivered in July 2022 and has been serviced by Guangzhou Tianli Property Development Co., Ltd. (hereinafter referred to as "Tianli Property"). At the end of November 2024, Tianli Property suddenly withdrew.

Zhang Yue said that the community mainly focuses on health and wellness needs, and the occupancy rate has been relatively low since delivery. The property fees collected are not enough to cover daily operating costs, and the property services are poor; However, poor property services have led to a decrease in the willingness of property owners to pay, forming a vicious cycle that ultimately ends with the withdrawal of the property management company.

After the withdrawal of Tianli Property, there was a property vacancy period in Fuli Xibaishui Town. Under the coordination of the local government, a small property management company will be introduced through bidding until the end of 2025. The company's request for homeowners to pay the property management fee for the vacancy period as an emergency management fee was opposed by the homeowners.

Tianli Property is a subsidiary of Country Garden Services. According to the 2025 performance meeting information of Country Garden Services (06098. HK), a cumulative 1% of the project has withdrawn from management rights. "After comprehensive evaluation, it is difficult to reverse the fundamentals of project operation through various methods, so an active exit strategy has been adopted. It is estimated that the management area of Country Garden's service withdrawal is expected to exceed 80 million square meters.

There are many homeowners who have had the same experience as Zhang Yue. A Beijing homeowner told the Economic Observer that their residential community has been converted from public housing to private housing, and property fees have historically been paid by their unit. In 2024, the property owners announced that they would stop paying property fees for the community, and most of the owners did not have the habit of paying property fees, ultimately leading to the withdrawal of the original property management company.

A regional representative from a property management company told the Economic Observer that their company serves a residential area in a fourth tier city in the west. Although the collection rate of property fees was not high, they were still able to maintain daily operations; After 2020, more and more homeowners stopped paying property fees, and by 2025, the collection rate of property fees will be around 30%, ultimately forcing the company to withdraw.

People in the area said that from 2024 to 2025, their company will voluntarily withdraw from hundreds of residential areas, most of which are located in third - and fourth tier cities and below, due to low property fee collection rates; Among the projects withdrawn from first - and second tier cities, most of them are due to low property fees with no hope of increase, and limited expansion of value-added services.

He further explained that in recent years, some cities have raised the minimum wage standards and tightened the management of property companies paying "five insurances and one fund" for employees, resulting in increased operating costs for the companies. However, these projects lack channels to expand income, coupled with a decrease in collection rates, leading to project losses.

Proactively withdrawing from inefficient projects is a common action for property companies in 2025. Country Garden Services, Zhonghai Property, Caisheng Life, Yongsheng Services, and Shimao Services have cumulatively exited a scale of over ten million square meters, with more property companies voluntarily exiting a scale of one million square meters.

In 2025, the contracted area of ocean services will decrease by 8.221 million square meters, the under management area will decrease by 3.105 million square meters, and the commercial management area will decrease by 909000 square meters. Ocean Service stated that it voluntarily withdrew from inefficient projects and two commercial property projects that were consistently losing money.

Longfor Zhichuang Life has not released specific exit data, but its CEO Song Hailin stated at the performance meeting that the slight year-on-year decline in revenue is the result of actively focusing and optimizing its business. One is to actively withdraw from projects with excessively low charging standards and inability to provide high-quality services on a sustainable basis, while resolutely withdrawing from projects where some corporate clients encounter problems that affect payment collection; The second is to accurately identify core businesses and decisively abandon those that are inefficient, lack core competitiveness, and have no moat.

Rongchuang Service has not announced the specific scale of its exit. According to the performance report, in 2025, Sunac Services will sell 80% equity of the non core regional asset Zhangtai project (including 59 projects) and exit some non core cities. For projects with sustained structural losses, we will resolutely withdraw from the market

In addition, by 2025, Wanwu Cloud will emphasize quality growth, actively withdraw from low return projects, and reduce inefficient urban service projects; China Resources Wanxiang Life has also withdrawn several property management projects; Yuexiu Services has cumulatively withdrawn 6.55 million square meters from projects with low profitability, failure to meet payment standards, and low performance; Jianye New Life's management area has decreased by 2.3 million square meters, indicating an "active withdrawal of some loss making residential properties".

Why did you withdraw

The reasons behind the retreat of property management companies are complex.

The head of a property management company told the Economic Observer that his company incorporated a large number of regional property companies through mergers and acquisitions from 2017 to 2021, but the quality of these underlying assets varied greatly, making subsequent integration difficult.

