One of the biggest property developers in China, Country Garden Holdings Co. Ltd. (HK:2007), saw its first-half earnings drop by about 96%. This was because the housing crisis in China was getting worse.
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The net profit attributable to shareholders for the six months ending June 30 decreased to $88.5 million yuan from $2.17 billion yuan a year earlier, according to a statement released by the property developer on Tuesday. The result is consistent with Country Garden’s profit warning published earlier this month.
Additionally, the company’s sales plummeted 31% to 162.36 billion yuan. Due to low demand and falling prices, Country Garden saw a “plethora” of problems in the real estate market.
A wave of COVID-19 lockdowns in China made a downturn in the real estate market even worse. This lowered real estate prices across the country and made people more hesitant to invest.
The recession has hit disproportionately hard on real estate developers, who rely on quick sales to preserve their cash flow. Since property sales are Country Garden’s main source of income, an economic downturn hurts the company.
However, the company said that its financial situation remained good and that it has no impending international loan obligations this year.
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In 2021, China Evergrande Group (HK:3333), the country’s second-largest real estate company, defaulted on a series of bond payments, precipitating a property crisis. This made it so that most of the other companies in the industry, including Country Garden, lost their investment-grade status.
Country Garden’s dismal profits are comparable to those of its competitors from the previous week. A big drop in real estate prices has also caused some people with mortgages to stop paying, which has made the sector’s ongoing liquidity crisis worse.
China Overseas (HK:0688), Redco Properties Group Ltd (HK:1622), and Poly Property Group Co Ltd (HK:0119) all had revenue and profit reductions of double digits in the first half of the year.
In the past year, Country Garden’s shares have lost over 70% of their value. Tuesday saw a decline of 0.8% in their value.
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Worsening conditions in the real estate market have prompted the Chinese government to implement growth-supporting stimulus measures. However, they have done nothing to halt the dramatic decline in stock prices this year.
