Basic Management Strategy
In the real estate industry, to which the Group belongs, real estate prices have risen stably, supported by continued low interest rate conditions. Investment type properties (rental condominiums and office blocks; income properties) have been favored and maintained high demand from domestic and overseas investors alike, due to the attractive yield gap between investment yields and long-term interest. In terms of residential type properties (owned condominium units and detached houses), the number of used condominium contracts has exceeded the number of newly built condominium contracts in the Greater Tokyo Area due to the recent rise in the price of newly built condominiums.
Under such business conditions, the Group will seek to expand its earnings by adding new initiatives to its mainstay Real Estate Trading Business, with the aim of expanding its base of real estate investors and end users by providing a diverse range of asset types and services.
We also aim to expand the earnings of our growth businesses—the Real Estate Development Business and Real Estate Specific Joint Enterprise Business—and build them as new pillars of our business. By diversifying our earnings in this way we will enhance our corporate value.
To strengthen the management base that supports our business strategy, we will also engage in management with an emphasis on capital efficiency and improve shareholder returns by investing in people and hardware in our main business and growth businesses while maintaining a high level of financial soundness.
MUGEN ESTATE's Positioning in the Used Real Estate Market
- A wide variety of used properties
- Specializing in the Greater Tokyo Area
Issues to be addressed
01Procurement of New Properties in the Purchase and Resale Business
The Group is expanding its business scale by positioning the Purchase and Resale Business as an existing business and the Real Estate Development Business and the Specified Joint Real Estate Business as growth businesses. In all of these businesses, real estate prices have remained high, making it more difficult than ever to procure new properties. The purchase of new properties requires collection of a wide range of information and quick decision-making.
The Group deals in diverse types of assets and is reinforcing its area businesses through established offices in the Greater Tokyo Area, in an effort to obtain information from many agents. We will also enhance and accelerate purchasing decision-making capabilities utilizing IT in proceeding with the purchase of new properties.
02Increasing Inventory Turnover Rate of Real Estate for Sale
We expect the real estate market to remain uncertain for the fiscal year ending December 31, 2023 due to factors such as the COVID-19 pandemic, the office situation due to changes in working styles, Material price hikes and supply delays due to the prolonged the situation in Ukraine and other factors, and interest rate trends. The market environment has been changing rapidly. We believe that in this environment a prompt response to market changes is enabled by shortening the holding period for real estate and thereby increasing inventory turnover rates.
The Group is working to bring properties to market at an early stage by speeding up the improvement of occupancy rates, and shortening construction periods for both interior and exterior construction work. In addition, we will make early sales by creating an environment for providing information, such as enhancing the functionality of property introduction sites for agents, streamlining sales activities using real estate tech, and working to increase customer motivation for purchasing.
03 Increasing Profitability by Reducing Construction Costs
Construction costs have been trending higher due to skyrocketing material costs and supply delays, which are attributed in part to the prolonged conflict in Ukraine, and soaring labor costs reflecting growing demand in the construction industry.
The Group seeks to optimize procurement and outsourcing costs by constantly expanding the range of its material suppliers and construction subcontractors, and in addition, is striving to reduce unit labor costs and shorten construction periods by reviewing business processes, as it seeks to maintain and improve gross profit margins.
04 Amendment to the Consumption Tax Act
The Consumption Tax Act was partially revised in April 2020. The revised law stipulates that tax amounts such as taxable purchases of residential rental buildings made on or after October 1, 2020 are no longer eligible for purchase tax credits. As a result, for the purchase of residential rental buildings made on or after the date of enforcement, in principle, the full purchase tax amount will be recorded in taxes and public dues. Accordingly, the amount of taxes and public dues for a building will increase significantly if it remains unsold for a long time.
The Group will shorten inventory time to sell such buildings during the third fiscal year (including the fiscal year of purchase), during which the amount of purchase tax credits can be adjusted, in an effort to improve the inventory turnover rate.
05 Expanding Stable Earnings to Support Growth
Consolidated sales in our mainstay business—the Real Estate Trading Business—account for around 90% of total sales and segment profit of at least 80%. Securing stable earnings in preparation for future changes in real estate market conditions is a pressing issue.
