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Developers need to diversify: experts

2015-01-05 08:53 Global Times Web Editor: Qin Dexing

Current sales not enough to sustain growth

More property developers achieved annual sales of over 10 billion yuan ($1.61 billion) in 2014, but experts said Sunday that the slowing housing market means companies will have to focus on diversification in the new year.

In 2014, 80 developers reported annual sales of over 10 billion yuan, nine more than in 2013, the China Index Academy, a Beijing-based real estate research institute, said in a report on Thursday. The total volume of commercial residential housing sales by the top 80 companies reached 2.8 trillion yuan and accounted for almost 40 percent of the market, the report said.

Shanghai-based Greenland Holding Group led the rankings of top developers with 240.3 billion yuan in sales revenue and 21.05 million square kilometers of housing space sold in 2014.

China Vanke Co and Dalian Wanda Commercial Properties Co ranked second and third, respectively, according to the report, which is based on data from 43 cities in the Chinese mainland.

However, experts believe that even relatively strong sales figures are not enough to offset the sustainable growth issue facing developers.

"Amid the lackluster market in 2014, many property developers chose to reach their sales targets by lowering prices, so the high sales volume came at the cost of narrowed profit margins," Zhang Hongwei, research director of Shanghai-based property consultancy ToSpur, said in a research note e-mailed to the Global Times Sunday.

"Diversification strategies and how well these strategies are implemented will decide the firms' future," he noted.

In 2014, the total volume of commercial residential housing sales shrank by 8 percent from that of 2013 with the average price down 5 percent year-on-year, according to the China Index Academy report.

The slowdown in China's property market in 2014 was partly due to tighter government controls.

But in order to avoid a sharp slowdown in the sector, the central government rolled out some support policies last year, such as cutting restrictions on home purchases, easing mortgage rules and lowering interest rates.

The property market remained weak in November, which marked the third consecutive month in which prices of newly built homes in 70 major Chinese cities saw no increase month-on-month, the National Bureau of Statistics said on December 18.

Transactions of new homes picked up in some cities in December, including Beijing, but analysts said that the figures included affordable housing and could not be seen as a recovery, the Beijing Daily newspaper said Sunday.

Chang Qing, a research fellow from real estate agency Homelink, said the property market is now facing a growth bottleneck, and this is driving developers to diversify.

"The market still has some distance to go before recovery. A sudden warming-up of the market, similar to what happened during previous downturns in 2009 and 2012, probably won't take place, at least not until the fourth quarter of 2015," said Chang.

"The model of 'buy land, construct, sell and make profit' no longer works. Now they have to dig for new growth points and study customers' demand in niche markets. There will be a change in the growth pattern," Chang said.

All of the top 15 property developers have moved into the e-commerce sector and have established platforms on WeChat, a mobile messaging application operated by Tencent Holdings, the China Index Academy report showed.

All but four (of the top 15) have also offered a new service allowing people to raise money to buy homes via crowd-funding, the report said.

"Property developers now have to come up with some value-added services and products, like the property management offered by China Vanke and commercial areas and office buildings developed by Wanda," Zhang said, noting that diversification and boosting profit margins will be vital.

Developers have not yet put that much effort into diversifying, said Zhang.

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