Property developers see profit drops

Dozens of firms report decreases; raising major concerns over market

China's leading property developers have reported poor performances for the first half of 2014 in their semi-annual reports amid high inventories, raising discussions about their need for business transformation among industry watchers.

As of Monday, more than half of 90 Chinese real estate developers, which have released their half-year earnings reports, reported a year-on-year decline in net profits, according to figures from iFinD, a Zhejiang-based financial data provider.

Leading developer Gemdale Corporation reported a year-on-year drop in net profit of 49.91 percent for the first half of 2014. Another major developer China Merchants Property Development Co also saw its net profit decline by 30 percent year-on-year.

Most of the enterprises that witnessed profit drops attributed the poor performance to fewer sales transactions being completed in the first half of 2014 compared with the same period last year.

Vanke Co, China's largest developer by sales, which ranked No.1 in total amount of net profit and revenue in the first half among all the listed property developers, reported a slight rise in net profit of 5.6 percent year-on-year, but also saw its sales revenue decline by 1 percent in the first half compared with the same period in the previous year.

Vanke explained that the sales revenue drop was mainly because most of transactions for its projects will be completed in the second half of this year.

"Their poor performance in sales revenue and profit was partly due to a decline in sales, especially in major cities," Chen Baocun, an expert with Beijing-based Asia-Pacific City Research Institute, told the Global Times on Monday.

The total sales areas in the first seven months declined by 7.6 percent compared with the same period of the previous year, according to data released by the National Bureau of Statistics on August 13.

In the face of a slowdown in the property market, industry watchers said the property developers need to transform their business models.

The traditional development style "may possibly be challenged once the land price soars faster than home prices, or home inventories remain high," Chen said.

Chen said that an example of a successful development model is the mixed-use city complexes built by the Dalian Wanda Group conglomerate that combine residential units and business and entertainment facilities.

Vanke's chairman Wang Shi said at a forum in Zhengzhou, Central China's Henan Province on Monday that after years of fast expansion from 1997, Vanke has been confronted with confusion in business model transformation for the next ten years.

Wang said the top leaders of Vanke have discussed business transformation for eight months, but still haven't come up with the answer.

Wang said that Vanke might lose its leading position in the property sector in the future.

Chen agreed that Vanke needs to change its business model, but said it may not be good at mixed-use development like Dalian Wanda Group since it has focused on residential development for 30 years.

To boost home sales, Vanke announced a promotion on Monday in which customers of leading e-commerce website taobao.com who buy apartments in 23 Vanke projects in 12 cities can enjoy discounts on apartment prices of up to as much as 2 million yuan ($320,000).

The total discount amount that the homebuyers could get would be equal to their total spending on taobao.com for the whole of 2014, according to the announcement co-released by Vanke and taobao.com.

However, recent measures including promotions by property developers and relaxation of home purchase limits by local governments "will not likely reverse a downturn trend in the property in a short period," Yang Hongxu, deputy director of Shanghai-based E-house China R&D Institute, told the Global Times on Monday, explaining that the home supplies in some second- and third-tier cities are much larger than the demand from homebuyers.

Heavy home inventories have caused second- and third-tier cities to relax their home purchase limits, with Hohhot, capital of Inner Mongolia Autonomous Region, becoming the first city to officially announce the relaxation of restrictions in June this year.

The home purchase limits have been implemented in at least 40 major Chinese cities since 2011 as part of the central government's efforts to curb property speculation.

So far, only 10 cities including four first-tier cities - Beijing, Shanghai, Guangzhou and Shenzhen - have not adjusted their home purchase limits, media reports said.