Poor sales, weakening market offer little comfort to listed developers

Lower home sales and weak property prices will dent the net profits of listed Chinese developers for the first six months of the year, analysts said on Wednesday.

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Of the 23 real estate companies listed on the Chinese mainland stock markets that have released their midyear performance preview, only nine companies anticipate growth in net profit. Two companies are set to post flat returns, while 12 companies expect a slump in profit or even losses.

This is in stark contrast with a year ago, when nearly half of the listed developers reported a midyear profit increase on the back of a soaring property market.

This year's midyear preview was also dim compared with the general market. Nearly 70 percent of the mainland-listed public companies anticipate a profit growth. Most of these companies would release their earnings numbers in July.

Among the large property developers, only Poly Real Estate Group Co expects double-digit (10.8 percent) year-on-year net profit growth. China Vanke Co, the nation's largest developer, reported a positive net profit in the first quarter, but the number was still down 5.23 percent compared with a year earlier.

The "golden era" for China's property market has passed, Yu Liang, president of China Vanke Co, said last month, adding that Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.

Global ratings agency Moody's Investors Service revised its credit outlook for Chinese developers to negative from stable last month, while home sales slumped 10 percent in the first four months of the year amid tight credit conditions, reversing last year's 27 percent jump and prompting developers like Vanke to cut prices.

Moody's said in its report that small realty companies with less access to credit are more vulnerable to risks. Most of the companies that expect losses in the recent performance-preview happen to be small developers.

"We believe most of the 52 developers we rate in China are better positioned than the thousands of mostly small, unrated developers to withstand an increasingly challenging operating environment," Moody's said.

In April, Zhejiang Xingrun Real Estate Co, a Zhejiang-based closely held developer, collapsed, indicating the rising default risk concerns for the country's nearly 90,000 real estate companies.

Moody's said it believed the current slowdown in housing demand and high inventory levels resulted from developers' rapid expansion over the past few years and said it will last longer than the previous two down cycles due to the slower economic growth in China . The ratings agency said widespread removal of home-purchase restrictions and a further loosening of the onshore credit and liquidity conditions are unlikely in the short-term.

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