Lower prices challenge property developers

Workers at a property project in Chenzhou, Hunan province. Property developers are facing the pressure of a decline in net profits in the first half of 2014. [Photo/China Daily]

Major players struggle to maintain growth as home inventories mount

China's property developers are facing the pressures of a decline in net profits in the first half of 2014, a rising inventory, the cooling of buyers' expectations and price corrections.

The total net profits of 82 real estate companies that have released first-half financial reports dropped 3.57 percent to 20.098 billion yuan ($3.268 billion) from 20.841 billion yuan in the same period last year, according to the Shanghai-based Wind Information Co Ltd.

The four major developers, which are regarded as the benchmark of the property market, struggled to maintain growth.

China Merchants Property Development Co Ltd recorded net profits of 1.785 billion yuan, 30 percent less than the first six months in the previous year.

Gemdale Corp's first-half net profits decreased by 49.41 percent year-on-year to 158 million yuan.

Gemdale said the drop could be attributed to price cutting in a bid to sell more homes. In addition, some low-margin products entered into the carry-over period, which increased management and marketing costs.

The company said it will continue to focus on reducing inventory in the second half.

With some local governments choosing to loosen their restrictions on homebuying, and the continued sluggish land market, there will be some investment opportunities.

China Vanke Co Ltd performed better in the period as its net profit edged up 5.55 percent year-on-year to 4.81 billion in the first half of 2014.

But its profit growth was much slower in the first six months of this year compared with the 22 percent increase in net profit in the first half of 2013.

Vanke President Yu Liang said in a report on the website of the Shenzhen Stock Exchange that the business environment will be better in the second half of this year.

Poly Real Estate Group Co also recorded an increase in first-half profits. Its half-yearly report shows net profits increased by 12.19 percent to 3.82 billion yuan.

The government's fine-tuning of the once-hot property market has become more targeted and market-oriented. It said the central bank stressed appropriate allocation of credit resources in May, as well as credit support for families buying first homes.

China's property market is experiencing a downturn and putting pressure on developers. In July, even major cities saw housing prices decline, according to figures from the National Bureau of Statistics.

Zhang Dawei, director of market research at Beijing-based Centaline Property Agency Ltd, said the decrease in net profits was mainly because of real estate companies' weaker profitability.

"With tightened credit since early 2014, developers' total sales went up while their selling prices went down," said Zhang.

Zhang said as the property market keeps cooling, it is difficult for developers to bounce back strongly.

However, some experts said the outlook for the full-year performance of these major developers is still positive. The current settlement of profits is usually based on the sales in the past one or two years, and China's property market was booming during that time.