As of August 23, 7 of the top 10 leading real estate companies in the country have released their 2019 semi-annual performance reports. Overall, they have maintained steady growth, with net profits exceeding 10 billion yuan, and profitability higher than the industry average. In terms of land reserves, leading real estate companies have sufficient reserves. Most real estate companies will adopt an appropriately contracted land acquisition strategy and accelerate sales to ensure sufficient liquidity and reduced leverage.

Adequate land reserves

According to the semi-annual report, Vanke acquired 54 new land parcels in the first half of the year, with a total planned construction area of ​​13.728 million square meters, a year-on-year decrease of 33.0%. Poly added 44 new projects with a total area of ​​8.26 million square meters, a year-on-year decrease of 45.3%. China Resources Land increased its holdings of 39 land parcels with a total land price of 82.06 billion yuan, with a total construction area of ​​10.21 million square meters. China Overseas Land has added a total of 24 new land parcels in the mainland and Hong Kong, with a total new land area of ​​4.64 million square meters. Seazen Holdings added a total of 80 new land reserves in the first half of the year, with a total construction area of ​​24.592 million square meters. In terms of geographical distribution, real estate companies account for a higher proportion of new land reserves in first- and second-tier cities as well as in some popular third- and fourth-tier cities.

In terms of total land reserves, as of the reporting period, the land reserve areas under construction and planning of Vanke, Poly, Sunac China, and Xincheng Holdings were all 100 million square meters or more, approximately 153 million, 150 million, 213 million, and 134 million square meters respectively. As of the end of June, China Resources Land's total land reserve area reached 67.37 million square meters. Judging from the current situation, leading real estate companies have sufficient land reserves, and it is expected that the current reserves can meet the development and use in the next 2-3 years.

Yan Yuejin, research director of the Think Tank Center of E-House Research Institute, said that judging from the current land reserve scale of leading real estate companies, the growth rate of some real estate companies has slowed down. This is related to the emphasis on project sales this year, and the land bank is relatively conservative. "In terms of absolute scale, large real estate companies have large land reserves and are still acquiring land, but the growth rate has narrowed."

In the next step, real estate companies are expected to continue to maintain a rational and cautious land acquisition strategy. Country Garden’s management pointed out that it will adhere to prudent financial policies and risk control measures and replenish high-quality land reserves prudently and pragmatically. Sunac China stated that it will continue to strictly control investment in the second half of the year, slow down the pace of land acquisition, and only seize a few particularly high-quality opportunities on the premise of ensuring sufficient liquidity and maintaining a long-term downward trend in leverage ratios. Seazen Holdings will also optimize its existing land reserves, actively withdraw funds, and control the scale of liabilities.

Xia Dan, a senior researcher at the Bank of Communications Financial Research Center, said that in the face of changes in regulatory policies and market environment, real estate companies have reduced land acquisitions or acquired land rationally and prudently. At the same time, they have tried their best to speed up the de-development of inventory land, speed up promotion repayments, and shrink leverage.

Maintain sufficient liquidity

In terms of asset-liability ratio, Yan Yuejin said that reducing financing costs and liability scale is what real estate companies currently need to do. Judging from the actual situation, some real estate companies are actively carrying out debt repayment work. It is expected that some real estate companies will still make new moves in the third quarter, especially in terms of exchanging price for volume.

Leading real estate companies have relatively stable financial structures and abundant cash flow. According to the semi-annual report, as of the end of the reporting period, Vanke's book interest-bearing liabilities were 225.3 billion yuan, a decrease of 35.89 billion yuan from the beginning of the year. The net debt ratio increased to 35% from the end of 2018, which continues to be at a low level in the industry. The company has cash on hand of 143.9 billion yuan, and the coverage ratio for current interest-bearing liabilities is as high as 2.2 times. Poly also moderately reduced leverage and converged on its land acquisition strategy, with book interest-bearing liabilities of 271 billion yuan and a net debt ratio of 76.64%, a decrease of 3.92 percentage points from the beginning of the period and a decrease of 16.6 percentage points from the same period last year.

Sunac China’s management pointed out that although the debt ratio has fluctuated in the short term, liquidity remains abundant. As of the end of June, the cash balance covered more than 3.1 times the interest-bearing liabilities due in the second half of the year. We will continue to sell quickly in the second half of the year, release operating cash flow, and strictly control land investment, striving to reduce the debt ratio at the end of 2019 and maintain a long-term downward trend.

Yin Zhongli, director of the Real Estate Finance Research Center of the Institute of Finance, Chinese Academy of Social Sciences, said that the reduction in the debt ratio of leading companies reflects the strengthening of risk control of leading companies. It is expected that the overall debt ratio of real estate companies will continue to decline in the second half of the year.

In terms of debt solvency, Xia Dan pointed out that the current debts of existing real estate companies can be covered by borrowing new ones to repay old ones, and real estate companies will not have much debt pressure this year. In the second half of next year and the year after that, we will see the peak of domestic debt repayment.