Taking one of the acquisition projects as an example, although the collection rate was low during the acquisition, there was a receivable of 20 million yuan from the developer in the project account. They planned to increase the collection rate by updating facilities and improving services after recovering the receivable. But the original developer went bankrupt, and the accounts receivable became bad debts, making it impossible to implement a series of plans in the future. The promises made to the owners cannot be fulfilled, and the owners are even more dissatisfied, resulting in a lower collection rate of property fees. At the same time, residents in the community generally do not use online systems, and daily repair and payment still rely on on-site services. The property management staff is insufficient, and the service experience for residents is poor.

The above-mentioned person in charge introduced that after taking over for several years, the collection rate of property fees has not been able to increase, and the project continues to suffer losses. In 2025, this project has been listed as a mandatory exit project. But the local street office requires a new property management company to take over before the site can be withdrawn, so the project is currently in the stage of over limit service.

Usually, before the delivery of a residential area, the developer introduces an affiliated property management company; After project delivery, some outstanding engineering quality issues are generally handled by the property management company. As a result, a large amount of receivables are generated between the property management company and the developer. After the developer's explosion, most of these receivables need to be provisioned for losses.

After the developer delivers the project, the construction quality problems such as water leakage and cracks of the residents in the community are usually taken over by the property management company, and the dissatisfaction of the owners towards the developer is mostly transferred to the property management company. The relationship between the property management company and the owners is tense for a long time, and poor property services and owners' refusal to pay property fees can easily form a vicious cycle. Although property management companies have been improving their services in terms of hardware and software in recent years, owner satisfaction continues to decline.

Unlike residential business, non residential business has become a key area for most property companies to expand in the past few years due to its single customer base and high profit margins. But in the past two years, the situation of non residential customers defaulting on property fees has also become serious, and non residential projects are also the main areas where property companies have withdrawn.

In addition, in the past few years, most property companies have vigorously developed value-added services, including real estate agencies, decoration, etc. During the upward trend of real estate, these businesses increased the revenue of property management companies, but also occupied a large amount of manpower, material resources, and financial resources, resulting in a significant increase in the costs of property management companies. Nowadays, most of these value-added services have become useless and have become key optimization areas for property management companies in 2025.

The head of a small and medium-sized property company told Economic Observer that under normal circumstances, the property company can maintain the daily operation of the community by collecting property fees, parking fees, and related value-added services. But in the past few years, the blind expansion of property management companies has to some extent dragged down the project companies. The person in charge said, "Even if 5 out of 10 projects suffer losses, there are still 5 profitable ones, and maintaining balance is not a problem." However, due to bad debts generated by related developers' receivables and increased costs of expanding value-added businesses, property companies find it difficult to bear losses for a small number of projects.

To improve financial statements, property management companies need to start from two levels: first, fully decouple from the parent developer in terms of business and related transactions; Secondly, reorganize core businesses and assets, and exit some loss making projects and businesses.

In the view of the heads of the aforementioned small and medium-sized property companies, as property management shifts from "management" to "service", the core advantage of property enterprises is gradually shifting from scale to comprehensive service capabilities. If a property management company cannot even deliver the most basic services, the larger the scale, the more severe the backlash on its own brand image.

After Retreating

The person in charge of the property management company mentioned above stated that in 2025, after conducting an inventory and review of all managed and contracted projects, their company will require the activation of an emergency exit mechanism for two types of projects: the first type is projects that have been unable to balance income and expenditure for two consecutive years; The second type is when the collection rate for two consecutive payment periods of the project is less than 50%. If any red line is touched, the project will initiate the exit process.

Before exiting, the property management company still needs to make multiple preparations. Firstly, communicate with the street office and supervisory department where the project is located, and submit an application for site evacuation; Secondly, evaluate all assets of the project and generate an evaluation report and transfer list; Thirdly, post a notice of withdrawal in advance in the community, informing the owners of the specific withdrawal time.

Different cities have different attitudes towards the withdrawal of property management companies. Taking the project where the property management company is about to withdraw as an example, it announced its withdrawal at the end of 2025, and the local street office required that property services cannot be interrupted. Before the new property management company enters the site, it still needs to temporarily provide services.

The regulatory authorities and street offices in most cities do not have much constraint on the withdrawal of property management companies. Usually, the street office will coordinate with local state-owned enterprises to temporarily take over the vacated community as a transition, and then invite bids from institutions such as the homeowners' committee or property management committee.

