Last Wednesday, the day after Country Garden Holdings reported a 172 per cent jump in last year's net profit to 4.14 billion yuan (HK$4.52 billion), word was out that another property developer in the Pearl River Delta area might shelve its Hong Kong listing. Guangzhou-based developer Evergrande Real Estate Group tried hard to raise HK$16.6 billion with a new share sale. But despite taking the unusual step of extending its retail offering by one day, it failed to get enough subscriptions and had to scrap the listing on Thursday. Evergrande is said to have fallen victim to the current downturn in the mainland's property market. A People's Bank of China survey of 20,000 mainland households last month indicated that only 14.6 per cent had any plan to buy a home in the next three months, down 1.3 percentage points from January and off 1.9 percentage points from the same month last year. For listed Country Garden, market watchers are looking beyond the phenomenal results to ask a number of questions. Is Country Garden, which built its reputation and market value on quick sales of mass residential projects, just as vulnerable? Can it sustain growth momentum at a breakneck pace? Does its business model of churning out assets quickly work in the face of the central government's austerity measures? Country Garden chairman Yeung Kwok-keung pledged last week that the company would be able to book revenue of 32 billion yuan on a gross floor area of 5.5 million square metres this year. The forecast for both items is double that of last year's. The company, which has the largest land bank among mainland developers, said that so far 24 per cent of its bookable gross floor area was achieved and 10 per cent of the sales target attained. To curb speculation in the red-hot residential property sector, the central government has put in place a number of austerity measures since September last year, including a 10 per cent increase on down payments, higher mortgage rates for those buying second homes and various interest-rate increases. Earlier this month, Premier Wen Jiabao also said macro-economic controls would continue this year. Mr Yeung was quick to point out that Country Garden operated mainly in the peripheral areas of urban centres or in the third- and fourth-tier cities, 'where home prices have not yet surged and speculation has not yet surfaced'. As such, his company was not 'in the target range' of the central government's austerity campaign, he said. 'There are more than 2,000 counties in the country where residents are looking for better homes,' said Mr Yeung, implying that real demand for homes was still strong. Derek Kwong, a property analyst at Morgan Stanley, agreed. 'Country Garden's projects will be less affected than companies with projects in the first-tier cities,' he said. Listed in April last year, Country Garden has a developable land bank with land-use rights for 43 million sqmetres spread across 22 cities in Guangdong, Hunan, Anhui, Jiangsu, Liaoning, Hubei, Chongqing and Inner Mongolia. The company caters mainly to the grassroots, selling mostly homes priced in the mid-range of between 5,000 yuan and 5,300 yuan per square metre. Founded by a farmer-turned-landlord, it has made a name for itself by selling a 'realisable dream' - affordable modern living, albeit in less accessible areas. UBS said Country Garden focused on a simple idea: churn out assets quickly. Selling properties with speed and in volume had enabled the company to sustain earnings growth and recycle cash to maintain financial strength, the brokerage said. Some analysts believe, however, that irrespective of its business model, Country Garden is unlikely to escape the austerity measures unscathed. Every property developer would be affected to some extent by the unfavourable market sentiment. 'If potential buyers believe property prices will fall, they will hold off their buying decisions,' said CCB International analyst Cheng Wai-mo. Li Kwok-suen, a fund manager at Philip Capital Management, also said the company's sizeable land bank could backfire, drawing government attention as it implemented its stated policy to prohibit land hoarding. Country Garden's share price has dropped more than 30 per cent since the beginning of the year. While still trading above its subscription price of HK$5.38, the stock is way off the peak of HK$13.76 it hit on September 21.
