2015 was a tough year for Chinese property developers.
Plagued by falling property prices, largely as a result of a mounting supply glut in smaller cities, one third reported an operating loss.
According to the state-run People’s Daily newspaper, citing an article in the Beijing Times, 15 Chinese real estate companies projected a loss for 2015, accounting for nearly 30% of developers that have already released their preliminary earnings reports.
Alongside the 15 firms that reported an operating loss, 23 indicated that their profitability had declined.
12 reported an increase in overall profitability.
China’s real estate sector suffered a sharp deceleration in 2015 with property investment growing just 1%, well below the 10.5% pace seen a year earlier.
Despite the sharp deceleration in investment, unsold housing inventory continued to balloon, particularly in smaller cities.
According to data released by China’s National Bureau of Statistics, the number of unsold new homes nationwide increased 14% to 437 million square metres as at 31 October last year.
Based on analysis from the CBA, the property inventory overhang in lower-tier Chinese cities could take anywhere from two to five years to clear based on the current pace of sales.
Given the importance of China’s property market as a driver of economic growth – not only from an investment perspective but also for household consumption – it’s little wonder why ratings agencies, along with markets, remain nervous towards the sector.
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