Capital Gains Tax

China developers' profits fall as debt rises

Aggressive sales and marketing strategies boost cash flow for some but stringent housing market controls push up net gearing ratios

PUBLISHED : Friday, 24 May, 2013, 12:00am
UPDATED : Saturday, 25 May, 2013, 5:24am

Mainland developers recorded higher debt ratios and falling net profit last year amid stringent controls on the housing market, a survey has found.

The research, which surveyed 184 mainland developers, all listed in Hong Kong, Shanghai or Shenzhen, was conducted by the China Real Estate Research Association, China Real Estate Association and China Real Estate Appraisal.

These listed companies' net gearing ratio last year climbed nearly 9 percentage points to 64.4 per cent, from 55.6 per cent in 2011, the study revealed.

"Although some developers launched aggressive sales and marketing strategies which boosted their cash flow and lowered the liquidity pressure, this industry's gearing ratio was still wandering around the historical high level," the study said.

"Despite listed developers speeding up their pace to seek overseas financing, the funding channels were still limited," it continued.

The number of developers that posted a drop in operating profit rose to 87 last year from 26 in 2011, the study said.

The average net profit of the 184 companies last year was down slightly by 0.5 per cent to 1.18 billion yuan, as some developers faced higher operating costs, although their average revenue grew more than 12.3 per cent to 6.28 billion yuan.

The study ranked China Vanke, the country's largest developer by market value, as the most competitive developer for the sixth year after assessing factors such as profitability, operating efficiency and scale.

Poly Real Estate Group jumped from fourth place to second. It is followed in the list of top five firms by Evergrande Real Estate Group, China Overseas Land and Investment and China Resources Land.

The central government has been using methods such as purchase and mortgage restrictions in the past few years to try to stop home prices from soaring.

On March 1, the State Council told local governments to strictly follow all policy guidelines introduced to cool the property market.

The policy guidelines include levying a capital gains tax at a rate of 20 per cent, first announced in 1994 but never strictly enforced.

Wang Zhenhua, chairman of Future Land Development Holdings, said he believed the government would expand the property tax, which is currently imposed in Shanghai and Chongqing, to the entire mainland.

Wang said that the mainland could also follow Hong Kong by imposing stamp duty on buyers to control home prices.

He said he expected the mainland home market to remain stable, with prices climbing by about 10 per cent this year.