China's property market is bottoming out -- thanks to government stimulus policies. New home sales in 31 cities saw a rise in the last seven months, and property prices are up as well. But that has yet to translate into better earnings for listed property developers.
Real estate agency Centaline Group says that in the first half of this year, 36 listed property companies achieved total net profits of only 9 billion yuan, down 11.6 % from a year earlier. Their turnover, however, was 98 billion yuan, up 22% from the previous year.
"There are several reasons, first, the costs are very high in the property market. Land costs in the 2015 financial reports resulted from purchases two years previously, so the land costs in 2013 are dragging down the 2015 profit figures. This is an important factor."
"Second, robust home sales this year resulted from the property companies' strategy of lowering their inventory level, which implies high sales costs. So this would also narrow their profit margins," said Yan Yuejin, research director of E-house China.
Yan also says the fact that home sales started to boom in early April this year does not have an immediate effect on companies' profits. He does have confidence, however, in the emerging signs of improvement in the market.
"As the government continues to relax its control on bank loans and provident fund loans, this would prop up willingness to buy. Home prices have seen an upward trend since May, and property companies will continue to push new home sales, so we estimate that turnover and average home prices will reach a record high in September," Yan said.
However, with home sales gradually picking up this year after government support measures, an excess of unsold houses, high financing and land costs still are keeping the property industry under pressure. At least 6 companies announced in August that they were either leaving the property business, or scaling it back.
Zhang Huadong, who has been conducting property market research for over ten years says the property business is no longer a fast-developing sector with high profits.
"Once property developers quit the business, they won't come back. They can either reorganize or transform, for example selling their assets. There are too many property enterprises, hundreds of them in every first or second tier city."
"This is abnormal. Over recent years, property enterprises have been transforming themselves and their number is declining. Market share is focusing on big companies," he said.
The top 100 property companies in China account for 43 percent of the total market share. However, their profit margins remain thin . Vanke, China's largest residential property developer, saw its profit growth of only 0.8 percent in the first half of this year.