Chelsea_SunChelsea_Sun ・ Feb. 5, 2024
Tough Year for Chinese Property Sector as 36 Developers Suffer Big Losses in 2023
In the past two years, property developers in China have been negative growth in profits. In 2022, real estate companies above the designated size reported net losses.

BEIJING, February 5 (TMTPOST)—A total of 61 Chinese listed real estate companies have released their 2023 performance forecast, revealing a challenging landscape for the industry. Only 25 firms of them anticipate to record profits in 2023, while 36 are expected to be in red, accounting for around 60% of listed property developers. 

Amount of Losses Far Exceeds Profits

Among the 61 companies, the 25 expecting profits foresee a combined net profit between 30.476 billion yuan and 34.808 billion yuan. The 36 firms projecting losses anticipate a total amount ranging from 54.538 billion yuan to 73.465 billion yuan. The value of estimated combined losses was unprecedented.

For instance, Poly Developments and Holdings, one of the top real estate companies with over 400 billion yuan in sales for 2023, foresees a net profit of 12.037 billion yuan, marking a 34.42% year-on-year decrease. The company attributes the drop to reduced project gross profit margins and provisions for asset impairment based on current market conditions.

First-Time Losses for 15 Companies, Highest Loss at 9 Billion Yuan

Among those anticipating losses, 15 companies, including Greenland Holdings, CCCG Real Estate, and Metro Land, are expected to report their first losses in recent years. Six firms, such as ST Soho China and Greenland Holdings, estimated net losses exceeding five billion yuan. Greenland Holdings, notably, forecasts a staggering loss of seven billion to nine billion yuan in 2023, making it the firm with the largest predicted loss.

Greenland Holdings attributes its poor performance to industry downturns and plans to make provisions for asset impairment ranging from 11 billion to 13 billion yuan.

Declining Margins and Asset Impairment are Main Contributors

The primary reasons for most firms' losses include decreased revenue from completed projects, slim gross profit margins for projects, and provisions for inventory value adjustments. Liu Shui, Director of Corporate Research at China Index Academy, noted that the unexpected market downturn in the past two years has significantly pressured gross profit margins, leading to a year-on-year decrease in operating profits.

Liu further emphasized that asset impairment losses have impacted current profit levels. With the market still finding its bottom in 2023, developers, especially those investing in projects in non-core areas or with high land costs, may have suffered substantial losses. Smaller developers, grappling with business transformation, also show undesirable profit performance.

Eight Firms Aim to Reverse Losses

Out of the 25 firms expecting profits, seven forecast year-on-year growth, while ten anticipate a decline. Eight companies, including C&D Group, expect to turn losses into profits for the full year.

C&D Group anticipates a net profit of 11.8 billion yuan to 14.2 billion yuan in 2023, attributing the significant increase to the inclusion of Red Star Macalline Group in its consolidated financial statements during Q3 2023.

Despite challenges, the industry might see improvements as favorable policies gradually unfold, stabilizing the real estate market. The current poor profit figures are seen as result of rapid market downturns. However, companies adopting a "high capability, high credit, high quality" model may have the opportunity to turn around sooner, industry insiders remarked.

CITIC Securities suggests that while provisions for inventory value adjustments will remain challenging in the medium term, improving land acquisition and sales could lead to a less crowded market, providing a respite to address existing problems with high-quality assets.

(1 yuan equals US$0.14)

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