China property

China’s second-tier cities next in line for property boom, says Shanghai developer CIFI

PUBLISHED : Wednesday, 08 March, 2017, 8:18pm
UPDATED : Wednesday, 08 March, 2017, 9:05pm

China’s housing boom is shifting from its biggest cities such as Beijing and Shanghai to provincial capitals, said Shanghai property developer CIFI holdings after the company posted a 28 per cent growth in 2016 full year net core profit.

First-tier cities are gradually transforming into markets dominated by leasing activities from developing and selling because property prices are already too high and new land supply is very limited, Lin Zhong, CIFI’s chairman, said during an annual results briefing in Hong Kong.

“So second-tier cities, which have just began to feel the heat, will usher in the peak season of home construction and sales and we’re bullish on that,” Lin said.

The homebuilder has shifted it strategic focus from first-tier to second-tier cities and aims to make a foray into a number of smaller cities this year including Shi Jiazhuang in Hebei province, Chengdu in Sichuan province and Nanchang in Jiangxi province, as well as to enhance its presence in Guangdong province.

He added that some of the second-tier cites may see new home prices double over the next three to five years.

Second-tier cities, which have just began to feel the heat, will usher in the peak season of home construction and sales and we’re bullish on that
Lin Zhong, CIFI’s chairman

CIFI’s net core profit, excluding property revaluations and foreign-exchange losses, rose to 2.82 billion yuan (US$408 million) from 2.2 billion yuan a year earlier.

Net profit rose 34 per cent to 2.8 billion yuan, thanks to a big increase in recognised home sales during the period.

The company’s foreign exchange losses caused by the yuan’s devaluation improved to minus 64 million yuan from minus 302 billion yuan by the end of 2015, partly helped by exchange risk hedging tools.

Lin believes the local government price caps imposed on new homes in some cities to curb the property bubble are unlikely to be lifted within the year.

Under the policy tightening, CIFI will accelerate its inventory clearance and cash out in order to secure profit before a foreseeable market correction in the second half, he said.

In Beijing and Shanghai the company is looking to buy office buildings and long-term leasing apartments in a bid to boost recurring income.

CIFI has expanded into more than 15 mainland cities, mostly in the Yangtze River Delta and the Pan Bohai Rim, with a land bank of 17.5 million square metres.

The builder has set a contracted sales target of 65 billion yuan for 2017 after achieving 53 billion yuan last year.

The board of directors proposed a HK$13 cents per share final dividend, bringing the total dividend to HK$17 cents per share for 2016, compared to 14 cents for 2015.

CIFI’s shares trading in Hong Kong closed 0.37 per cent lower on Wednesday to HK$2.71.