China Vanke’s Chairman Yu Liang (right), Chief Operating Officer Chang Xu (centre) and Chief Financial Officer Sun Jia during a press conference at the JW Marriott Hotel in Admiralty on 26 March 2019. Photo: Xiaomei Chen
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https://scmp.com/business/article/3172623/vanke-zhenro-and-china-overseas-post-falling-profits-clampdown-adds Business
Vanke, Zhenro and China Overseas post falling profits as clampdown adds to dimming economic prospects in driving homebuyers to the sidelines
- China Vanke said its core net profit halved to 22.5 billion yuan while sales fell 10 per cent to 628.78 billion yuan
- Zhenro Properties said its core profit slid 30.9 per cent to 2.28 billion yuan while China Overseas Land & Investment posted a 4.3 per cent profit dip to 36.38 billion yuan
Residential buildings at a Zhenro Properties Group development in the Jinshan district of Shanghai on February 24, 2022. Photo: Bloomberg
Several Chinese property developers have reported plunging 2021 profits, as a clampdown on home prices combined with dimming economic prospects to deter buyers from committing to big-ticket purchases during the Covid-19 pandemic.
China Vanke, the country’s third-largest real estate company by sales, said its core net profit halved to 22.5 billion yuan (US$3.54 billion) while sales fell 10 per cent to 628.78 billion yuan, according to a statement to the Hong Kong stock exchange.
Zhenro Properties, which failed to redeem its US dollar-denominated perpetual bonds, reported a 30.9 per cent slide in its 2021 core profit to 2.28 billion yuan. Even one of China’s most conservative borrowers, China Overseas Land & Investment, posted a 4.3 per cent profit dip to 36.38 billion yuan.
“Our financial performance has disappointed our shareholders,” Vanke’s chairman Yu Liang said, delivering his “sincere apology” to the company’s 520,000 investors. “We will aim to stop the decline and to stabilise our profit.”
The days of runaway home prices are over, marking the end of the era of super profits for property developers, Yu said, adding that China’s central government will offer more supportive measures to buttress the property sector, which will lead to an improvement for the industry.
“Neither high nor low profit is sustainable,” he said, after scrapping the title of partner from its corporate hierarchy, to send executives to the company’s front line. “The sector needs to return to a normal level.”
Picture of Zhenro Properties. Photo: Weibo
China’s US$1.7 trillion housing market is grappling with an unprecedented debt load, putting pressure on developers to raise cash to pay creditors.
A spate of defaults had spent yields soaring, raising the borrowing costs for developers and doubling their burden. The amount of fundraising in the offshore bond market dwindled to US$1.8 billion in the first quarter, a fraction of the US$14.6 billion raised in he same period last year.
“China property sector’s difficult funding conditions and sizeable refinancing needs for the rest of 2022 will further strain developers’ liquidity and increase the number of defaults,” said Moody’s analyst Daniel Zhou.
A crane with the China Vanke’s logo at a residential construction site in the Nanchuan area of Xining, Qinghai province on September 28, 2021. Photo: Bloomberg
The cracks in the housing market are spreading, despite supportive measures rolled out by the central government and local authorities since late last year. The value of contracted sales nationwide fell 20.8 per cent in February, according to Moody’s.
Revenue at Shanghai-based Zhenro edged up 2.6 per cent to 145.6 billion yuan last year, just shy of its own sales target of 150 billion yuan.
“The real estate market remains under pressure in 2022, and there is limited room for relaxation in the financing channels for real estate companies,” said Zhenro’s chairman Huang Xianzhi, adding that the company would not pay shareholders a dividend this year.
China Overseas managed to sell more homes last year, increasing its 2021 sales by 2.4 per cent to 369.5 billion yuan, prompting the company to pay a final dividend of 0.76 yuan per share.