Lean times ahead for developers

Potential customers look at a model of a real estate development in Yichang, Hubei province.[ZHOU JIANPING / FOR CHINA DAILY]

More than half of the country's listed real estate companies are expecting to report falls in annual profits last year, as the residential property market continues to slow down.

Of the annual earnings forecasts issued by 88 companies, 45 have predicted a decline in net profits, according to new figures from market intelligence provider Tonghuashun.

Twenty five of the companies expect net losses, 22 of them for the first time.

However, some of the country's largest listed homebuilders by market value, including China Vanke Co Ltd, are yet to release their annual earnings forecasts.

Commenting on the Tonghuashun figures, Guo Yi, marketing director of the Yahao Real Estate Selling and Consulting Solution Agency, said small- and medium-sized developers will continue to be plagued by financial troubles this year, as stock levels remains high.

Guo said despite some managing to turn a profit, after integrating their industrial chains and getting costs under control, the current economic and market situation and tightening margins mean conditions are unlikely to improve for a while yet.

"Despite the government's easing policies, market oversupply is still a challenge, especially in third- and fourth-tier cities where an imbalance in economic development and unequal distribution of resources remains," she said.

The only way that many firms will be able to control their costs will be to cut their number of new developments, she said, and continue to offer substantial discounts on stock to attract buyers.

In its forecast, real estate developer China Enterprise said it expected a dramatic 2.4 billion yuan ($368.6 million) to 2.5 billion yuan loss, adding that sales at most of its sites in second- and third tier cities had experienced an extended downturn.

The company said it would be accelerating its destocking process by offering discounts.

Vantone Real Estate Co Ltd, another of the 88 firms analyzed, said it expected a 580-620 million yuan loss, mainly due to project layouts and destocking difficulties at its third- and fourth-tier city projects.

Yan Yuejin, director of Shanghai E-house Real Estate Research Center, said the ongoing financial pressure is expected to force an rising number of smaller real estate developers to seek buyers, to avoid going out of business.