Operational services shoulder the main profit responsibility—has Longfor's second engine started running?

Author | Zhou Zhiyu

The real estate industry has been discussing “new models” for several years, but the number of companies that have truly emerged from the old model is few and far between. Most property firms are still trapped in a quagmire of debt, and the few that have survived largely did so by contracting their operations to gain some breathing room.

On March 27, Longfor Group held its 2025 annual performance press conference. From the financial report data, it can be seen that Longfor is undergoing a structural change, where the development business is under pressure during the industry’s winter, while the operations and services business has grown into a profitable entity with nearly 27 billion in annual revenue, over 50% gross profit margin, and nearly 8 billion in annual profit contribution.

The pressure on the real estate development side is evident. The national new home transaction volume has halved from its peak in 2021, and second-hand home prices have dropped by nearly 40%. The cost of five years of adjustments is concentrated in the settlement cycles of 2025 and 2026. Longfor has not escaped this fate, recording its first loss in core equity profit in 2025. This is not just Longfor’s problem; it is a common bill for the entire industry.

In addition, in 2025, Longfor’s operations and services business achieved revenue of 26.77 billion, a historical high, accounting for 27.5% of total revenue. This segment has a gross profit margin exceeding 50% and contributes a profit of 7.92 billion to core equity. In other words, if viewed separately, Longfor’s operations and services segment is a profitable entity with nearly 27 billion in annual revenue and a net profit margin of about 30%.

The management has provided a clearer timeline: by 2028 at the latest, revenue from operations and services will exceed that from real estate development. At that time, the EBITDA of the operations service is expected to cover interest by four times.

Over the past three and a half years, Longfor has reduced interest-bearing debt by 60 billion, and operating property loans have surpassed 100 billion, with positive operating cash flow for three consecutive years. By the end of 2025, interest-bearing debt will drop to 152.8 billion, and in 2026, the group’s credit financing maturity will only be about 6 billion, a significant decrease from 22 billion the previous year.

These are the broad figures. However, at the performance meeting, a detail that could easily be overlooked is that within Longfor’s operations and services segment, the commercial investment, asset management, property services, and smart construction sectors each have different strategies and situations.

The Tianjie commercial sector is the absolute mainstay of Longfor’s operations segment, with 99 shopping malls, a rental rate of 97%, rental income of 11.2 billion, and a year-on-year increase in revenue of 17% in 2025. This is a money-making machine that has already been realized.

The property sector has undergone a round of proactive contraction. Revenue is about 11.2 billion, a slight year-on-year decrease, due to Longfor’s proactive exit from a number of projects with low fees and low levels. The management’s statement is that the adjustments are basically in place, and growth will return to double digits in 2026.

The asset management sector has upgraded from Guan Yu long-term rental apartments to a combination of six major formats and plans to open about ten Chuan Shan Wan Shu senior care apartments in the next three years.

Longfor’s smart construction sector, Longzhizao, is an anomaly: it has the smallest revenue at 1.3 billion within the group but has maintained rapid growth in an increasingly competitive industry.

Wall Street Insight has learned that in just a few years, the number of construction companies has surged from a dozen to over a hundred, leading the industry into intense competition. Projects with fees below 2% account for 45%, and those between 2%-3% exceed 36%, totaling over 80%. A construction company leader bluntly advised property firms not to enter the competitive construction market anymore.

Longfor Group Chairman Chen Xuping explained Longfor’s ability to emerge from this red sea: Longfor has not participated in any irrational fee competition, relying instead on creating greater value for clients to earn profits.

When construction projects can help clients sell at good prices and achieve rapid turnover, clients are naturally willing to pay a premium for operational capabilities.

On a deeper level, the true moat of Longfor’s Longzhizao is not just operational experience but comes from the synergy of the parent company’s sectors. Longfor simultaneously possesses commercial operations, long-term rental apartments, property services, and a digital system, and this combination of capabilities allows Longfor Longzhizao to provide full-chain services from positioning planning to delivery operations. Pure construction companies find it hard to replicate this ecosystem.

This also precisely corresponds to the direction of industry evolution. As the incremental market continues to shrink, stock renovation and revitalization are becoming the true value high ground in the construction industry. Longfor Longzhizao has already verified this capability in the restructuring and revitalization of the Chengdu Xijingtai project and the renovation of the Shanghai Lujiazui Jinsui Building, which speaks more to the issue than mere scale expansion.

Shifting the focus back from Longfor Longzhizao to the overall picture of Longfor, a larger narrative is taking shape.

What this company has done in the past five years is essentially to defuse two bombs simultaneously: one is the debt structure and the other is the business structure. The new foundation, namely operating property loans, positive operating cash flow, and operating service profits, is nearing completion. Chen Xuping’s exact words at the performance meeting were: once the debt structure migration is complete, the new model’s foundation can be fully established.

Longfor Longzhizao’s role in this is to demonstrate the capabilities Longfor has accumulated over the years, where digitalization and all-format construction operations can operate independently of heavy asset frameworks and be delivered as standalone service products that command premiums. This is a crucial link in deepening the strategic transformation chain.

Of course, Longfor’s transformation is not yet complete. The years 2025 to 2026 will still be low points for profit, and there are still tough battles to be fought regarding inventory turnover in the development business. The management’s assertion of “resuming growth in 2027” needs to be fulfilled, the operations and services segment needs to deliver double-digit profit growth each year, and Longfor Longzhizao’s ability to maintain rapid growth under pressure of declining industry fees also requires continuous proof.

But at least at this moment, Longfor presents a clear path: in the industry’s deepest winter, it has not relied on selling assets to survive but has generated blood flow through operational capabilities, while also exporting this capability to realize value creation.

Longfor has provided an observable sample of what the answer to the “new model” is. Whether this sample can become a paradigm still requires time and performance to answer.

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