China Vanke H1 Net Profit Surges 30% to RMB 11.8B

China Vanke, the country’s second largest developer by contracted sales, has posted a 30 percent surge in net profit attributable to shareholders for the first half of the year, according to a stock exchange announcement.

Despite cooling measures implemented by Beijing to keep a lid on China’s housing market, the property giant saw net profit attributable to shareholders climb to RMB 11.8 billion ($1.8 billion), up from RMB 9 billion recorded in the first six months of 2018.

The Shenzhen-based company’s improving profits were driven by an upswing in revenue, which rose 33 percent to RMB 139.3 billion for January to June this year, compared with RMB 104.9 billion for the same period last year.

During the first six months of 2019 China Vanke also made preparations for its future sales by acquiring 54 new development projects totalling a planned gross floor area of 13.73 million square metres (147.5 million square feet).

The developer’s robust half-year figures come only five months after a 12 percent sales slump prompted chairman Yu Liang to order the sale of shares worth HK$7.8 billion ($990 million) to pay down overseas debt.

Challenged by a “Complicated” Market

Against a backdrop of tighter central government control of the real estate industry in accordance with Beijing’s principle of “houses are for accommodation, not for speculation”, the property giant stands alone among China’s top three developers in logging an increase in contracted sales for the first half of the year.

While rivals Country Garden and Evergrande saw contracted sales decline 5.9 percent and 7.6 percent respectively during the first six months of the year, compared with the corresponding period last year, Vanke signed new contracts worth RMB 334 billion — a year-on-year increase of 9.6 percent.

The developer said in its regulatory filing that, despite its strong performance during the first half of the year, the macroeconomic environment remained challenging due to intensifying regulations and variations between markets in different regions.

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

Last month, new home prices in China’s largest cities rose by an average of just 0.59 percent — 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.

Vanke Faces Challenges with City Town Developer Strategy

The developer said it is facing the current environment by positioning itself as a “city town developer and service provider”.

“The overall economy continues to face various risks and challenges in the second half of the year,” China Vanke said in its bourse filing, as efforts are made by regulators in China to clamp down on debt levels.

Just last month, the Politburo ruled against using the real estate industry to jumpstart the stalling economy, while the China Banking and Insurance Regulatory Commission launched a new campaign probing for bank loans misdirected into the property sector.

In May, the Commission banned new loans to developers that had not obtained full building consent or paid the full land premium for projects.

Following China Vanke’s 12 percent sales slump in February, chairman Yu Liang had said in an internal briefing that the company’s goal was to “tighten its focus” in order to ensure the developer’s survival in the face of the current macroeconomic uncertainty.

Vanke’s chief told attendees at the company’s annual general meeting on June 28 that the developer’s strategy of focusing on survival has not changed and that it continues to focus on projects in the country’s first and second tier cities.

HNA Helps Vanke Add to Office Portfolio

While China’s regulators continue to tighten their grip on the housing market, Vanke added to its commercial portfolio by snapping up an office building in Beijing from HNA Group last month.

That acquisition from the beleaguered Hainan conglomerate allowed the Shenzhen government-backed developer to acquire the remaining 75.1 percent of Beijing HNA Plaza for RMB 1.3 billion.

In June, the Shenzhen residential giant had already agreed to pay the parent company of Hainan Airlines RMB 430 million for 24.9 percent of the property in June.