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SHENZHEN: China Vanke, the country's largest property developer, expects its sales growth to slow and margins to come under pressure this year as government efforts to cool the domestic housing market take effect, a top executive said.
But Vanke, with cash in hands of about 40 billion yuan (RM19.49 billion) and a modest net gearing of just 26%, will be able to grow its market share as smaller players shudder under Beijing's credit clampdown, the executive said.
"Transactions in the overall industry are declining. Inventories are increasing and prices are dropping," executive vice president Shirley Xiao told Reuters in an interview last Saturday, Sept 17.
"Our sales are on track to surpass last year's level but it is unlikely for us to keep the growth rate we had before," she said on the sidelines of a real estate conference in the southern Chinese boomtown of Shenzhen.
This month, Vanke posted a 12.6% fall in property sales for August from a year before, its first drop in at least a year. For the first eight months of the year, its property sales totaled 84.6 billion yuan, versus 108 billion yuan for the whole of last year and 63.4 billion yuan in 2009.
Xiao said the August drop was caused in part by relatively high base in the same month last year, but added that the company was finding it harder to sell houses this year.
"Before, when we launched a new project, we could sell 75% of them within the first month. Now the ratio is at about 65%," she said, adding that Vanke's inventories had been staying at above 30 billion yuan in the past few months with debts maturing within one year at about 23 billion yuan.
Sales have been slowing across major cities in recent months, nearly two years after the central government embarked on a campaign to rein in runaway real estate prices that have stoked public discontent.
China's property investment grew 33.2% in the first eight months from a year ago, a touch slower than the 33.6% rise in the first seven months, official data showed, implying slower growth and a modest fall in property prices in August.
Xiao said Vanke's gross margins are coming under pressure this year, but any drop would be very limited as the company had taken measures since 2008 to control costs and sales expenses.
"You may see a one to two percentage point drop in gross margin. But in terms of net margin, the impact should be more minimal," she said but declined to provide details.
As smaller developers across the country struggle with bulging inventories and funding shortages, Vanke, as China's largest developer by sales, is moving to expand its land bank and grow its share of a highly fragmented market, she said.
China has banned domestic developers from raising financing through stock or bond sales. Banks are also increasingly cautious about lending to developers, especially cash-strapped small ones.
"We can still get loans from banks. We also have large amounts of proceeds from pre-sales," Xiao said.
Land reserves of Vanke, which focuses on the mass market across the country, have increased to more than 30 million square metres after adding 5.8 million square metres in the first half, she said.
"It was very difficult to acquire land in major cities in the past few years as competition was extremely keen, but more opportunities are arising these days and land prices are falling," Xiao said.
"Small real estate developers are hibernating now. They are not buying land. Some of them have halted construction."
"Market share for large developers like us and China Overseas Land will increase as a result," Xiao said. — Reuters
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