China Vanke, mainland's second largest developer, says coronavirus is making survival difficult for the sector

By Pearl Liu pearl.liu@scmp.com

/ https://www.scmp.com/business/companies/article/3075723/china-vanke-mainlands-second-largest-developer-says-coronavirus?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp |

March 23, 2020 10:47 AM SGT

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China Vanke, the country's second-largest property developer by sales, said the coronavirus pandemic is taking a toll on its business and surviving could become a real issue for the company and the industry as a whole, according to chairman Yu Liang.

"Survival is a real issue now," Yu said late on Tuesday after Vanke reported an increase in annual profit and sales that was much slower than the previous year. He added that when the company adopted "to survive" slogan during the annual staff meeting in 2018, he never thought it would become a major issue as the coronavirus threatens the survival of the industry.

The company said there will be a delay in handing over about 39,000 homes to buyers this year as the outbreak delays construction.

Zhu Jiusheng, president and chief executive officer, said the coronavirus has had a huge impact on the company, as it has lost out on 51 billion yuan (US$7.3 billion) in sales in February and the first half of March, as it hardly sold any property in Hubei province, including Wuhan, Ezhou and Yichang.

The central Chinese province has been at the epicentre of the coronavirus outbreak, forcing the authorities to put dozens of cities in complete lockdown for weeks to contain the spread of the virus that causes the Covid-19 respiratory illness.

"As a result, our liquidity has been largely compromised," Zhu said. "We will feel higher downward pressure in the next one to two years because of the virus."

China Vanke aims to raise US$1 billion in new shares sale 'to survive' housing market slump

The company, one of the less leveraged builders in China, saw its net gearing ratio, a measure of indebtedness, jump to 33.9 per cent in 2019 from 8.8 per cent in 2017.

Net profit rose 15.1 per cent to 38.9 billion yuan on revenues of 367.9 billion yuan. That was slower than the 20.4 per cent increase in 2018 and 31.2 per cent in 2017.

China Vanke's homes sales growth also slowed to 4 per cent, from 14.5 per cent in 2018 and 45.3 per cent in 2017.

The mainland's property sector has had a dismal start to the new year, with home sales registering the steepest plunge since at least 2013, falling 35 per cent by value in January and February from a year earlier, according to figures from the National Bureau of Statistics on Monday.

Home prices flatlined in the first two months, putting it in near a standstill last seen in April 2015 when the property market was emerging from a year-long slump.

Meanwhile, other existing measures to douse price speculation that have been in place since 2018 are pushing developers to the brink. More than 100 property firms have filed for bankruptcy in the first two months of this year, the state-owned People's Court Daily said on its website. In 2019, some 500 builders collapsed.

Analysts said that relaxing curbs and easier access to funding can alleviate the liquidity crunch in the sector. However, Zhu said that recent measures, including a cut in the reserve requirement ratio by the central bank, were not helping the developers to address their concerns adequately.

"The cut [in reserve requirements] can bolster economy, but as a property industry player, Vanke does not feel it will have a direct positive impact," said Zhu.

The company declared a dividend of 1.045 yuan per share for 2019, the same as 2018.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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