China / Business

Report: Profits shrink for property developers

By Hu Yuanyuan and Ren Jie (China Daily Africa) Updated: 2016-04-03 14:57

Major real estate developers in China had weaker profitability last year, according to new research that suggests the industry's profits margin will continue to narrow due to increasing operational and land costs.

The net profit of the country's top 100 property enterprises stood at 11.6 percent last year, down 0.4 percentage points from 2014, a joint report by the China Index Academy, the Development Research Center of the State Council and Tsinghua University shows.

The return on net assets was 17.7 percent, down 0.6 percentage points from the previous year.

The market corrections last year, together with the rising operational and land costs, all weighed on property developers' profitability, the report says.

"In the past decade, property developers could make huge profits with a simple land parcel. Those days are over," says Zhang Xiaomei, CEO of the Riverside Group. "We now have to dig out the potential and derivative demand of habitants and strengthen our financial capabilities in the management."

As a case in point, Riverside Group has formed a partnership with Six Flags Entertainment Corp to build multiple theme parks in China, betting on the huge consumption potential in the tourism sector as the economy grows. The move is also aimed at diversifying the company's business portfolio and hedging downside risks in the property market correction.

Thanks to the government's destocking measures, China's home sales and prices both rebounded last year. The sales volume increased 14.4 percent year-on-year nationwide, and floor space sold increased 6.5 percent, according to the report.

It adds that the property industry's concentration was further enhanced as the top 100 property developers gained more than one-third of market shares, reaching a record high.

Beijing, Shanghai, Guangzhou and Shenzhen, the first-tier cities, and many provincial capitals remained the development focus of major real estate companies, and they contributed more than 80 percent of profits.

Property developers tended to develop more high-end projects in the first-tier cities to increase profitability, the research shows.

For example, Evergrande Group, which is based in Guangzhou and listed in Hong Kong, has five projects in Beijing, among which the units in three were close to 100,000 yuan ($15,300; 13,700 euros) per square meter.

Evergrande Palace, an apartment project outside the capital's East Fourth Ring Road, sold 21 units in two weeks in March, with the average price reaching 25 million yuan.

"We'll continue to bid for more land parcels in Beijing this year, although it has been increasingly difficult," says Gao Zhenyang, Evergrande's head of marketing in North China.

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