SOHO China sees 2013 net profits slump

SOHO China Ltd posted 7.388 billion yuan ($1.2 billion) in net profits attributable to shareholders for 2013, dropping 30.2 percent year on year. [Photo by Wu Changqing / Asianewsphoto]

Beijing-based property developer SOHO China Ltd posted 7.388 billion yuan ($1.2 billion) in net profits attributable to shareholders for 2013, dropping 30.2 percent year on year, as its strategic shift from a build-and-sell to a build-and-hold model started to cut into revenue.

For 2013, SOHO China registered 4.687 billion yuan in contracted sales, down 50 percent from the previous year, while contracted sales slumped 59 percent to 75,900 square meters, alongside an average hike of 20 percent in its per-unit sales price.

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As the developer seeks to take a long-term view on its projects instead of selling them soon after completion, its rent revenue surged 78 percent year-on-year to 279 million yuan in 2013.

"The results are basically in line with our expectations because SOHO China has been changing its build-and-sell model since 2012. Its profit declined because it sold less in 2013," said Zhang Hongwei, research director of Shanghai-based property consultancy ToSpur.

Analysts said the market is losing momentum in the rapid sales of commercial properties as monetary policy becomes tighter, so it's understandable for SOHO China to make such a strategic change to maintain a more stable income stream from rents rather than property sales.

"Back in the days when almost every developer in China was focusing on residential projects, SOHO China made several successful investments in commercial properties, but the market is losing its sheen from the 2009 to 2011 peak," said Hui Jianqiang, research director of Beijing Zhongfang-yanxie Technology Service Ltd.

However, the shift from selling projects to holding onto them is costly, because it requires abundant cash flow. Some insiders regard the recent sale of SOHO China's two projects in Shanghai as a move by its chairman Pan Shiyi to support the strategic shift.

SOHO China announced last Friday it was selling two commercial buildings in Shanghai for a total of 5.23 billion yuan, lower than the initial asking price, because of excessive supply.

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