Thanks to a year of super-charged real estate sales, Evergrande Group unseated 2015 champion China Vanke to become the mainland’s largest property developer by sales for 2016.
The shift in the top ranks of China’s homebuilders came as the three largest developers recorded an average increase in sales of nearly 82 percent over their 2015 performance, following moves by the government to loosen lending practices and encourage home sales.
Top 10 Developers Enjoy Banner Year
China Evergrande reported total contracted sales of RMB 373.73 billion ($53.9 billion) in 2016, an increase of 85.4 percent over its performance the previous year, according to a filing with the Hong Kong stock exchange on Friday. Vanke, which placed second in 2016, saw its sales climb by 40 percent to RMB 364.77 billion for the year, while Country Garden Holdings came in third by growing its sales by 120.35 percent to RMB 308.8 billion during the same period. Combined, the top three developers, all of which are based in Guangdong province, had contracted sales of RMB 1 trillion in 2016.
Taking the fourth through tenth spots in China’s mainland property derby were Greenland Group with sales of RMB 258 billion, Poly Real Estate Group with RMB 210 billion, China Overseas Land and Investment at RMB 202 billion, Sunac China at RMB 150 billion, China Fortune Land Development at RMB 120 billion, Greentown China Holdings with RMB 114 billion and China Resources Land coming in tenth with RMB 108 billion, according to data compiled by China Index Academy, an arm of mainland property portal Soufun.
Together, the nation’s top 20 builders took up more than a quarter of the market last year, raking in combined sales of RMB 2.98 trillion. That’s up from 1.96 trillion yuan, or 22.4 percent of the market in 2015.
Loose Lending Favors Large, Aggressive Players
The burst in sales for the top developers comes in a year when double-digit home price increases in many mainland cities fueled fears of a property bubble. After several rounds of interest rates cuts and loosening of restrictions on home purchases in 2014 and 2015, China’s housing market roared back in early 2016, before authorities began clamping down on home sales again during the second quarter.
Throughout the ups and downs of China’s recent housing market cycles, Evergrande has been among the industry’s most aggressive players, acquiring projects and piling up debt to build market share.
In 2015, credit ratings agency Moody’s Investors Service criticised Evergrande’s HK$6.5 billion ($839 million) acquisition of three Chengdu projects amounting to more than 374,000 square metres of space, citing concerns over the company’s debt leverage.
An April 2016 report by Bloomberg put the company chaired by billionaire Xu Jiayin at a 6.2 percent chance of defaulting on its debt obligations in the next year. Undeterred, Xu went on to pay RMB 3.6 billion ($553.8 million) for a 52.78 percent stake in Shenzhen-listed real estate developer China Calxon Group later that same month.
While these aggressive moves have helped Evergrande win the top spot for sales, they have not always been helpful to the developer’s bottom line. During the first half of 2016 Evergrande Real Estate’s core net profits fell by 23 percent as the company’s rising revenues failed to offset higher costs, including a three-fold increase in its cost of financing.