China property

Sunac says China’s price control policies are the ‘toughest ever’

Sunac’s chairman says he’s very negative on the long-term prospects of the country’s property industry.

PUBLISHED : Tuesday, 28 March, 2017, 4:13pm
UPDATED : Tuesday, 28 March, 2017, 7:05pm

Sunac China Holdings, with its first profit decline since 2010, said the country’s home developers face unprecedented challenges from a government push to cap prices, underscoring its push to diversify its business with its January investment in LeEco.

“This round of policy control has a particularly far-reaching effect on the market,” Sunac’s chairman Sun Hongbin said during a press conference in Hong Kong. “Home sales will be largely impacted in the second half, and I am very negative on the market as a whole in longer term.”

The Tianjin-based developer’s 2016 net profit fell 25 per cent to 2.48 billion yuan, even as sales jumped 54 per cent to 35.34 billion yuan (US$5.13 billion), compared with a year earlier. Contracted sales rose to a record 150.6 billion yuan last year, which will be reflected in the 2018 results when the developer books the completed transactions by home buyers.

More than 30 mainland cities have rolled out home-buying restrictions, price limits and other policies since last October to cap runaway home prices and ensure political stability during the Communist Party’s election year, when the Chinese leadership goes through its once-every-five-year change.

Beijing’s municipal government piled on with the restrictive policies this week, barring the city’s developers from selling quasi-residential commercial projects, which account for a third of market transactions to individuals. The Chinese capital also increased the minimum down payment on homes to equivalent to 80 per cent of the property’s value.

Sunac said it will abide by the government’s price cap, while accelerating sales of its residential projects in 2017 to maintain the company’s growth rate.

Contracted sales will rise by 40 per cent to at least 210 billion yuan for 2017, and may surpass 500 billion yuan after three years, the company said.

Risks in the home development and construction industry is very high, given the cost of acquiring land. The risks are worsened by local authorities eager to meet the central government’s price caps, forcing them to sell their properties below the costs of land, which lead to losses for developers.

“In fact, we have already stopped purchasing new sites since last November,” Sun said. “It’s too dangerous.”

In January, Sunac made a US$2.2 billion bet on LeEco, helping to bail out the cash-starved video-streaming company. The developer would buy stakes in LeEco’s video streaming, television manufacturing and movie studio, marking a departure from its property business.

Companies like Sunac must find a better way out for the deployment of its capital after five years or a decade in the business, and the industry that LeEco is in still has a lot of potential for growth, Sun said.

The board proposed a final dividend of 25.7 fen per share, rising 32 per cent from 2015.

Sunac’s shares closed 8.7 per cent higher at HK$10.2. It had surged 12 per cent during the day to HK$10.5, the highest intraday level in a year.