(Yicai Global) April 6 -- Gross profit margins at 28 out of the 30 Chinese property developers to have disclosed their 2021 financial reports so far contracted from the year before as the cost of land soars and housing prices are curbed.

China Vanke suffered the most, with its profit margin shriveling to 21.8 percent last year from 29.2 percent in 2020, a sharp decline that exceeded market expectations, according to Yicai Global research. China Overseas Land and Investment, known as ‘the profit king,’ followed with its margin dropping to 23.5 percent from 30 percent.

Fourteen developers including Greentown China had profit margins of under 20 percent, Yicai Global learned from incomplete statistics. Only two relatively small developers achieved an uptick in margins.

This has to do with the combined effect of higher land costs and restrictions on newly built property prices, industry insiders told Yicai Global.

“We have reached the general understanding that our gross profit margins have dropped to around 20 percent,” said Li Xin, president of CR Land. “Margins are not likely to rise to 30 percent as before,” he added.

In fact, the gross profit margin of China’s real estate sector has been sliding since 2018, to 23.3 percent in 2020 from 28.7 in 2018, and the decline has been expanding year by year, according to Sinolink Securities.

China Resources Land and Longfor Properties both achieved a relatively decent profit margin of 27 percent and 25.3 percent last year, but this was actually driven by their profitable property management businesses. The margin of their development sector actually fell to around 23 percent.

Margins might rebound in the short term as land auctions have become more reasonable since the second half of 2021, said Zhang Zhizhao, an executive at Zhonghai Real Estate. About half the land purchased since July last year was acquired at the asking price or at a rather low premium, so we are expecting a decent return, he added.

Editors: Tang Shihua, Kim Taylor