The company blames the ‘severe depression’ in the property market and says ‘only the fittest will survive’
China’s largest property developer Country Garden Holdings has announced a 96% fall in profits, blaming a “severe depression” in the country’s crisis-struck property market in which “only the fittest can survive”.
The company, which is listed in Hong Kong, said preliminary net profit crumbled from 15bn yuan ($2bn) to 612m yuan ($88m) in the first half of 2022 due to the housing market crisis that is slowly overtaking the Chinese economy.
Country Garden, which owns thousands of property projects and a footprint in almost 300 municipalities, has seen its shares slide more than 70% this year and the stock shed another 2.3% on Tuesday to come to HK$2.54.
It had cautioned earlier that profits could drop up to 70% and even higher than expected fall came with a stark warning in a statement to the Hong Kong stock market. The company stated:
“In 2022, the property sector faced myriad challenges, including the market’s weakening expectations, sluggish demand, and a fall in property prices. All these exert mounting pressure on all participants in the property market, which has slid rapidly into severe depression. The harsh business environment in which only the fittest can survive means even higher requirements for businesses’ competitive strength.”
China’s property crisis started to rear its head almost a year ago when the second largest developer, Evergrande, said that it might not be able to fulfill repayments on the offshore, dollar-denominated part of its hefty $300bn debt mountain.
At the time, market watchers thought that companies such as Country Garden – which did not have such hefty borrowings – would not be affected by the problems.
But the debt contagion had grown from Evergrande throughout the huge $60tr Chinese property market, causing falling prices, a 40% fall in sales, and a mortgage strike by homeowners enraged by the non-completion of homes for which they have paid beforehand.
The grim outlook has been worsened by the zero-Covid lockdowns that have impeded economic activity all over China in the last 12 months, and Country Garden blamed the recent severe weather for hurting profits.
The company’s troubles have also seen its majority shareholder – Yang Huiyan, daughter of the founder – lose half her $24bn fortune.
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However, the company still managed to reach an optimistic note and said there was hope for a jump in fortunes because the urbanization of the population was still increasing. Ti said:
“China’s economy has proven resilient and its strong fundamentals for long-term development remain intact. The country’s new type of urbanization still has a long way to go and the desire for a good life will always remain dear to people’s hearts. The real estate industry will always exist.”
“We will persevere and remain hopeful despite adversity. Country Garden keeps its feet on the ground as it works hard to get through a harsh winter and anticipates the arrival of spring.”
