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Construction: Property lull drags down Vanke profit

By Hu Yuanyuan (China Daily)
Updated: 2008-10-29 10:44

Vanke, China's largest listed real-estate firm, saw its third-quarter profit drop 13.4 percent due to shrinking sales in a sluggish housing market.

The company's net income from July to September fell to 215 million yuan on a yearly basis, Vanke said in a statement to the Shenzhen bourse yesterday. And its property sales dropped 32 percent to 11.5 billion yuan in the third quarter.

Special coverage: Housing in China  Related readings:  Vanke to issue 5.9b yuan in corporate bonds  Vanke scales back land developments as market wanes  Vanke Q1 net profit up 17.28%  Vanke April property sales reach 4.32b yuan

"Vanke will stick to the 'cash is king' strategy, which will allow the company to ensure steady and healthy operation, while getting prepared for any market opportunities that may arise," the statement said.

Given the growing uncertainties in the market, the company decided to further cut its new development area by 16 percent to 5.7 million sq m.

"Such adjustment will make our product line better match existing market demand," said Vanke President Yu Liang. "With more cash on hand, the company will be better equipped to handle any emergencies."

Property price growth in China's major cities slowed 1.8 percentage points in September from the previous month, according to the National Development and Reform Commission (NDRC).

The growth rate has slackened for eight consecutive months this year, showing a further cooling in the real estate sector.

"The company's sales performance was better than the sector's overall performance, but it was still affected by the market recession," said the statement.

Vanke sold 532,000 sq m in September, up 12.2 percent from August but down 27.6 percent from September 2007. In value terms, sales rose 5.7 percent from the previous month to 4.3 billion yuan, but fell 37.9 percent from a year earlier.

And the company's net profits for the first nine months of this year grew 18.8 percent year-on-year to 2.28 billion yuan.

On Oct 22, the government trimmed costs, including mortgage rates, taxes and down payments, for first-home buyers, in a move to prevent a cooling property market from dragging down economic growth, which has already slowed to the weakest pace in five years as demand for exports wanes because of the global financial crisis.

"Those measures may help to boost confidence and encourage a 'soft landing' for the property market, but it's too early to gauge their effect," said Yu.

He added that the company cannot rule out the possibility of a fall in full-year profit.