China’s biggest developer has sold more homes than ever in 2014, but is seeing profit growth compressed by the nation’s housing slump and discounting, according to results released this week by China Vanke.
The Shenzhen-based real estate company declared its financial results for the first half of 2014 and the figures show a company that has to work harder to maintain profit growth. In a statement to the Shenzhen stock exchange, Vanke said that while its sales volume grew by 14.6 percent during the period from January through June, its profit grew by only 5.6 percent.
Vanke’s efforts during the most recent quarter, however, seem to have helped it to recover from much less promising results in the first few months of the year.
Selling More Space But With Less Profit Growth
Although the company owned by property magnate Wang Shi still brought in net profits of RMB 4.81 billion ($783 million) compared to last year’s RMB 4.56 billion, the 5.6 percent growth rate may have been disappointing to investors who enjoyed the company’s 22 percent growth in profits 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.
Prices for one of the nation’s best known property brands, however, seem to be following the country’s housing slump, with average selling rates declining by 12.6 percent.
Recovering from a Q1 Disaster
In its statement to the stock exchange, Vanke pointed to the bright side of its recent results, which is that the company’s performance from April to June was much improved over the first quarter.
During the first quarter Vanke’s total revenues were down 32.16 percent, and its profits down by 5.2 percent compared to the first three months of last year, which means the developer made up considerable ground during the second quarter, in order to achieve its relatively respectable first-half results.
At the time it announced its first quarter performance, Vanke had pointed out that only 6.6 percent of the new projects it had planned to launch during the period had made it onto the market.
A Discount Strategy for China’s Silver Age
Now that the company is bringing in more cash, it attributes its recovery to a change in strategy. Given the lower cost per unit sold and the increase in sales volumes, it appears that Vanke’s strategy is discounting.
During April this year Vanke was cited in the Wall Street Journal as bringing a Beijing project to market at RMB 3000 per square metre less than the expected asking price, and despite the power of its brand name, has been reported as offering discounts on projects in other cities as well.
In its statement, Vanke seems to acknowledge a more competitive market in the future noting that, “The market will see bigger fluctuations in the short term, and companies will see more competition.” Earlier this year the company’s CEO Yu Liang had declared that China’s real estate market was moving out of its golden age, and into its “silver age.”