Developers stay positive after profits increase

Gross margins squeezed by rising development costs and booking of lower-margin projects

PUBLISHED : Tuesday, 20 August, 2013, 12:00am
UPDATED : Tuesday, 20 August, 2013, 4:12am

Four mainland developers reported positive interim earnings results and were cautiously optimistic about prospects for the sector despite government attempts to rein in property prices.

Gross profit margins generally declined during the first six months of this year, partly because of rising development costs and the booking of lower-margin projects pre-sold over the second half of 2011 and during the whole of last year.

Developers said margins had bottomed and started to improve. However, none of the four companies declared an interim dividend.

Longfor Properties said net attributable profit grew slightly to 3.85 billion yuan (HK$4.87 billion) from 3.81 billion yuan a year earlier.

Excluding minority interests and revaluation gains, core profit was 2.74 billion yuan.

Liquidity concerns internationally and slowing economic growth on the mainland meant that the real estate market "will be subject to a broad array of uncertainties in the near future", Longfor said.

"But with the new government leadership's push for market-oriented reforms and focus on structural changes of the economy, we believe it will present much longer-term opportunities for the real estate industry," it said.

The property developer and investor said large-scale internal migration was underpinning demand for property.

Last month, new home prices on the mainland increased the most since January last year on speculation that Beijing would refrain from imposing tighter curbs on the market.

Longfor chief executive Shao Mingxiao said he believed the government would continue to regulate the property market, but he did not expect it to issue overly tough measures that would harm the development of the industry.

The developer reported a drop in gross profit margin to 31.9 per cent from 46.1 per cent a year earlier. Shao blamed the decline on the booking of lower-margin projects pre-sold over the second half of 2011 and during the whole of last year, when the market fluctuated.

He said gross margin for contracted sales had improved.

Xue Ming, the chairman and managing director of Poly Property, said the falling profit margin was partly due to growing development costs, such as those for labour and furnishing.

Gross profit for its projects dropped to 31.16 per cent from 36.55 per cent last year.

The developer reported profit attributable to shareholders of HK$1.96 billion, an increase of 83.1 per cent from HK$1.07 billion in the year-ago period.

Turnover jumped 60 per cent to HK$10.36 billion.

Beijing Capital Land saw its gross profit margin drop to 26 per cent from 38 per cent in the year-ago period.

The developer said this was a result of higher profit margins at two projects in the first six months of last year.

Net profit grew 6.33 per cent to 562 million yuan while turnover surged 40.31 per cent to 4.89 billion yuan.

The company generated 6.6 billion yuan from contracted sales in the first half, 8 per cent more than in the same period last year.

President Tang Jun said the company would focus on developing projects for end users in future.

At small developer Fantasia, net profit jumped 58 per cent to 317 million yuan.

Revenue soared 128.3 per cent during the first half to 2.75 billion yuan from the same period last year.

Gross profit jumped 105 per cent, but again, margin dropped, from 41.7 per cent to 37.5 per cent.

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