Property giants see fortunes diverge during housing woes

BEIJING: China’s two biggest property developers saw contrasting fortunes in the first half as the nation’s real estate crisis deepened.

Country Garden Holdings Co, the largest builder by sales, posted a record 96% drop in profit on Tuesday, citing a “severe depression” in the property market. Bucking the slowdown, its biggest rival China Vanke Co reported an 11% increase.

Vanke stands out as the first top-tier developer to report stronger earnings, underscoring the divide between firms with state backing and private players as they try to navigate the sector’s prolonged cash crunch.

The industry isn’t out of the woods, with Country Garden warning of more pain to come.

“The home market hasn’t entirely bottomed out, and the sector’s consolidation isn’t over,” Country Garden chief financial officer Wu Bijun said at a briefing on the results. “Property sales nationwide still haven’t stabilised.”

The crisis, which began with a clampdown on leverage that dried up liquidity, worsened this year with the nation’s Covid restrictions and weakening economy.

The downturn has shattered homebuyer confidence, prompting some to refuse to pay mortgages as developers struggle to finish pre-sold projects.

Now the strains are spreading to the financial system, with China’s biggest banks this week reporting rising bad loans to the property sector.

“Sweeping reforms aimed to gradually deflate the housing bubble, but also brought unintended consequences that have led to disruptive deleveraging among developers and a sales slump, threatening macroeconomic stability,” Morgan Stanley analysts including Cai Zhipeng wrote in a research report.

Country Garden’s unaudited net profit slumped to 612 million yuan (Rm394mil) in the six months ended June, the Foshan-based company reported Tuesday.

The drop was the sharpest decline since its 2007 listing in Hong Kong, and CFO Wu said the income statement will remain under pressure in the near future.

“The home market hasn’t entirely bottomed out, and the sector’s consolidation isn’t over. Property sales nationwide still haven’t stabilised.” Wu Bijun