Chinese Property Developers Suffer Big Price War

Chinese property developers are forced to sacrifice profits to boost sales, as the downturn in the housing market saddles.

Most of the record were listed steady rise in revenue, but sharp declines in profit for many are a symptom of aggressive price-cutting.

Agile Property, increased 8% in 2014, but profits sank 11%. Guangzhou R&amp, profit fell by 15%, and by 8% of Yuzhou Properties, even as all of them reported growth in sales.

Weakness in the housing market has been a key factor in China’s broad slowdown. The economy grew 7.4 per cent last year, the slowest pace in more than 20 years.

China’s government has pledged support for the housing market, and the central bank has cut interest rates twice over the past six months.

“With the downward pressure on the economy, the real estate industry will continue to undergo a period of profound correction,” said Cao He, chairman of Hong Kong-listed builder Franshion, in the company’s annual report.

Kiyan Zandiyeh and Daili Wang of Roubini Global Economics warn that the current “supply glut” in Chinese housing is likely to get even more severe.

The sector has borrowed heavily in recent years from offshore bond markets, banks, and local investors.

With cash needed for debt repayments and to finance existing projects, developers have been unable to wait for prices to recover.

Total debt in the sector has jumped 280 per cent over the past five years, according to RGE research, with an increasingly large portion of it short-term borrowing.

Top-rated developers raised $29bn in new offshore funding last year alone, according to Chinese internal investigations.