Profit Growth at China’s Real Estate Firms Continues Decline Despite Increasing Revenue

Yicai

2017-03-29

(Yicai Global) March 29 -- Last year, policy changes and price control saw China’s listed real estate companies further suffer compressed profit margins despite growing contract sales, with some achieving their highest annual income to date.

Sales at China’s top 100 real estate companies hit a record high average of CNY39.21 billion (USD5.7 billion) last year, up 36.8 percent from a year earlier. Meanwhile, net profit growth rate continued to decline, falling 0.5 point to 11 percent, with the top firms making an average CNY4.57 billion in profit, up 26.2 percent from 2015, growing 10.6 percentage points slower than revenue.

Signs of declining profit growth emerged as early as the start of 2013. Although most companies accepted the trend and tried to reverse the situation by strengthening internal management and reducing costs, the industry remains pessimistic.

Starting in 2015, the main development of real estate companies became growth in scale, said Zhang Hongwei, TOSPUR research director. Even if there are frequent policy controls this year and the market doesn’t perform well, most real estate companies will still set a target growth rate of 20 percent or more, he added.

“Real estate firms promote scale of growth at the expense of profits,” said Zhang. “Although turnover is getting higher and higher, profit rates keep declining,” he added, saying this may explain why the top three firms in sales last year, which all brought in over CNY300 billion (USD43.5 billion) -- Hengda, Vanke and Country Garden -- aren’t the biggest profit-makers in the industry.

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