Real Estate Developers Turning to Other Areas for Funds

The mid-year reports on listed property companies in China have shown that only 40 percent of these companies have seen overall sales volume and net profit growth. Less powerful real estate companies have been forced to turn to other areas in an effort to maintain profit, such as the mining industry and financial business.

Let's take a closer look with our reporter Liu Min.

 

70 out of 170 mainland real estate companies listed on Hong Kong's stock market have been proved to be making profit while the rest are struggling with limited capital. Many middle and small sized companies, especially those which didn't get the chance to build government subsidized housing, are now facing huge challenges in maintaining profit margins 1. Manager Ding Lei says his company, Zhangjiang Real Estate, is one of them.

"Our company is transforming from a 100 percent real estate company to one which will also become involved in high-tech 2 and risk investment areas."

According to the market report from Wande Statistics Company, many real estate developers have turned to investing in the mining industry. Since late last year, more than 20 listed companies have invested capital into this area, accounting 3 for one sixth of the entire real estate sector 4 listed on the stock market. But analyst 5 Shi Jianjun from Dazhihui Tactic 6 Research Company says the format 7 of diversified 8 investment brings with it high risks for these companies.

"It's very dangerous for them since they may not be aware of the mining business in its entirety. Such investment involves many uncertainties 9, including the issue of mine quality, human resources and corporate 10 cultural management."

At the same time, a number of construction service suppliers have also been affected 11 by the current stringent 12 situation within the real estate market. Zhou Weigang's family company used to work with real estate developers carrying out construction projects. But recently he has chosen to divert the company's direction away from real estate and towards the area of finance.

"I've received two business opportunities this past March, one was a 180 million yuan real estate construction project, and the other was a 30 million yuan project to build a factory. I accepted the latter. Why? Because the capital chains from the developers were not good, and I couldn't take the risk. My prediction is that the real estate market will certainly go downhill very soon. So, now I'd rather stay away from the construction business."

In Shanghai, the trading volume on newly built houses has seen a huge decrease in recent months, though average property prices remain stable. Economics Professor Sun Lijian from Fudan University indicates that the capital chain pressure from the major real estate developers is not so intense just yet.

"Many real estate companies have established their own financing companies to collect capital from average people who expect to gain higher profit returns out of their investment. These financing companies don't need to apply for loans from the banks, but they could have enough money to maintain their capital flow."

For this reason, many researchers believe that there will be no sharp drop in housing prices for a considerable period of time to come. However, the people who work in the real estate market, the managers from property agencies disagree. Huang Hetao from the 21st Century Property Agency asserts that the turning point of China's real estate market has already emerged.

"The real estate developers have to win the final war during September and October, the golden season for property sales. Otherwise, they will face huge pressure later on. So I think whether average house prices plummet 13 will become apparent very soon, during this period of time."

These market insiders believe that the market has come to its extreme peak, leaving real estate developers with no choice but to give in on price reductions.

For CRI, I'm Liu Min.