China Real Estate Company Profits Down 5.36 Percent in First Quarter

China Vanke Executive Vice President Mao Daqing

China Vanke’s Mao Daqing might have reason to sound pessimistic

More than half of China’s listed real estate companies saw profits shrink during the first quarter of 2014, according to recent figures from an independent financial information provider. The country’s once booming property sector has been suffering through one its most pronounced slowdowns to date, as it struggles to cope with the disappearance of easy credit.

According to information from Shanghai-based Wind Information Co Ltd, which was reported in the China Daily, the total net profits of the country’s 142 listed real estate companies amounted to RMB 11.74 billion ($1.88 billion) from January through March this year. The profit total represents a decline of 5.36 percent from the same period last year, with seventy-four of the companies reported shrinking net profits.

Even Major Developers are Suffering

While talk of the risks to China’s property sector have so far centred on the potential for smaller companies to default, its clear that even the nation’s biggest real estate companies are suffering.

Last week China Vanke, the country’s largest developer by sales reported that its profits dropped 5.2 percent compared to the same period a year ago, while its revenues were down 32 percent compared to the same period in 2013. (On May 5th, however, the Shenzhen-based company announced that its contracted sales for the first quarter were up 19.6 percent compared to the same period in 2013).

The reason for the drop in profits can be seen in the slow flow of new projects onto the market, with Vanke indicating that only 6.6 percent of the new projects it had planned to launch in the first three months of the year had actually made it onto the market.

Late last month, Mao Daqing, the Vice-Chairman of Vanke was recorded privately telling a group of potential investors in Beijing that China’s housing market is saturated and there’s no chance of further price increases barring further economic stimulus by the government.

A second Shenzhen firm, China Merchants Property Development Co Ltd saw net profits slide 6.82 percent for the quarter to RMB 755 million, and Gemdale Corporation reported profits of RMB 49.34 million – a 73.65 percent drop compared to last year.

Among the country’s four largest developers, only China Poly Group Corp recorded an increase in profits during the first quarter. The state-owned real estate giant announced RMB 820 million in profit, a 10.8 percent increase over what it achieved during the first three months of 2013.

Housing Prices and Transactions Declining

Just last week, two private surveys found evidence of slowing price growth and faltering transaction volumes in April, continuing a trend that has been growing this year.

A survey by a unit of E-House China found that average home prices in China during April declined on a month-to-month basis for the first time since 2012. The report tracked average home prices in 288 cities and found a decline of 0.02 percent in April compared to March.

Market data from Soufun.com’s China Index Academy found that average prices in China’s 100 largest cities rose 0.1 percent in April compared to March, although this pace of increase also showed a decline from the 0.4 percent rate reported in March.

The slowdown in real estate prices this year is generally linked to cutbacks in available credit after a surge in buying activity last year.

Records from the People’s Bank of China show that new credit in China fell 19 percent in March compared to a year earlier, and money supply grew at the slowest pace on record.