Chinese property developers struggle as gov't cools market

11:42, May 08, 2011      

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With the government's ongoing and persistent efforts to cool the red-hot property market, Chinese property developers are struggling to sell properties while becoming more encumbered with debt.

The debt of the country's property developers rose 41.27 percent year on year to 1.05 trillion yuan (about 161.53 million U.S. dollars) by the end of March, the Wind Information, a Shanghai-based financial data provider, said in a recent report.

Of 113 listed property developers that had filed their first-quarter reports to Chinese stock exchanges, 25 reported profit losses and 42 registered slower profit growth rates from January to March. Most of them are small and medium-sized property developers.

The country's top three property developers including China Vanke, Poly Real Estate Group Co. and the Gemdale Corp. also saw moderate declines in profit growth during the period.

"The recent government control over its property market has restrained half of the demand. Small property developers will first feel the pinch," said Zhang Dawei, an analyst with the Beijing-based Centaline Property.


By the end of March, unsold houses of 113 listed property developers surveyed rose 40.21 percent year on year to 903.5 billion yuan while revenues fell 4.86 percent to 54.65 billion yuan during the period, data from Wind Information shows.

The April data was also not encouraging. China Vanke, the country's biggest property developer by market value, reported a moderate sales increase in April, up 1.3 percent year on year to 7.9 billion yuan in comparison to 9.33 billion yuan in March.

Tan Huajie, the company's board secretary, attributed the dwindling growth to government's tightening measures.

"The government control has an evident effect on the property market as transactions slow. As property supply increases in the future, the sector's inventory will also rise, adding to the sales pressure," Tan said.

Most developers had adopted a wait-and-see attitude toward the real-estate market and postponed sales of newly built apartments in the first quarter of the year.

"In order to have more cash on hand, property developers may adjust their prices and adopt fast sales strategies to launch more new property projects in the coming months," said Yang Guohua, real estate analyst with Shanghai-based Orient Securities.


The Chinese government has repeatedly stressed its efforts to rein in the runaway property market since last year and adopted measures including implementing tighter monetary policies, raising down payments, banning third-home purchases and imposing price control targets and a trial property tax.

The National Development and Reform Commission, the country's top economic planner, has regulated that property developers must sell homes at marked prices starting May 1 in its latest effort to contain property prices.

The move is aimed to tackle public complaints over a lack of transparency in commercial property pricing. But 11 property enterprises in Beijing were found to have violated the regulation, according to a ministry statement on Thursday.

Despite these efforts, prices remain stubbornly high. Home prices in 100 major cities across the country rose 0.4 percent from March to April with 77 cities witnessing month-on-month increases, said a report by China Real Estate Index System (CREIS).

"The persistent fever might force government to implement tougher control policies later this year as ongoing measures are mostly meant to regulate the new-homes market," Zhang said.

This view was shared by the Chinese Academy of Social Sciences (CASS), a government think tank.

"It's very likely for the government to increase holding costs for people who already have several units of houses," said the CASS in an annual report concerning the real estate sector, indicating that the government should extend the property tax to more Chinese cities.

The property tax has so far only been trialed in Chongqing in southwest China and Shanghai on east China's seaboard.

"Property taxes will help cool the market," said the report, adding that it will also encourage local governments to change from depending on sales of land for revenues, which is believed to be a primary cause of high property prices.

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