Developer Vanke's margins shrink

China's largest residential property developer, China Vanke Co Ltd, posted a 2.8 percent rise in third-quarter net profit yet margins shrank in a sign of the country's slowing property sector and economy. Chinese developers are battling excess supply, tight liquidity and home prices which fell for a fifth straight month in September.
Property accounts for about 15 percent of China's economy, which grew at its slowest rate since the 2008 global financial crisis in the September quarter. New home prices fell month on month in a record 69 of the 70 major cities. China Vanke said its gross margin fell 1.1 percentage points to 23.8 percent from a year earlier, squeezed by sliding home prices and expensive land costs.
"Oversupply of properties will remain in the market in the short term and the inventory of new properties in the market will further increase," the company said in a statement.
Net profit for the July-to-September quarter was 1.65 billion yuan ($270 million), compared with 1.60 billion yuan a year earlier, the company said.
For the first three quarters of the year, net profit rose 4.8 percent to 6.46 billion yuan.
Due to higher inventory and intensified market competition in some cities, Vanke delayed preparatory work on some projects and said it expected that the floor area of new starts for the whole year would be less than that designated at the beginning of the year.
On Tuesday, China Overseas Land & Investment Ltd, the country's fifth-largest developer, reported its operating profit plummeted nearly 50 percent in the third quarter and warned that future downside risks remained.
The results reflect a property slump which has major ramifications for sectors ranging from steel to cement and furniture.
China's gross domestic product grew by 7.3 percent in the third quarter from a year earlier, official data showed on Tuesday, its weakest rate since the first quarter of 2009.
With house prices falling and new construction tumbling, the government last month cut mortgage rates for some home buyers for the first time since the global financial crisis, although analysts said it may take some time for these measures to take effect.
Developers are also turning to new marketing techniques to lure buyers without sacrificing margins. Discounts can still run into the hundreds of thousands of dollars but increasingly property marketing looks to simply to create a buzz around new projects, analysts said.