Preface
In recent years, the real estate industry is in a cyclical adjustment, and corporate profit margins have continued to narrow. In 2023, under the consensus of "guaranteed delivery", the overall operating income of the industry will increase slightly, but the profit scale will continue to have a negative growth trend, and it will be a net loss for two consecutive years, and various profit margin indicators will continue to decline to the lowest level in history.
At present, the market is still consolidating at the bottom, and the sales resources of low-margin projects have entered the delivery carry-over period, and it is expected that the industry's profitability will continue to be under pressure. On April 16, Vanke A also said on the interactive platform that this year's settlement gross profit margin is expected to be under some pressure, which is also the status quo faced by most enterprises. In the face of the superimposed impact of multiple negative factors, enterprises also need to actively adjust, strengthen the control of investment, management, products and other links, and expand profit margins through structural adjustment.
01
The scale of industry profits has shrunk
Half of the companies are not optimistic about their profit margins
1. Net profit and net profit attributable to the parent company continued to lose, and profits continued to be under pressure
In recent years, the real estate industry's deleveraging policy has continued to exert force, with the lack of market confidence, the decline in purchasing power and the decline in industry expectations, the sales of real estate enterprises have been hindered, and their profitability has been affected. According to the CRIC monitoring situation, the growth rate of the industry's sales scale will slow down from 2021, and even the performance of some real estate companies will show negative growth, and the overall settlement scale of the industry will also begin to shrink.
Judging from the data of enterprises that have disclosed their 2023 annual reports so far, in 2023, the industry's typical listed real estate enterprises1 will achieve an overall operating income of 4,457.8 billion yuan and an operating cost of 3,874.3 billion yuan, an increase of 2.6% and 5.8% year-on-year respectively compared with last year, and the growth rate of operating costs is higher than that of operating income, with the median growth rates of operating income and operating costs of enterprises being -0.1% and 4.7% respectively.
From the perspective of profit growth, the profit growth rate of the industry has shown a downward trend from 2018, negative growth in 2021, and the net profit of large-scale real estate enterprises as a whole will show a net loss for the first time in 2022. In 2023, the profit scale of the industry will continue to grow negatively and continue to show a net loss. Specifically, in 2023, the overall gross profit scale of typical listed real estate enterprises in the industry will be 543.6 billion yuan, and the median growth rate of corporate gross profit will be -23%. The total net profit was a net loss of 109.7 billion yuan and a net profit loss attributable to the parent company of 145.8 billion yuan, and the median growth rate of the net profit and net profit attributable to the parent company was -36.0% and -33.9% respectively.
2. Costs and impairment compress profit margins, and industry profit margins decline
From the perspective of various profit margin indicators of enterprises, the overall gross profit margin and net profit margin of typical listed real estate companies in the industry will continue the downward trend since 2019 in 2023. Specifically, in 2023, the median gross profit margin of typical listed real estate companies in the industry will decrease by 3.2 percentage points from the end of the previous year to 11.5%, and the net profit margin will further decrease by 5.5 percentage points from the end of the previous year to -4.5%. In 2023, the overall profit margin of the industry will continue to decline and bottom out, and the profit margin indicators of enterprises will fall to the lowest level in history.
On the whole, in recent years, the overall profit margin of the industry has narrowed, and the profit margin of most typical listed real estate companies has decreased significantly, mainly due to the following reasons:
First, from the cost side, the high-land price plots acquired by large-scale real estate enterprises in the upward stage of the industry continued to settle, which increased the cost level of carry-over and clearance;
Second, from the perspective of revenue, the sales of real estate enterprises continue to be under pressure, and the excessively high sales price is not conducive to accelerating the decentralization of projects.
Third, from the perspective of asset shrinkage, in recent years, real estate companies have continued to make a large number of impairment provisions for inventory and investment properties, which has also eroded the profit level of the industry to a certain extent.
3. The recovery momentum of hotel operations is strong, and more than 8 percent of enterprises have increased their investment property income (some omitted)
With the epidemic under control, the consumer market has gradually recovered, commercial real estate operations, including hotels and commercial businesses, have also been steadily restored, and the investment property income of real estate enterprises (including rental income and hotel operation income) is also gradually recovering.
