China’s Largest Developer Sees Profit Rebound With Curbs

Country Garden Holdings Co.’s half-year profit rebounded as China’s largest residential developer by sales pointed to an uncertain outlook with curbs on property prices escalating in the world’s second-biggest economy. 

Core net profit, which adjusts for property revaluations, gained 4.2% to 15.2 billion yuan ($2.4 billion) in the six months ended June 30 from a year earlier, the Foshan-based company said Tuesday. Revenue surged 27% to 235 billion yuan. 

“There is still a long way to go for China’s urbanization, which presents both opportunities and challenges for the property sector,” President Mo Bin said in the statement as he signaled the company will stick to its lower-end market push, in contrast to most rivals eyeing affluent buyers in economic hubs.

Country Garden is targeting smaller cities, where local authorities have fewer limits on home prices, as regulators ratchet up efforts to tame China’s runaway property market. Their most recent moves have included halting private equity funds from raising money to invest in residential property developments, while temporarily stopping land auctions in some major cities.

Shares of the developer gained 0.4% as of 15:22 p.m., trimming losses to about 23% this year.

The company’s focus on luring migrant workers who want affordable apartments in smaller cities has helped it withstand property price curbs this year. While more cities are following in the footsteps of larger metropolises to ban non-residents from buying apartments, tightening in smaller cities has so far been looser.  

Red Lines

Compared with rivals such as China Evergrande Group, Country Garden is less impacted by Beijing’s “three red lines”, debt metrics that developers will have to meet if they want to borrow more.

The firm made progress on all three metrics during the first six months, according to Bloomberg calculations based on company data. Still Country Garden is behind on liabilities to assets, which remained above the required 70% ceiling.  

Looking ahead, aggressive sales promotions by competitors including China Evergrande Group may prompt Country Garden to offer discounts in the upcoming sales season, potentially eroding its margin, Bloomberg Intelligence analyst Patrick Wong wrote in a note earlier this month.  

©2021 Bloomberg L.P.

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