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Realty firms may see revenue loss

By Bi Xiaoning (China Daily)
Updated: 2009-02-26 07:53

 

The latest figures from 12 listed real estate companies reveal a sharp drop in income from property presales during 2008, indicating a further earnings decline this year.

A practice borrowed from Hong Kong, the presale of apartments under construction has become an established mechanism in the mainland property market to speed up the capital flow of developers.

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The advance payments from customers are often liabilities for developers and can be treated as revenue only after the apartments are delivered.

The 2008 results of 12 real estate companies showed that aggregate advances from customers was 16.5 billion yuan, down 27.31 percent from 2007.

Analysts with Central China Securities Co said the amounts advanced by customers are a reliable indicator of the future performance trend. Less advance money from customers means less revenue in future.

Statistics showed that the country's sales area of commercial and residential property in 2008 fell 20.3 percent year-on-year while sales value declined 20.1 percent.

The financial statements of the 12 property companies also showed an increase in short-term loans, with the total amount reaching about 4.14 billion yuan, up 13.29 percent from the mid-term figures.

Analysts with Donghai Securities said property developers have no other choice but to increase direct financing as advance money from customers is dropping.

Big developers are also facing pressure on capital. Poly Real Estate Group Co, China's second largest listed property developer after Vanke, recently indicated that it would raise 8 billion yuan through a private placement of newly issued domestic A shares to help finance eight of its property projects.

Poly currently owns 18.28 million sq m of untapped land reserves, which is about eight times the area of completed development in 2008.

"The company's aggressive land acquisition spree last year led to an increase in the land reserves and strained its finances," said Hua Changjin, analyst, Guangfa Securities.

Poly said its net income for 2008 increased by over 50 percent to 2.24 billion yuan. The company said it has also factored 304 million yuan for impairment assets in its financial statement.

"The other large property developers, such as Vanke, China Merchants Property Development and Gemdale Corp, may also post a big increase in 2008 earnings. All these companies would also have to contend with huge impairment assets in their balance sheets," said Hua.

Net profits of 12 real estate firms totaled about 6.66 billion yuan for 2008, up 80 percent year-on-year. However, industry analysts said the falling advance money would make real estate companies clean up their act.