China Evergrande Profit Halves in H1 as Market Curbs Hit Sales

Just over two weeks after China Evergrande Group warned shareholders of falling profits for the period up to the end of June, the country’s third-largest developer by sales has posted its first drop in returns since 2016.

The Shenzhen-based real estate giant confirmed in a stock exchange announcement that its net profit for the first half of the year had almost halved to RMB 27 billion ($3.8 billion) from RMB 53 billion for the corresponding period last year.

The company’s revenue also fell, down 24 percent to RMB 227 billion for the reporting period after recording RMB 300 billion in the first six months of 2018.

The fall in income comes at what could be a sensitive time for the debt-laden developer.

Its regulatory filing reveals that, having piled up total borrowings of RMB 813 billion, it needs to pay RMB 375 billion in loans falling due within twelve months, with a further RMB 234 billion needing to be repaid before the end of June 2021.

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The company attributed the lacklustre results on a global economy that was “under significant pressure as affected by trade frictions, geopolitical risks and other factors.”

In its bourse filing the developer said that it supported the cooling measures imposed by the government to control the housing market, saying that authorities had acted out of necessity.

Just last month, the Politburo ruled against using the real estate industry to jumpstart China’s stalling economy in a blow to housing developers in the midst of a sales slump.

According to CRIC data, sales at the mainland’s top 100 developers fell 29 percent for the first seven months of 2019.

Last month also saw the China Banking and Insurance Regulatory Commission launch a campaign to weed out loans misdirected into the property sector, which had followed a ban in May on new lending to real estate companies which had not obtained full building consent or had not yet paid land premiums for projects.

“Faced with the complexities in the economic environment domestically and abroad as well as intense industry competition, the group fully understand that housing is for people to live in,” the company said in its statement, adding that it would support the government’s policies to help achieve “stable land prices, stable property prices and stable expectations”.

The company reiterated its explanation included in the profit alert issued earlier this month that the decline in interim profit was due to a 26 percent decrease in the amount of housing delivered during the first half of the year, with revenue collection dependent on the company’s ability to deliver homes to its clients.

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The financial results mark the conclusion to a disappointing reporting period for the company chaired by entrepreneur Xu Jiayin, after Evergrande announced in July that contracted sales had shrunk by more than seven percent in the first six months of the year, falling to RMB 282 billion from the RMB 304 billion recorded from January to June 2018.

Country Garden, China’s largest developer by sales, also reported a drop in new contracts for the same period, with China Vanke being the only developer in the nation’s top three to achieve an uptick in deals signed at the half year.

Last week Evergrande slashed prices by up to 22 percent across 532 of its developments, with Xu Jiayin asking employees to spread the word on social media in a bid to muster up sales.

Country Garden was also offering discounts of up to ten percent at its The Clouds development in Guangzhou.

According to China’s National Bureau of Statistics, developers signed contracts to sell 758 million square metres of new housing from January to June this year, representing a 1.8 percent decrease from the total area sold during the first half of 2018.

New home prices in China’s largest cities rose by an average of just 0.59 percent in July — their smallest increase in five months — as local governments tightened regulations in an effort to cool demand for new land and slow down the housing market.