As an opportunity to secure long-term stable earnings, we are working to acquire high-quality assets and increase the number of units we manage. With regard to the acquisition of high-quality assets, we decide to acquire them after assessing real estate trends and giving consideration to the level of cash flow and cash in hand for each fiscal year. In terms of increasing our number of managed units, we will coordinate with the sales department to acquire contracts so that we can obtain commissions from asset owners when selling our own real estate properties.
06 Proactive Investment in Both Existing and New Businesses
The Group will invest more proactively than ever in the Purchase and Resale Business as its core business and will enter growth fields carefully and proactively in light of changes in the external environment, aiming to build a balanced business portfolio.
At present, we aim to expand the earnings of our growth businesses—the Real Estate Development Business and the Specified Joint Real Estate Business — and build them as new pillars of our business. In the Real Estate Development Business, it has remained difficult to secure a profit due in part to skyrocketing material costs and rising wages, mainly reflecting the COVID-19 pandemic and the prolonged conflict in Ukraine. We will conduct planning with an awareness of ESG and SDGs, as well as site selection and quality improvement, as we seek to develop products with high added value. In the Specified Joint Real Estate Business, we will attempt to diversify products constituting each projects and the schemes in each, enhance exit strategies, and expand our sales network, in an effort to increase the annual number of projects and expand each projects.
For new businesses, we will form business alliances with other firms and utilize strategic investment, including M&A, in consideration of the time it takes before commercialization or monetization, rather than driving the businesses internally and alone.
07 Strengthening Efforts to Address Environmental Issues
We understand that initiatives to tackle environmental issues are important if the Group is to achieve sustainable growth. Above all, climate change has been a major global problem, having led to widespread moves to shift to a decarbonized society. The Group will also drive environmentally friendly business activities in response to the shift to a decarbonized society.
Further, the Group supports recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB), and discloses information based on the recommendations. We will continue to identify risks and opportunities for businesses, etc. attributed to climate change and disclose information about them appropriately.
08 Personnel Recruitment and HR Development, Enhancing Organizational Strength
We understand that what is important for the Group's achievement of sustainable growth is to enhance its organizational strength by continuing to secure and develop human resources as the source of added value.
In the area of recruitment, we will work to strengthen the recruitment of both new graduates and mid-career hires, develop a corporate climate that permits employees to play active roles and take on challenges, and promote diversity, thus securing a competitive advantage. In terms of human resources development, we will strive to improve human assets and organizational strength by enhancing internal and external education and training programs, developing and expanding core human resources who are skilled in management by utilizing OJT, establishing personnel systems according to individual abilities, recommending the acquisition of specialized skills.
We will raise the level of our human capital and our capabilities as an organization, by sharing our mission as our common set of values.
09 Enhancement of Corporate Governance
In order to maximize corporate value, the Group understands that it is important to ensure transparency and soundness of management, and respond promptly and appropriately to changes in the business environment. We position corporate governance as one of the Group's most important management issues. We will enhance governance functions by stepping up the supervision and checking of executive officers, ensuring transparency through information disclosure, and developing a management system for business execution.
We established the Nomination and Compensation Committee in November 2021, introduced an executive officer system in January 2022, and set up the Sustainability Committee in July 2022. With these and other initiatives, we are working to strengthen supervision and checking by outside directors, realize prompt decision-making by management and agile business execution, and address sustainability issues for building a sustainable society, aiming to further enhance our corporate governance system and improve our medium- to long-term corporate value.
In response to the stock exchange market restructuring in April 2022, we selected and were listed on the Prime Market. However, we have yet to meet the requirements for the market capitalization of the tradable shares and trading value. We will therefore improve our business performance, enhance IR activities, increase the return of profits to shareholders, and strengthen corporate governance, aiming to consistently fulfill the criteria for continued listing.
10 Improvement of Capital Efficiency
The Group's basic approach to its management strategy is to invest in its core business and growth businesses and to improve shareholder returns, while continuing to expand its business scale and maintain a high level of financial soundness. We have also made improving ROE as one of our key performance indicators for increasing our medium- to long-term corporate value. We are working to continue improving ROE that exceeds the cost of equity capital, with awareness of the balance between capital and liabilities, while maintaining the financial ability to respond to changes in the environment.