Xu Jiayin says Evergrande boosted sales by 25 percent in 1H 2015
China’s listed property developers are issuing their financial results for the first half of 2015, and the reports show an industry continuing to consolidate, even as the housing market rebounds.
With more than 60 property firms having reported on their performance for the first six months of 2015, more than half failed to achieve profits of 10 percent or more. At the same time, several of the top ten developers are reporting profits of 30 percent or greater.
The diverging fortunes of the country’s developers appear to point to a future of further industry consolidation, as rising land prices and slower sales tilt the playing field toward companies with superior financial resources.
Sales Improving But Profits Still Squeezed
Following a series of easing measures, China’s real estate market has rebounded in 2015 after a nearly year-long slump.
Growth in average prices for new homes has been positive nationwide for the past four months, and transaction volumes have also increased after the government lowered down payment requirements in March. The market has also benefitted from several rounds of interest rate cuts since November last year.
The result has been a 16.8 percent increase in revenues for China’s biggest developers compared to the same period last year, with revenues for the top ten builders rising by RMB 4.4 billion in January through June. According to a report by Moody’s, contracted sales for the 20 developers tracked by the credit rating agency grew by 12.3 percent in the first half of the year.
Good Results for Some Big Companies
The improving sales environment has produced encouraging results for some of the biggest developers.
Top-five developer Evergrande Real Estate declared that it achieved contract sales of RMB 87 billion in the first half, up 25.7 percent compared to the same period in 2014. China Overseas Land & Investment reclaimed its position as China’s most profitable developer with net profit of RMB 11.2 billion (US$1.7 billion) for the period.
For shopping mall developer Dalian Wanda Commercial Properties Company, revenue from property development rose 28.8 percent during the first half, compared to the same period last year. However, the company’s contracted sales grew by 10 percent in the period from January to June, down from 27 percent year-on-year growth in the first six months of 2014.
Many Developers Still Struggling
While some industry heavyweights were enjoying the benefits of the housing recovery, many others continue to encounter challenging conditions in 2015.
Top ten developer Greentown China Holdings reported this week that its core net profit fell to RMB 615 million during the first half, as it was forced to cut prices to move excess inventory. For Beijing-based Longfor Properties, gross profit dropped by 9.8 percent in the period from January to June, while competitor Sino-Ocean Land suffered a 12.9 percent slide in gross profits.
With more than 60 property developers having reported their results so far, more than half have achieved profit margins of less than 10 percent.
Troubled Shanghai-based builder Shui On Land recorded turnover of RMB 2.03 billion during the period, a decrease of 61 percent compared to the RMB 5.24 billion in achieved during the same six months of 2014.
Just under 50 percent of the companies reporting have said that their net profits have fallen compared to the same period last year.
Supply of Projects in First Tier Cities May Determine 2H Performance
With China’s housing recovery being led by sales in first tier cities, having a supply of new projects in Beijing, Shanghai, Shenzhen and Guangzhou has become a major determining factor in developer success in 2015.
Throughout the last four months of recovery in the housing market, the country’s biggest cities have usually led in terms of sales volumes and price growth as urbanisation and the growth of China’s service sector has fuelled demand for housing in the first-tier cities.
Growth in average home prices in Shenzhen led all cities nationwide last month with a 6.26 percent increase compared to June. Next in line were Shanghai with a 1.65 percent increase, Guangzhou with 1.19 percent and Beijing with 1.07 percent. The number five city was Hangzhou, which achieved only 0.86 percent growth.
Many smaller communities are still struggling to sell off housing built during the recent boom, with China’s stock of buyerless housing continuing to hold down prices in smaller cities. During July the stock of unsold homes rose to 430 million square metres nationwide, an 18.1 percent increase compared to the same period of last year.
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