Caught between rising financing costs and slowing sales, Poly Property announced today that its profits for the first half of 2014 had fallen by 42.2 percent compared to the same period last year. China’s second-largest developer by sales, the state-backed company blamed the disappointing results on increased costs, a decrease in revaluation gains from investment properties and increasing cost of borrowing.
The news of Poly’s struggles came just days after market leader China Vanke released similarly disappointing result, and seems to show that even the country’s biggest developers, who have stronger market and superior access to capital, are also being squeezed by this year’s downturn.
Poly’s Finance Costs Rise by 57 Percent
Although the Hong Kong-listed property giant achieved turnover growth of 8.2 percent compared to last year, its property sales were down by 20 percent year on year, dipping to RMB 13.4 billion. The company’s average selling price was also down by 1.2 percent compared to 2013.
In addition to revenue side struggles, the company’s costs rose as it struggled to change maintain margins while marketing mid-market homes, rather than the high end housing that had previously been its mainstay. The costs of borrowing also rose by 57.6 percent to $53.55 million.
This year the cost of borrowing for many Chinese real estate developers has risen significantly, as banks and other lends worry about the risks of lending to the sector.
In response to the poor results, the company’s board recommended no dividend for shareholders. The company also said that it plans to release just eight new projects onto the market during the second half of 2014, after launching 44 new developments in the period from January to June.
Developers Achieving Mixed Results in the Downturn
On Tuesday Poly’s Hong Kong-listed competitors China Vanke, Country Garden Holdings, China Resources Land and Franshion Properties all reported rising profits during the first half, that growth is clearly getting harder to come by.
Although Vanke still brought in net profits of RMB 4.81 billion ($783 million) compared to last year’s RMB 4.56 billion, the Shenzhen-based company’s 5.6 percent growth rate was a major drop off from the 22 percent growth it recorded during the same period last year.
Vanke seems to have grown its profits primarily through moving more homes at lower prices, as it reported a 14.6 percent increase in the number of square metres sold, but a 1 percent drop in sales revenue to RMB 40.96 billion. Net income still increased to RMB 4.81 billion during the period, compared to RMB 4.56 billion during the first half of last year.
While Country Garden’s profits were healthier, the company is still well under halfway to its target of RMB 128 billion for the year. China Resources Land Chairman chairman Wu Xiangdong also cautioned that the state-run firm’s full year contracted sales could fall short of its RMB 70 billion target after booking only RMB 29,821 in new sales during the first seven months of the year.
Franshion had achieved only 34 percent of its 2014 target by the end of June, and last week Hong Kong-listed Fantasia Holdings cut its sales target after it announced that it had suffered a 68 percent fall in profits during the first half of 2014.