China's property developers face uphill battle

China's property developers face an uphill battle as home sales decline and profits shrink.

Among the 117 developers listed on the Shanghai and Shenzhen stock exchanges, 61 posted shrinking profits or even losses for the first three months, according to statistics compiled by property agency Centaline Property published on Tuesday.

Total net profits of the 117 developers stood at 9.65 billion yuan (about $1.55 billion) for the first quarter, down 27 percent from the same period last year, the data showed.

The results should not come as a surprise as China Vanke, the country's largest real-estate developer by revenue, posted on April 29 its first quarterly profit decline since 2002.

The Shenzhen-based China Vanke, widely seen as a bellwether for the residential market in China, registered a 5.2 percent drop in first quarter profits with a whopping 32 percent fall in revenue.

The disappointing performance came amid falling home sales nationwide. Official data showed sales of residential property dipped 7.7 percent during the first quarter to 1.1 trillion yuan, while sales by residential area contracted 5.7 percent to 178.25 million square meters in the same period.

Developers have also been languishing in the land auction market.

The top 20 developers by home sales have bought less land in the first four months. The value of the land they bought decreased from 60.1 billion yuan in January to 32.56 billion yuan in February, then continued to drop to 25.45 billion yuan in March to April's 13.3 billion yuan, according to Centaline Property.

Declining sales along with shrinking profits and land purchases all point to a property market that has lost steam.

Zhu Zhongyi, vice president of China Real Estate Association (CREA), attributed the weak figures for the first quarter to the high comparison basis for the same period last year and rigid lending.

Home sales saw "explosive" growth in early 2013, as people scrambled to buy homes ahead of the implementation of a new tightening measure on March 31 of last year requiring higher down payments and a 20-percent capital gains tax, said Zhu.

Added to the property market woes is a credit crunch for both developers and buyers, Zhu added. Stringent bank loans since the end of last year have dealt real estate firms, particularly smaller ones, a blow in securing their funding chain.

More supply of government-subsidized housing for low income earners has diverted a portion of demand and dented the market, said Hu Jinghui, vice president of the Beijing-based property consultancy Bacic & 5i5j.

The introduction of real estate registration nationwide has also contributed to the lukewarm property market, Hu said.

More low-income housing and credit tightening have locked real estate firms and potential buyers in a stalemate. Potential buyers are taking a "wait and see" attitude and the developers are wooing buyers with lower prices, said Zhang Dawei, chief analyst at Centaline Property.

Suppressed demand and more difficult credit access have sent smaller developers reeling. A small developer in Fenghua in east China's Zhejiang Province went bust after it defaulted on a 3.5 billion yuan debt earlier this year.

Others that barely survived have resorted to price cutting.

In Hangzhou, a city that rests by the picturesque West Lake in Zhejiang, developers made price cuts in the hope of getting apartments off their books faster, a move that caused jitters that the bubble of the country's property market has neared its bursting point.

Some developers slashed prices by more than 30 percent, indicating pressure to clear their inventories.

The weak demand has also forced both government and developers into action. The city of Nanning in southwest China's Guangxi Zhuang Autonomous Region relaxed its policy on home purchasing in late April.

More second-tier cities are expected to loosen their grips over property curbs if demand remains subdued.

Most analysts interviewed by Xinhua said they expect the property market to continue cooling down this year, and housing prices in cities with large inventories are very likely to see more price declines.

Housing prices in first-tier cities and most second-tier cities are unlikely to experience "big corrections," said Zhang of Centaline Property.

But this prediction is based on the presumption that the confidence of potential buyers in big cities will remain strong and the "wait and see" mood will not spread to more potential buyers, Zhang added.