China Focus: Outlook stable for Chinese property developers after bumper year

Chinese property developers enjoyed a bumper year in 2016 due to strong sales and easing monetary policies, and a strong start this year continued to bode well for the industry despite rising uncertainties.

The 96 property firms that have released annual reports showed that their combined business revenue was 908.1 billion yuan in 2016 (about 132 billion U.S. dollars), up 28.5 percent year on year, according to a report by Xinhua-run Economic Information Daily, which cited data from leading real estate agency Centaline Property.

Their combined profits were 88.33 billion yuan, a jump of 28.9 percent from the previous year that brought the sector's net profit margin to 9.73 percent from 9.69 percent in 2015.

The profit rebound is largely attributable to easing policy environment for most of 2016, which saw a boost in both prices and sales.

China's property sales recorded strong growth in 2016 with an annual gain of 22.5 percent, thanks to two years of policy easing, starting with relaxation of purchasing restrictions in 2014.

The report also noted the trend of divergence among property developers, with the stronger ones showing faster profit growth and more resilience than less competent players.

Research from the China Index Academy found a progressive decrease in the profitability levels at the top 100 property companies in China. That is to say, as you moved lower down the ladder, companies made less profits.

"The larger and stronger companies reported faster profit growth due to their advantages in capital access and funding costs...the market share of leading firms is on a notable rise," said Zhang Dawei, an analyst with Centaline Property.

For the industry's outlook in 2017, a majority of property firms stood optimistic on the market although tightening policy restrictions in major cities are set to slow sales.

Since October last year, the Chinese government has implemented a slew of measures to cool runaway housing prices, including restrictions on home purchases and increased minimum down-payment requirements.

Dozens of Chinese cities have implemented tougher cooling measures to limit price gains since mid-March, following Beijing's unprecedentedly strict curbs that lifted the downpayment ratio for second homes to 60 percent.

Even against this backdrop, major property developers have set higher performance targets for 2017. Developer Sunac China set its sales target for 2017 at 210 billion yuan, a jump of 35.21 percent from 2016.

"Major indices for property development are still on the rise, which showed government restrictive policies have not fully affected companies' confidence and the fundamentals for the property market remained stable," said Yan Yuejin, senior researcher with E-house China R&D Institute.

In a report released Monday, Moody's said China's property sales would slow from the high level in 2016 but remain within the parameters for a stable outlook.

However, the report noted that the government's wider implementation of home-purchase restrictions since September 2016 will slow sales and tighten developers' liquidity gradually, leading to more competition.

The competition resulting from slowing sales, and tightening liquidity and regulation will be exacerbated by developers' continued focus on high sales growth in 2017, according to Moody's. Endi