What’s new: Chinese property developers expect to report barrels of red ink for 2022 as sales declined and the value of their unsold homes fell.
As of Feb. 21, 66 of 119 publicly traded Chinese real estate companies issued 2022 earnings estimates, and 38 said they expect to report a net loss, data from Wind Information Co. showed.
The estimated combined loss for the 66 developers topped 100 billion yuan ($14.55 billion) for 2022, and 36 of the enterprises said they will probably record impairment of assets.
“Whenever an industry is depressed, some companies expecting to lose money no matter how they do their accounting will simply set aside a large amount of impairment for the decline of inventory values in the hope that they can rebound in the future and turn into a profit,” an accountant told Caixin.
The reports attracted the attention of regulators. The Shanghai and Shenzhen stock exchanges sent inquiry letters to a number of developers, including Huayuan Property Co. Ltd. (600743.SH) and state-owned Overseas Chinese Town Holdings Co. (000069.SZ), asking them to detail the specific assets and projects related to the impairment and justify the amount of their write-downs in comparison with previous years.
The background: China’s property sector has been in crisis for more than a year. Developers have been hobbled by a shortage of funds caused by a slump in home sales and an inability to raise new financing due to government controls on their debt.
Property sales by floor area dropped 24.3% in 2022 from a year earlier, the most since data became available in 1992. Residential property sales by floor area declined by 26.8%, and sales by value dropped by 28.3%, according to data from the National Bureau of Statistics (NBS).
The unprecedented housing slump and construction halt led to the worst earnings for Chinese real estate developers in at least seven years, according to Bloomberg estimates.
Among 60 mainland-traded property companies that issued profit alerts by a Jan. 31 deadline, 60% estimated losses for last year, when a credit crunch sent shockwaves through the industry and triggered defaults, Bloomberg calculations based on public data show. Only 5% of property businesses turned profits, while an additional 5% saw net income growing from a year earlier. The rest said profits fell.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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