Some of the nation’s biggest private home builders are likely to report an average 19 per cent drop in core net profit for the January-to-June period, according to CGS International Securities based on its forecasts on five companies, including China Vanke, Longfor Group and Greentown China Holdings.
Vanke, once China’s second largest developer by sales, last month warned investors of interim losses between 7 billion yuan (US$980 million) and 9 billion yuan. The company and its peers are due to report their earnings by the end of this month.
“Developers with liquidity issues likely continued to register losses,” said Raymond Cheng, managing director of CGS based in Hong Kong. “Profit and revenue at some state-backed developers would have fallen as well, but they remain more resilient (than other players).”
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Boom, bust and borrow: Has China’s housing market tanked?
Boom, bust and borrow: Has China’s housing market tanked?
The impending results suggest the industry turnaround remains distant, and the financial squeeze hobbling Chinese home builders will persist. China’s top 100 developers recorded 1.85 trillion yuan of home sales for the first six months this year, a 40 per cent drop from a year earlier, according to China Real Estate Information Corp.
Sales in July fell by about 20 per cent, it added, even with favourable measures unveiled by the government to halt the industry slump. Prices of new homes in 70 major cities weakened 4.9 per cent in June from a year earlier, and by 7.9 per cent in the secondary market, the statistics bureau said last month.
CGS forecasts a 20 per cent drop in core net profit at China Overseas Land and Investment and Greentown, and a 30 per cent drop at Longfor Group. State-backed China Resources Land is seen making 5 per cent less, while Vanke is likely to incur a 5 billion yuan loss, its first interim loss in 20 years.
“An overall drop in selling prices has put tremendous pressure on developers,” said Edward Chan, a director at S&P Global Ratings. They tend to offer deep discounts, which reflects on their profit margins and leverage, he added.
Alarmed by the protracted industry slump, Beijing unveiled a 300 billion yuan fund in May to buy unsold homes from developers, hoping to give the market a shot in the arm. However, the property market has remained sluggish.
Weak selling prices have also led to difficulties in clearing unsold homes, and continued to weigh on revenue, said Jeff Zhang, China real estate equity analyst at Morningstar. Buyers favour completed, used homes over those under construction amid concerns about unfinished projects, he added.
“Our outlook on the sector remains negative, and many of the developers we cover are also on a negative outlook,” meaning their credit ratings are at risk of being downgraded, said Tyran Kam, senior director for Asia-Pacific at Fitch Ratings.
“We see ongoing uncertainties as the level of unsold housing stocks remains high in many local markets,” Kam added. “The government is aiming to reduce property inventories, but the effectiveness of the announced measures remains to be seen.”
Additional reporting by Yuke Xie