New | Chinese developer Shimao says annual core profit fell 22 per cent, weighed by push to sell inventory in small cities

Shanghai-based Shimao Property said its annual core profit fell 21.5 per cent to 7.91 billion yuan (HK$9.47 billion), as the company struggled to trim its inventory of lower margin properties in smaller Chinese cities.

Revenue increased by 2.9 per cent to 57.7 billion yuan, while its gross profit margin declined to 28.5 per cent, from 32.5 per cent a year ago.

“We have cleared one-third of our unsold units, mainly in third and fourth-tier cities, and that has affected our margin,” said Jason Hui Sai-tan, vice president at Shimao Property.

The developer has already expanded to more than 40 mainland Chinese cities, however, the oversupply and weak sales in lower tier cities have slowed its growth in recent years.

Hui said they will follow the principle of “sales based production” when it comes to smaller cities, and not build new flats if the inventory is not cleared.

“It may take five or more years to clear stock in some cities,” he said.

For the unused land banks in those cities, Hui said they may return some of them to local governments, or seek partners to share risks.