China’s Top 100 Developers Grabbed 58% of the Real Estate Market in 2018

Growth in China’s real estate market slowed in 2018, due to tighter credit and stricter policies, but the changing environment may have been tougher on smaller developers than on the largest builders, according to new research released this week.

A joint report by the Development Research Center of China’s State Council, the Tsinghua University Real Estate Research Center and Fang.com’s China Index Academy showed that in 2018, China’s top 100 home builders controlled a combined 58.1 percent of the market, increasing their share of the country’s property pie by 10.6 percentage points compared to the previous year.

The market study indicates a trend toward greater consolidation in the industry, as smaller developers struggle to obtain the credit necessary to compete amidst a slowing sales environment.

Top 100 Players Grow by Over 33%

The 2019 edition of the China Top 100 Real Estate Developers report, which was jointly compiled by the three institutions, indicated that as of the end of 2018, the top 100 developers achieved total contract sales of RMB 8.72 trillion, up by 33.2 percent compared to the preceding 12 months. During the same period, property sales by floor area reached 662 million square meters, up by 32 percent from the previous year.

That upswing in contracts for the top players came despite market-wide sales growth of just 1.3 percent during 2018, according to figures from China’s National Bureau of Statistics. Achieving that 33 percent expansion in a slowing market required picking up market share, with the top 100’s 58.1 percent slice of total industry sales representing an increase of 23 percentage points from the 2014 industry-wide results.

China Index Academy director and Fang.com founder Vincent Mo told the local media that during the 16 years that the three institutions have been tracking China’s top 100 developers, the total assets the real estate giants accumulated grew 76 times, from an average of RMB 2.7 billion when they issued the first edition of the survey to RMB 200 billion in the 2019 report.

Smaller Cities Produced Big Numbers

During 2018 the top developers achieved their increase in sales largely thanks to activity in China’s third and fourth tier cities, Bai Yanjun, general manager of China Index Academy told the local press. During last year, these smaller cities accounted for 65 percent of total property sales by floor area, while second tier cities contributed 32.5 percent and first tier cities only 2.5 percent, Bai said.

Although China’s overall real estate market slowed down in the last few months of the year as the Chinese government readjusted its property policy amid a deleveraging campaign, the high levels of activity in third and fourth tier cities during the first three quarters allowed many developers to post strong years despite weak fourth quarters.

In 2018, total sales by the top developers in third and fourth tier cities increased four percent, accounting for 45 percent of the total contract value, said the report.

Profits Also on the Rise for Top Companies

The top players’ operating margin also increased in the last year with their average net profit growing 28.2 percent to RMB 6.44 billion while average net profit margins rose by 0.2 percent points to 11.5 percent and returns on equity rose an average 0.9 percent points to 17.2 percent, the report showed.

“The developers have readjusted their pace of investment in a timely manner and identified multiple channels for fund raising, at the same time that they increased their operation efficiency to expand the profit margin,” explained Bai.

In January, a report by the China Index Academy’s rivals at China Real Estate Information Corp (CRIC) showed that Guangdong-based Country Garden was China’s top developer in 2018, as measured by sales contracts, maintaining its hold on the top spot for the second consecutive year with RMB 728.69 billion in sales.

China Vanke and Evergrande – both of which have held the top sales spot in previous years – placed second and third in the developer race with Vanke boosting its sales by 15.8 percent to total RMB 606.92 billion for the year and Evergrande placing third with RMB 551.1 billion in contracts, up 7.4 percent from its 2017 total.

The report by the CRIC, which is a unit of mainland real estate agency E-House showed that China’s ten largest developers averaged 20 percent growth in contracted sales in 2018.