As buyer sentiment declines and new policies fall short of expectations, the real-estate environment in China has yet to show any widespread improvement.
Photo by Fan Jianlei
By HUANG Yu
China’s real estate market is showing few signs of recovery. Out of 70 listed property developers, 44 expect to make losses in H1. Last year, more than half reported profits.
LIU Shui, director of corporate research at the China Index Academy, said that the first half of this year had its ups and downs. In Q2, buyer sentiment declined, and real estate policies fell short of expectations. The financing environment has yet to see any obvious improvement.
The main reasons for the decline in profits were lower margins, provision for asset impairment, and less investment.
Shui said some developers performed adequately, with increased deliveries driving revenue growth. However, sustained profitability depends on long-term operational stability.
Country Garden Group, once the largest in terms of sales, has faced profit pressure since last year and expects to make a loss. Country Garden's profit for the first half of last year also declined, but it still maintained profits of about 600 million yuan. The second half was less impressive, and Country Garden reported a net loss for the whole of last year.
The continued losses are mainly attributed to the impact of the downturn in the real estate industry, as well as anticipated exchange-rate losses due to currency fluctuations.
Apart from private property developers like Country Garden, the list of loss-making firms includes several state-owned enterprises. Beijing Capital Development, Financial Street Holding, and CCCG Real Estate are expected to incur losses of between 500 million yuan and 2.2 billion yuan.
Also state-owned, Overseas Chinese Town is suffering serious losses, perhaps as much as 1.7 billion yuan in H1, compounding the losses seen last year, and it's mostly down to asset impairment. A "flexible" sales strategy is expected to mean reduced prices.
Last year, Overseas Chinese Town attracted attention with a total of 12.7 billion yuan in provisions for impairment in 2022. Impairment of inventory – falling prices – alone accounted for 11.5 billion yuan. In contrast, in 2021, the provision for inventory impairment was only about 1.3 billion yuan.
Overseas Chinese Town lost 10.9 billion yuan in 2022. In July, after inquiries from the Shenzhen Stock Exchange, the former chairman, current general manager, and former financial administrator received warning letters due to inadequate impairment provisions in previous years.
Amidst the overall gloomy situation, some have done quite well.
Poly Real Estate Group is expected to make 12 billion yuan in H1, a year-on-year increase of 10.8 percent. Poly’s revenue reached 138 billion yuan, up by more than a quarter. Sales of 237 billion yuan, a year-on-year increase of 12.6 percent, took Poly past Country Garden and the government-backed real estate group now ranks first on the sales list.
Another state-owned enterprise, China Merchants Property, reported net profits up by 14 percent.
Property developers have gone through two grim years and business may not improve any time soon.
Country Garden remains cautious. Given the unpredictability of the macro economy and real estate market, the company must ensure cash flow while delivering properties and safeguarding people's livelihoods. Country Garden will also seek the guidance and support of the government and regulatory authorities.
For the second half of the year, any recovery won't show up until the fourth quarter. Homebuyers are worried about their household income, and expect prices to keep falling. They are especially uninterested in purchasing unfinished properties, as has been the norm for years.
Based on this, Liu Shui anticipates a batch of new policies in H2. With the slow recovery of homebuyer sentiment and massive debt trauma all around, there are still plenty of twists and turns to come in the real estate market this year.
