Property developers' profit margin shrank last year

A residential complex developed by Evergrande Real Estate Group in Qidong, Jiangsu province. [Photo provided to China Daily]

Major property developers had weaker profitability last year, and the industry's profits margin will continue to narrow due to the increasing operational and land cost, according to a research on Chinese top 100 property developers.

The net profit of the country's top 100 real estate enterprises stood at 11.6 percent last year, down 0.4 percentage points than that of 2014. And the return on net assets was 17.7 percent, a decrease of 0.6 percentage points than the previous year, according to report by China Index Academy, Development Research Center of the State Council and Tsinghua University.

The market corrections in 2015, together with the rising operational and land cost, all weighs on property developers' profitability.

"In the past decade, property developers can make huge profit with a simple land parcel. Such an era has gone. We now have to dig out the potential and derivative demand of habitants and strengthen our financial capabilities in the management," said Zhang Xiaomei, CEO of the Riverside Group.

The group, for instance, has formed a partnership with Six Flags Entertainment Corp to build multiple Six Flags-branded theme parks in China, betting on the huge consumption potential in the tourism sector as the economy grows. This move is also to diversify its business portfolio and hedge downside risks in the property market correction.

Thanks to the government's destocking measures, China's home sales and prices both rebounded last year. The sales volume increased 14.4 percent year-on-year nationwide, and the floor space sold increased 6.5 percent, according to the report.

Meanwhile, the property industry's concentration was further enhanced as the top 100 property developers gained more than one-third of market shares, reaching a recording high, according to the report.

First-tier cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, and second-tier cities, mainly provincial capitals, remained the development focus of those major real estate companies. And they contributed more than 80 percent of profit.

Property developers will tend to develop more high-end projects in the first-tier cities to increase their profitability, the research showed.

Evergrande Group, a Guangzhou-based and Hong Kong-listed property develop, for instance, have five projects in Beijing among which the unit price of three projects were close to 100,000 yuan ($15,384).

Evergrande Palace, a project outside the capital's eastern fourth ring road, sold out 21 units of apartments within two weeks after it opened for sale in March, with the average price of each unit reaching 25 million yuan.

"We will continue to bid for more land parcels in Beijing this year, though it has been increasingly difficult," said Gao Zhenyang, marketing chief of Evergrande's North China region.