From the FT:
Most listed mainland homebuilders recorded a steady rise in revenue last year, but sharp declines in profit for many are a symptom of aggressive price-cutting designed to shift stock and generate much-needed cash in the debt-laden sector.
…“With the downward pressure on the economy, the real estate industry will continue to undergo a period of profound correction,” said Cao He, chairman of Hong Kong-listed builder Franshion, in the company’s annual report. “Property developers will face challenges including shrinking profit margins and intensifying competition.”
Kiyan Zandiyeh and Daili Wang of Roubini Global Economics warn that the current “supply glut” in Chinese housing is likely to get even more severe.
“With companies trying to meet sales growth and defend market share, the incentive has been to keep building — meaning today’s excess supply in the market will only worsen,” they wrote in a report.
Now where have a seen that dynamic before? The entire Chinese building, steel and iron ore supply chain is doing the same thing yet growth continues to fall anyway as credit at the source tightens.
The rationalisation can be managed but not stopped.
