Understanding China's Property Market: CR Land's Dismal Profit Report

China's Property Market Facing Challenges

China Resources Land (CR Land) has reported its worst interim profit drop on record, as the torpor in the nation's housing market translated to shaved bottom lines for the largest property developers. Net profit fell 25 percent in the first six months to a six-year low of 10.25 billion yuan (US$1.44 billion), missing the analysts' consensus forecast compiled by Bloomberg. The decline was the biggest percentage drop since the Shenzhen-based developer went public in 1996.

Performance Insights

• Sales rose 8.3 percent to 59.13 billion yuan.
• Interim gross profit fell to 17.63 billion yuan.
• Gross profit margin trimmed by 3.4 percentage points to 22.3 percent.
• Sold 124.7 billion yuan of property, down 26.7 percent from the same period last year.

CR Land's chairman, Li Xin, noted that the real estate market showed signs of moderate recovery but was still in an adjustment cycle, with reduced demand. The developer declared an interim dividend of 0.2 yuan per share.

Industry-Wide Impact

CR Land is not alone in the China property slump. Longfor Group reported a 28-percent decline in its first-half core profit due to plunging sales and crimped margins. Sino-Ocean Group, Redsun Properties, and Zhenro Properties Group also flagged first-half losses. China Vanke forecasted an interim loss of between 7 billion yuan and 9 billion yuan.

Beijing's 2020 introduction of the “three red lines” policy to restrict developers' borrowing has severely impacted the sector. Despite a 300-billion-yuan fund announced in May to revive sales, slow implementation has hindered progress. According to China Real Estate Information Corporation (CRIC), the top 100 developers' sales shrank 39.5 percent to 1.85 trillion yuan in the first half of the year. July sales fell 36.4 percent from June to 279 billion yuan.