Listed property developers earn less in Q3 amid downturn

A majority of 80 listed Chinese property developers earned less profits in the third quarter, with a few companies suffering losses, amid a continuing downturn in China's property market, latest financial results show.

On Wednesday, Shanghai Lujiazui Finance & Trade Zone Development said in its report to the Shanghai stock exchange that its net profits in the third quarter stood at 409.6 million yuan (66.6 million U.S. dollars), tumbling 45 percent from a year ago.

For nine months ending on Sept. 30, net profits of Shanghai Lujiazui dropped 10.5 percent year-on-year to 986.7 million yuan.

Lujiazui, one of the top 10 developers in the Shanghai stock market measured by market capitalization, is not the only developer seeing less profits.

According to Wind Information, a financial data and information provider, 48 out of the 80 listed developers which had disclosed quarterly financial results earned less in the third quarter.

Combined net profits of the 80 A-share listed developers amounted to 28.48 billion yuan in the third quarter, a year-on-year decrease of 9.7 percent, Wind Information data showed.

In comparison, the 202 A-share listed property developers achieved a total net profit of 102 billion yuan in the first half of 2014, up slightly by 0.99 percent from a year earlier.

In the third quarter, some listed developers even reported their first quarterly loss in history.

Shanghai-based Rongfeng Holding posted a loss of 32.95 million yuan in the third quarter. Another developer Shanghai Jinfeng Investment warned that it could suffer a loss of 231 million yuan in the third quarter.

A quick review of these developers' financial results suggested that limited income balance, higher operational costs and declining gross profit margin had become a new normal for developers in the third quarter.

Wind Information data showed that their gross profit margin stood at 34.18 percent in the third quarter, down 0.01 percent from the first half or 1.65 percent from the first quarter.

Meanwhile, the ratio of operational cost to business revenue had rose to 3.5 percent in the third quarter, compared to the 3.22-percent in the first half.

Since the beginning of 2014, the Chinese property market has suffered a notable downturn, with falling prices and sluggish sales. Weak market sentiment, home buyers' confidence, sluggish sales, falling prices and rising inventory all weighed on the industry's outlook.

Official data showed that out of 70 major Chinese cities, new homes in 69 saw month-on-month price declines last month. The only exception is the southeastern city of Xiamen, where home price remained flat from the previous month.

The developers' quarterly financial results came in alongside other statistics that showed slower growth in real estate investment and property sales.

In the first nine months of 2014, China's property investment rose 12.5 percent year on year, 0.7 percentage points slower from the growth in the January-August period, while property sales went down by 8.9 percent year on year during the Jan.-Sept. period, with residential property slumping 10.8 percent.

To avoid a sharp slowdown in the property market, China on Sept. 30 unveiled eased mortgage measures for home buyers in a joint announcement by the People's Bank of China, the central bank, and the China Banking Regulatory Commission.

According to the announcement, mortgages on second homes will be treated as a first mortgage if the buyer has no other outstanding mortgages.

The relaxation of mortgage lending rules seems to have helped improve market sentiment and sales through the first three weeks of October, said Wang Tao, chief China economist with UBS.

"We expect more positive property sales data in October and the fourth quarter, but do not expect underlying starts and construction activity to pick up visibly in the months ahead," she said.

Given the inventory overhang and the fundamental shift in supply/demand balance and outlook for the sector, Chinese developers are expected to continue focusing on improving sales whilst cutting back on land purchasing and new starts activity, Wang added.