Hong Kong-listed Fantasia Holdings became the first mainland developer to cut its sales target this year after it announced late last week that it had suffered a 68 percent fall in profits during the first half of 2014.
The Shenzhen-based company’s struggles are seen as a possible harbinger of problems for other developers in China’s real estate industry, as they strive to keep up with the blistering growth achieved in 2013.
In Fantasia’s case, there may be even greater difficulties, as the firm founded by the niece of a former vice president of China is also said to have been caught up in the current government’s anti-corruption drive.
Reducing Targets by 33 Percent
In a statement to the Hong Kong stock exchange on Thursday, Fantasia announced that it had reduced its sales target for 2014 to RMB 10 billion ($1.62 billion) from the RMB 15 billion ($2.44 billion) figure set at the beginning of the year.
The adjustment came after Fantasia, which operates both as a property developer and manager in China, reported a 68 percent drop in profits for the period from January to June 2013, to RMB 101.42 million. Sales for the 18-year-old company were down 44 percent over the same period to RMB 2.27 billion.
Fantasia’s shares closed the day on Friday down 4.3 percent to HK$0.90 per share compared to the closing price on Wednesday, before these latest results were announced.
According to a survey of 288 cities across China published by the China Index Academy at the beginning of this month, average home prices fell 0.13 percent last month compared to June to RMB 10,835 (US$1753) per square metre. The fall came at a faster pace than the 0.06 percent average decline that the June edition of the survey had revealed and marked the fourth straight month of falling average prices.
Shui On Land Also in Trouble
Fantasia is not alone in its struggle to maintain its business in the midst of a slumping market, as its Shanghai-based competitor Shui On Land Ltd also warned on profits last week.
In its own statement to the Hong Kong exchange on August 13th, the developer which became famous for its landmark Xintiandi project in Shanghai, projected that its first half earnings would fall 25 percent compared to 2013. The developer did not comment on what it expects for the full year of 2014.
Following the bad news from Shui On and Fantasia, as well as the drumbeat of sliding statistics from private and government market surveys, many analysts are expecting other developers to adjust profit and sales forecasts for 2014 as first-half figures continue to roll in.
In a report in the South China Morning Post, Edison Bian, chief China property analyst at UOB Kay Hian in Hong Kong, pointed to developers Poly Property, Shimao, CR Land, Sino Ocean Land, Guangzhou R&F, Kaisa and Longfor as also likely to facing difficulties in meeting their targets.
Political Connections Boomerang on Fantasia
Also last week officials at Fantasia refused to comment on media reports that its founder and executive director Baby Zeng Jie was being investigated for ties to fallen former Politburo member Zhou Yongkang.
Stories in the press had tied Zhou’s son Zhou Bin to partnerships with Fantasia, and Zeng’s uncle, former Chinese vice president Zeng Qinghong is said to have ties to Zhou Yongkang.
Zeng Jie did not appear at the event announcing Fantasia’s financial results in Hong Kong on Wednesday.