Property developers feel the chill despite regulatory boost

Experts expect the market to bounce back this year, but before that, property developers must survive.

Photo from CFP

Photo from CFP

 By HUANG Yu

 

A total of 55 Chinese publicly listed property developers have released earnings preannouncements by February, most of them expect losses. They are not only private companies struggling with debts, but also state-owned giants.

The industry began to stumble in 2021, triggered by the astronomical debt of Evergrande.     

High premiums, low profits

LIU Shui from the China Index Academy expects the market to stabilize and take a brighter turn this year. But before that, property developers must survive.

Poly Real Estate and China Merchants Shekou Industrial Zone Holdings, two of the largest state-owned property developers, both expected a slide in profits, with Poly’s down by a third to 18.3 billion yuan (US$2.7 billion) and China Merchants down almost two-thirds to 3.8 billion yuan.

It is not surprising. When Poly’s profit in 2021 shrank by 5.4 percent, the company said as many of its properties under construction came with high land premiums, gross margin was more than likely to shrink more, and so would profit.

Biggest losers

But shrinking margins are not enough to explain the huge losses of some developers. The pandemic, regulations and misuse of cash flow have pushed many companies to the brink.

Among them is RiseSun Real Estate, which posted the worst annual earnings by far. The company, already facing a debt default, lost a stunning 25 billion yuan last year, expanded from only 5 billion yuan in 2021.

RiseSun blamed the impairment of assets led by a weakened market and the pandemic.

Languang Development based in Sichuan Province expected its loss to expand from 14 billion yuan in 2021 to 22 billion yuan last year. Languang said despite new policies last year, the market didn’t turn up. The company is also troubled by debt, which damaged its image and pushed down the values of its property.

Change is good, mostly

Facing the fact that margins won’t improve anytime soon, developers are seeking change. China Merchants downgraded branch offices with poor performances – mostly lower-tier cities – and established a new branch in Central China’s Changsha to seek new market.

CR Land Group’s chairman LI Xin told his employees at a company conference that everyone should “brace for a tougher year ahead.” Destocking and lowering costs are priorities this year.