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Property developer China Vanke’s profit falls sharply

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SHANGHAI—China Vanke Co., one of China’s largest property developers, said its first-quarter net profit fell 57.5 per cent from a year earlier, as it sold and completed the construction of fewer properties.

Net profit for the three months ended March 31 was 650.2 million yuan ($105 million), down from 1.53 billion yuan in the year-earlier quarter, the company said in a stock-exchange filing late Sunday. It said its full-year profit for 2014 rose 4.2 per cent.

Vanke, based in Shenzhen, said first-quarter revenue fell 6.7 per cent from a year earlier to 8.4 billion yuan. The developer operates in more than 60 Chinese cities, and is listed on both the Shenzhen and Hong Kong stock markets.

Vanke’s earnings are another sign of China’s housing-market slump, and indicate how other large property developers might perform. Many showed deteriorating profit margins and higher debt levels in 2014 as the housing slump persisted. Housing sales by value nationwide fell 9.1 per cent in the first quarter this year, extending the 7.8 per cent fall in 2014.

Property developers usually book higher completions and sales of properties in the second half of the year because of seasonal factors. Vanke said the results in the first quarter shouldn’t be taken as a basis for estimating change in profit for the full year. The firm said it forecasts an increase in net profit for 2015 but didn’t give a figure.

Analysts said Vanke’s earnings are likely to pick up later in the year as it completes more projects. Revenue is booked when homes are completed; many home buyers sign contracts before the homes are built.

China’s central bank in recent months has made a series of moves to prop up the sluggish housing market. These include cutting benchmark interest rates, lowering the amount of reserves that banks have to set aside, which makes more funds available for lending, and easing down-payment requirements for second-home purchases.

“The government has shown its determination to support the real estate sector,” said Citi Research analysts in a recent note. “Grounded in this potent policy support, we believe the physical market will react positively and the downtrend will stabilize in 2015.”

Larger property developers such as Vanke have been able to outperform smaller players in China, in part because of more favorable access to financing. Vanke executives said a few weeks ago that they expect more consolidation among builders in the country’s property market. The downturn in the housing market is uneven. Smaller cities are plagued by excess inventories, while in larger cities property developers struggle with still-high land prices.

Vanke said land prices remained high despite a slowdown in transactions, with reserve prices at auctions still high. In the first quarter, the percentage of aborted auctions in 14 major cities was 23 per cent, while 47 per cent of land was sold at reserve prices.

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Drop in property company’s earnings for first quarter is another sign of China’s housing-market slump.

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