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High land premiums set to affect profits

By Gao Changxin in Hong Kong  (

09:08, April 19, 2013

Deloitte Touche Tohmatsu predicts that Chinese property companies' profits will drop further this year, dragged down by the financial pressure from high land premiums paid in earlier years.

The accounting firm said in a report published on Thursday that profitability for smaller developers is more "variable" as they are more vulnerable to changing market conditions.

"Cost pressures were mounting for Chinese property companies in 2011 and there was a staggering increase in their finance expenses by about 44 percent as a result of tightened monetary policy," said Richard Ho, a partner with Deloitte who focuses on the property market.

"The impact from high land premiums paid since 2009 will start to surface from 2012 onwards and will weigh heavily on profitability."

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