Listed developers under pressure to cut inventories

More projects expected in coming months set to cause stocks to rise

Chinese listed property developers are under pressure to decrease the size of their inventories, which have exceeded 900 billion yuan ($144 billion), statistics show.

The 91 property developers listed on the Chinese mainland had released their results for the third quarter by Sunday, a period that saw the companies' combined inventory valued at 915.55 billion yuan. That amount was up 24.08 percent year-on-year, according to figures released by the Internet-based financial data and service provider Zhejiang Hithink Flush Information Network Co Ltd.

The figures also suggested that relatively strong sales in July and August helped property developers reduce their inventories earlier this year.

Yet, even though 46 of the 91 property companies saw their sales also increase in the third quarter, the industry continued to have an excess of inventory.

China Vanke Co Ltd, the nation's largest property developer by market value, saw its inventory value increase to 246.7 billion yuan at the end of the third quarter, up 28 percent year-on-year.

According to Zhejiang Hithink, the Shenzhen-based company undertook 23 new land projects in the third quarter. Those took up about 3.76 million sq m of gross floor area, adding greatly to the size of China Vanke's inventory.

In the third quarter, the 14 largest Chinese cities, including Beijing, Shanghai, Shenzhen and Guangzhou, traded 52.5 percent more residential properties than they had a year ago.

Xiao Xiao, an industrial analyst from Minsheng Securities Co Ltd, noted that more projects will be brought under construction in the coming months, causing inventory stocks once again to increase.

Some of the chief indicators of the mainland property market's strength, such as sales and transaction prices, have begun to show evidence of greater stability, and a handful of mainland property developers are now expected to be listed in Hong Kong in the fourth quarter, the Securities Daily reported on Monday.

And various property developers, including the Shanghai-based CIFI Group Co Ltd and Jiangsu Xincheng Real Estate Co Ltd, are planning to hold IPOs.

Since the second half of 2008, the average price-to-earnings ratio for domestic property developers newly listed in Hong Kong has been 5.8, a result, in part, of the lingering global economic slowdown. In addition, the limits that have been placed on home purchases in the mainland have also made investing in such shares more risky, analysts said.

But low issuance prices will also provide greater opportunities for expansion to property developers that are seeking to be listed, said an investment bank source quoted by the Securities Daily.

In the third quarter, Chinese real estate developers posted stronger earnings results following a market rebound that started in July.

In the first three quarters of 2012, Vanke generated 5.08 billion yuan in net profits, up 41.74 percent year-on-year, and China Merchant Property Development Co Ltd saw its net profit for the period from January to September increase by 16 percent from a year earlier to 2.42 billion yuan.

wang_ying@chinadaily.com.cn