Real estate performance observation | Increasing profits? Housing industry industry differentiation is increasing, and debt levels remain high

Huaxia Times (chinatimes.net.cn) reporter Li Future Trainee Reporter Li Kaixuan reporting from Beijing

Recently, the high-volume and high-frequency financing actions of housing companies have aroused industry concern. With the arrival of the earnings season, a number of real estate companies have issued a warning on the decline in net profit. In addition to the comparison of data in 2018, the real estate companies have seen a significant increase in revenue and no increase in profits. Affected by the epidemic, housing companies ’sales in January-February 2020 saw a significant“ shrinkage ”. 2020 is the peak in debt repayment for housing companies. The industry believes that housing companies, as typical high-leverage companies, are facing the test of cash flow . In addition, the concentration of the real estate industry has increased again, with the top 100 housing companies occupying 60% of the market share, the advantages of small and medium-sized housing companies have been lost, and the living space has been squeezed.

Real estate companies will increase income but not increase profits.

The arrival of an epidemic has deepened the degree of differentiation between real estate companies. In the three months since the start of the year in 2020, housing companies have been committed to solving the three major problems of sales, financing, and debt, trying to keep cash flow healthy during times of crisis. Recently, a number of real estate companies have released their financial reports for 2019. Among them, those that”increased income but not increased profits” are not a minority.

Recently, a housing company issued a profit warning for 2019.”Huaxia Times” reporter learned that it expects the Group’s core business net profit and net profit to decline in the whole year of 2019. Among them, the core business net profit is expected to decrease by 48% from 2018, and the net profit is expected to decrease by about 50% from last year.

The two major indicators of revenue and profit measure the operation of housing companies, but the financial report of housing companies has shown a strange phenomenon in the past two years. Its revenue has increased significantly, and its profit has grown at a faster rate. Often they can only look at the dust, and even the growth rate appears negative. A real estate company’s 2019 financial report shows that its operating income growth rate in 2019 is 34.2%, and the growth rates of net profit and core net profit are 27.7% and 24.8%, respectively.

In addition, after reviewing a number of companies, the China Times Times reporter found that the revenue has increased significantly and the flat performance of profits has become apparent in 2018. For example, in 2018, Wantong Real Estate’s operating income rose 10.62% year-on-year, but its net profit fell 8.11% year-on-year. In 2018, the operating income of the famous cities achieved a growth of 30.64%, but the net profit fell by 61%.

In addition, the phenomenon of”increasing income but not increasing profits” among the top 100 housing companies is also common. Although the concentration of the industry has increased significantly in 2019, it is inevitable that the liabilities of housing companies are still high. The report released by the China Index Research Institute shows that in 2019, in terms of finance, the top 100 real estate companies have gradually changed from”de-leveraging” to”stable leverage”, and the average asset-liability ratio has increased slightly by 0.2 percentage points compared with 2018. It reached 78.7%, and the average effective debt ratio was 49.0%, which was the same as in 2018.

Regarding the reason of “increasing income but not increasing profits”, the China Index Research Institute believes that the current real estate market has eroded the premium space due to limit prices and high costs. Comparing historical data, it can be found that from 2015 to 2019, the average operating income of the top 100 housing companies was 20.68 billion yuan, 26.76 billion yuan, 32.40 billion yuan, 43.99 billion yuan, and 54.64 billion yuan, and their average net profits were respectively over the same period. It was 2.43 billion yuan, 2.94 billion yuan, 4.12 billion yuan, 5.77 billion yuan, and 6.90 billion yuan.

It can be calculated that the average revenue growth rate of the top 100 companies shows a downward, upward, and downward wave curve, while the average growth rate of net profit shows an inverted”U” trend. It peaked around the year, and accelerated decline in 2018 and 2019.

The middle finger research institute also pointed out that in 2019, the operating income and net profit of the top 100 real estate companies maintained a growth trend, but the growth rate was slower than in 2018. In addition, the average operating income and net profit of the top 100 real estate companies decreased by 11.6% and 20.4% compared to 2018.

Industry differentiation is intensifying

“The real estate industry is fragmenting, but the difference between final profits will become more and more obvious.” Insiders of a housing company”Huaxia Times” reporter said. Combining the historical changes of the real estate market in recent years, we can find that the head real estate companies are gradually occupying the market, and the living space of small and medium real estate companies is squeezed.

After years of growth and development in China’s real estate industry, the average sales value of the top 100 real estate companies in China has increased by more than 80 times, and their market share has exceeded 60%. According to data released by China Index Research Institute, in 2019, the total sales and floor space of the top 100 real estate companies reached 98.17 trillion yuan and 72.483 million square meters, an increase of 16.3% and 13.5% year-on-year.

At the same time, the market share of the top 100 housing companies’ sales has also steadily increased to 61.5%, an increase of 5.2 percentage points compared with 2018, and the industry’s concentration is further increasing. In addition, the wave of bankruptcies of small and medium-sized real estate companies has continued from 2019 to the present. Data from the People’s Court Bulletin Network shows that as of 3 and 23, nearly a hundred housing companies have declared bankruptcy.

“The majority of bankrupted real estate companies are micro real estate companies. Although our real estate company has not fully entered the ranks of large real estate companies, due to the impact of the epidemic, the cash flow pressure is particularly tense and has already begun. One round of layoffs. If the money can’t be collected as soon as possible, it feels that the company will lay off staff and save some expenses.”Wang Lei (pseudonym), an employee who works for a regional housing company, told the China Times reporter.

It said that in the epidemic, small and medium-sized real estate enterprises did not have advantages in all aspects of financing, land acquisition and sales.”It is true that some support policies have been introduced locally, but they are all short-term policies. In addition, the cost of our loans and financing is too high. These cannot be avoided or reduced, and they are problems that cannot be solved for a long time.” Wang Lei”Huaxia Times” reporter said.

Debt tops the peak of debt repayments

Data shows that as of July 2020, housing companies have at least 170 billion yuan of debt to repay. However, due to the new crown pneumonia, the period that should have been the sale of”Little Yangchun” became”cold spring cold”, and the deceleration of the repayment also caused the housing enterprises to face greater cash flow pressure.

Also. It is worth noting that the China Index Research Institute pointed out that in the financial aspect, due to the continuous real estate regulation and control policies and the high cost of various factors, combined with the decline in the turnover rate of enterprises, the profitability of housing companies has declined slightly. Data show that in 2019, the average net profit rate and return on net assets of the top 100 real estate companies were 11.1% and 15.9%, respectively, which were 0.5 and 0.8 percentage points lower than in 2018.

“Now, the financing of housing enterprises is still relatively difficult, and there is no easing.” Yang Delong, chief economist of Qianhai Open Source Fund, pointed out to the reporter of China Times that the current phenomenon of financing of housing enterprises. .”Debt issuance is mainly borrowed from the old to return the old, but at present the audits of banks and trusts are relatively strict.” Wang Lei also told the China Times reporter.

The data released by China Index Research Institute show that in 2019, the average asset-liability ratio of the top 100 real estate companies was 78.7%, a slight increase of 0.2 percentage points from 2018. Housing companies will usher in a peak in debt service and face a certain test of cash flow. Among the surviving bonds of real estate enterprises, from 2020 to 2023, the scale of bond repayments will remain high and reach a peak in 2021. The scale of repayment in 2020 will be 752.01 billion yuan, and in 2021 it will reach 105.42 billion yuan.

Responsible editor:Zhang Bei Editor-in-chief:Zhang Yuning