China’s developer profits tumble

So, as Chinese real estate developers report their 3rd quarter results, we continue to see falling profits.

Xinhua reports that for 47 real estate developers listed on the A share market which have reported their 3rd quarter earnings, revenue for the 3rd quarter amounted to CNY36.476 billion, a 12.5% decline compared to the second quarter.  Net profits was CNY3.745 billion for the 3rd quarter, a whopping 38.5% fall compared to the second quarter.  Of 47 developers, 29 or 62% of them reported falling profits. In particular, Gemdale’s 3rd quarter profit fell by 98%, the worst among the big 4 players (other 3 are China Merchants, Poly, and Vanke, which also recorded falling profits).  For the first 3 quarters combined, revenue is still up by 15.2%, and profits are up by 13.5% compared to the same period of last year.

Of course, this is hardly a surprising result given the fall of transaction volume for the best part of the year, followed by falling prices in the recent weeks.  Note that the recent 3rd quarter results are only reflecting the sales being made probably 2 or more quarters ago as most of the properties would be pre-sold prior of actual delivery.  The recent price cuts will only be reflected probably in next years’ earnings.

And just as I have been expecting, the real estate prices fall came first from real estate developer’s selling as they have been under pressure to clear their inventory amid slowing sales and deteriorating cash flow.  As this continues, we could see the momentum building up, and even discounting bans will not stop the trend of deteriorating market condition.  Rather, weaker real estate developers may be killed off faster as discount bans will make transaction even slower by not allowing developers to sell cheaply.

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Comments

    • In China the authorities can do anything. Nothing can go wrong in China, didn’t you know that?

      The faith in Chinese infallibility is all pervasive now. China can pull the world out of recession. China can rescue Europe. China will drive demand for Australian resources for another century. Chinese SOEs can borrow money to build things they don’t need, that never makes a return, and never repay loans with absolutely no consequences for the Chinese banking system, because China holds a lot of foreign reserves.

      Everyone is in on it. I heard (ANZ CEO) Mike Smith asked yesterday if China keeps him up at night: “Not at all, the Chinese are very smart and they’ll sort it out … Europe keeps me up at night”.

      Absolute faith in a command economy to manage things that free-market economies can’t … and this from a banker!

      • Absolutely agree.
        China’s property bubble is insane. It will be “Asian Crisis II” only much bigger.
        The big symptom of every big crash for the last few decades, that the whole econ profesion misses, is a bulging racket in “planning gain” in urban development.
        When rural land is converted to urban, with fair and moderate profits for developers, the effect on economies is one of stability and growth-enabling. When it becomes a racket, with tens or even hundreds of percent “planning gain” over the value of the rural land, a destructive property bubble in entire urban areas (not just the fringe) develops.
        Look at China today. Empty apartments with prices too high for the hardworking slum dwellers, but on which corrupt officials have pocketed fat capital gains. You could bring apartments to the market cheaper in outright DOLLARS, let alone as a factor of incomes, in Texas. This is because in Texas you can still actually buy rural land and build stuff on it without having to play a game enabled by local officials. This keeps the price of all urban land low.
        China’s racket in “planning gain” (and India is the same) is due to outright corruption – but in Western countries the same process has a fig leaf of respectability by calling it “urban growth containment”.
        This is “elephant in the room” stuff.