Developers see strong profit growth in 2011

PUBLISHED : Monday, 14 March, 2011, 12:00am
UPDATED : Monday, 14 March, 2011, 12:00am

Mainland developers large and small are benefiting from strong profit growth last year, and analysts predict their profits will also grow strongly this year.

Despite government measures to cool the red-hot market, the volume of home sales last year remained high, backed by genuine buying demand, Lee Wee Liat, head of regional property at Samsung Securities (Asia) told the South China Morning Post.

Lee said that although the new curbs on home purchases announced in January would hit sales volumes, the negative impact on earnings may not hit the bottom line this year.

'A large part of the 2011 earnings are already locked in due to strong sales in 2010. The tightening effect from lower sales this year will only be reflected in earnings for the 2012 financial year,' he said.

The mainland government has ordered provincial capitals and other major cities with skyrocketing housing prices to impose purchase limits. Major cities such as Beijing, Guangzhou, Qingdao, Shanghai, Chengdu and Beijing are the first to implement the policy.

Lee said 2010 earnings for developers were expected to show year-on-year growth of 30 to 40 per cent.

Several developers, including China Vanke, Kaisa Group Holdings and KWG Property Holding, reported last week strong full-year earnings growth.

This week, more mainland developers will announce financial results. They include China Overseas Land and Investment (COLI), Agile Property Holdings, Fantasia Holdings Group and Sino-Ocean Land.

BNP Paribas estimates that COLI's net profit will grow by more than 41 per cent year on year to HK$9.1 billion, ahead of its target of 20 per cent year-on-year growth.

Its full-year contracted sales reached HK$67 billion, well above its target of HK$50 billion. This represented year-on-year growth of 40 per cent from an already high base in 2009, which is in line with most developers' growth, BNP Paribas analyst Frank Chen said in a report.

Other developers are also expected to have good news for investors, with Agile predicted by analysts to announce net profit of 3 billion yuan (HK$3.5 billion), against 1.87 billion yuan in 2009.

In the first two months of this year, Agile achieved contracted sales of 6.7 billion yuan, up 76 per cent year on year. The average selling price for the first two months of 2011 was 13,183 yuan per sq metre, up 24 per cent year on year.

Looking ahead, developers expected overall sales volume to drop due to the curbs on home purchases. But prices would be relatively stable, they said.

Nationwide, home prices rose 0.5 per cent in February, the slowest monthly gain since August, reflecting the impact of government cooling measures.

Lee from Samsung Securities expects a sizeable disparity in performance between developers building mass-market homes in lower-tier cities and high-end developers focusing on tier-one cities.

'Country Garden, Agile Property and Evergrande Real Estate [which build mass housing in inland cities] will continue to do well,' said Lee, who remains optimistic about the outlook. 'I am still expecting volume nationwide to be higher than last year,' he said.

While transaction volumes in the top 30 tier-one and tier-two cities may drop 40 per cent due to the home purchase clampdown, this would be more than offset by rising volumes in lower tier cities, he said.

He said many developers had arranged pre-emptive fund-raising by selling US dollar bonds before the government tightens liquidity this year. Their gearing was relatively comfortable, at around 50 per cent.

Healthy balance

Analysts expect 2010 earnings growth for mainland developers to reach up to this much: 40%