The above-mentioned residential area in Beijing was temporarily taken over by a state-owned enterprise coordinated by the local street office before the property management company withdrew. After the state-owned enterprise entered the site, it invested its own funds to improve the facilities of the community and enhance the quality of services, ultimately gaining recognition from the owners. On the basis of maintaining the original property fees, the new property service agency has been officially signed through legal procedures, and the collection rate of property fees has increased from less than 50% to over 70%.

The situation in another residential area in Beijing is quite unique. Due to the small number of residents and limited income from property management fees, the original property management company chose to withdraw as it could not make ends meet. Residents are unwilling to increase property fees, and no new property management company is willing to take over. Eventually, the owners jointly agreed and chose the method of owner autonomy, hiring a cleaning staff and rotating the remaining work among the owners.

The head of the above-mentioned small and medium-sized property management company stated that many old residential areas are public housing, and residents generally do not have the habit of paying property fees. Once the original owner unit stops paying property fees, the burden falls on the street office. Even if a new property management company is willing to take over, the collection of property fees still faces significant pressure.

In his view, in order to encourage long-term unpaid property fees, it is necessary to gain the trust of property owners through early investment and services, and more importantly, to have sufficient patience and investment ability.

In addition, property services are usually one of the important prerequisites for the appreciation and preservation of housing value in a residential area. In the upward trend of real estate, some developers will allocate a certain budget each year to invest in existing residential areas to enhance their value, establish a good reputation, and empower the sales of new projects. Therefore, in the face of old residential areas, the new property management company also needs to prove to the owners that paying property fees can improve the service level of the community, thereby increasing the valuation of the houses.

For communities with low occupancy rates or where residents generally refuse to pay property fees, the responsible person of the property management company believes that the collection rate can be increased by reducing property fees or recovering property fees owed by owners through judicial litigation. At present, there are no obvious obstacles at the judicial level.

Zhang Yue told the Economic Observer that after Tianli Property withdrew, it is still recovering the property fees owed by the owners. Several owners have been sued to the court, but it has not entered the compulsory enforcement stage.

Multiple property management personnel have stated that even if the site is withdrawn, they will still pursue the payment of property fees owed during the service period. In the future, we will entrust the legal department to sue and recover in batches on a project by project basis.

Strategic Reshaping

The collective strategic contraction of property enterprises in 2025 is an inevitable result of the industry expansion in the past decade. The property industry is undergoing a structural restructuring from prioritizing scale to prioritizing quality.

Around 2016, with the rapid growth of real estate sales scale, property companies relied on the parent company's project transportation to expand their management area, and some property companies' managed area exceeded 100 million square meters.

After 2018, with the intensive listing of property companies in Hong Kong, the valuation of the property industry in the capital market has significantly increased, further stimulating property companies to make scale growth their core strategy. Some top property companies are no longer satisfied with the scale expansion brought by the delivery of the parent company and have begun to enter the M&A market.

At the same time, property management companies are also expanding their business boundaries in multiple dimensions. On the one hand, we will open up non residential businesses and actively enter non residential fields such as office buildings, industrial parks, hospitals, schools, etc; On the other hand, they have begun to vigorously expand value-added services related to their main business, including real estate agency, decoration, e-commerce and other businesses, which have been incorporated into the business system of most property companies.

After 2021, the real estate industry entered a period of adjustment, and the external environment of the property industry underwent profound changes. The financial pressure on developers has increased, related party transactions have decreased, and it is difficult to collect accounts receivable; The delivery of new projects has decreased, and the parent company has reduced its incremental growth. At the same time, low-quality projects acquired through mergers and acquisitions have entered the operational phase, resulting in visible losses.

At the same time, the operational difficulties of non residential customers have led to an increase in arrears, and commercial and urban service businesses have shifted from growth engines to profit drag; Due to the gradual stabilization of the real estate market, the related value-added services have significantly declined. The property management company, which has always been regarded as stable, has encountered varying degrees of operational difficulties.

Starting from 2023, most property companies will begin to make provisions for impairment of large accounts receivable. In 2024, multiple property companies experienced a decline in revenue, profits, and even losses, and the industry entered a phase of adjustment from expansion.

In 2025, property companies will actively shift towards strategic contraction, with the core goal of improving profitability and cash flow. One is to exit projects with sustained losses; Secondly, divest low return businesses; The third is to shrink value-added services.

In the long run, property management is shifting from being a vassal of real estate to an independent professional service industry. Scale remains important, but project quality and operational capabilities are more critical.