According to CRIC statistics, the overall investment property income of typical listed real estate enterprises in 2023 will be 126.7 billion yuan, a year-on-year increase of 24.4%. From the perspective of the specific performance of enterprises, the proportion of enterprises that achieved year-on-year growth exceeded 8 percent, and the growth rate of real estate companies such as China Resources Land, R&F Properties, and China Merchants Shekou was considerable.
02
The net profit loss of 9 real estate companies exceeded 10 billion yuan, and more than half of the profit margins of real estate companies fell together
1. More than forty percent of the gross profit of real estate enterprises fell together, and sixty percent of the net profit loss of enterprises (some omitted)
From the perspective of the specific performance of enterprises, nearly half of the enterprises that will achieve year-on-year revenue growth among the typical listed real estate companies in the industry in 2023. However, due to the impact of the settlement structure and the continuous decline in the profit margin of the settlement project, the performance of gross profit and net profit is not satisfactory, and nearly 1/3 of the gross profit (excluding taxes and surcharges) and net profit of real estate enterprises have declined year-on-year in the year-on-year growth of enterprises, and some of them have gross profit losses.
The phenomenon of "reducing revenue and profit" is relatively common, and the number of enterprises with both operating income and gross profit decreasing accounts for 44.6%, and medium and large real estate companies such as Vanke, China Merchants Shekou, Longfor Group, China Jinmao, and Gemdale Group are no exception. Taking China Merchants Shekou as an example, in 2023, China Merchants Shekou will achieve operating income of 175 billion yuan, a year-on-year decrease of 4.4%, and gross profit (excluding taxes and surcharges) of 21.6 billion yuan, a year-on-year decrease of 21.1%. During the year, the decline in operating income of China Merchants Shekou was mainly affected by the year-on-year decrease in the carry-over scale of development business, while the decline in gross profit was mainly related to the change in the structure of the carry-over region of enterprises, and the revenue scale of Shenzhen region, which had a higher gross profit level, decreased by 30.1% year-on-year, and the proportion of the overall revenue also decreased by more than 4 percentage points.
In addition, in 2023, there will be a net profit loss of sixty percent of the typical listed real estate companies in the industry, and the number of real estate enterprises with net profit losses will further increase compared with the same period last year, but the number of real estate enterprises with large net profits and the scale of cumulative net profit losses will narrow. According to CRIC statistics, in 2023, 9 of the typical listed real estate companies in the industry will have a net profit loss of more than 10 billion yuan and a cumulative net profit loss of more than 150 billion yuan, which is better than the situation of 12 companies with a net profit loss of more than 10 billion yuan and a cumulative net profit loss of more than 200 billion yuan during the year.
2. The profit margin has generally declined, and more than half of the real estate companies' gross profit margin, net profit margin, and net profit margin attributable to the parent company have also declined
In 2023, the downward pressure on the overall profitability of the industry will continue, and the general decline in corporate profit margin indicators will further intensify. Specifically, from the perspective of changes in corporate profit margins, in 2023, the gross profit margins of 3/4 of the typical listed real estate companies in the industry will decrease year-on-year, and the proportion of enterprises with reduced net profit margins and net profit margins attributable to the parent company will be 72.3% and 67.6% respectively.
Not only that, the three indicators are taken together, 55% of the gross profit margin, net profit margin, and net profit margin attributable to the parent company have decreased year-on-year, including China Resources Land, China Overseas Real Estate, Yanlord Land, Longfor Group and other real estate companies with high gross profit margins and strong stability, taking Yanlord Land as an example, the gross profit margin of enterprises from 2018 to 2022 will remain above 25%, and the net profit margin will be above 10%, and the gross profit margin and net profit margin of enterprises will decrease by 7.9 and 11.7 percentage points year-on-year in 2023. It was mainly affected by the increase in the fair value loss of investment properties, the impairment loss of completed properties for sale and the development of properties for sale, and the net impairment loss of financial assets, of which the net impairment loss of financial assets was RMB1.06 billion and the fair value loss of investment properties was RMB530 million.
03
Inventory impairment losses are a major "killer" of profits, and the loss of joint venture investment has narrowed
1. The revaluation of investment properties continues to be under pressure, and loss-making enterprises account for more than half (omitted)
2. Inventory impairment losses decreased by 8.2% in total, and Sunac and Longguang were still at a high level (some omitted)
The provision for inventory impairment is a prudent treatment of the impairment part because the recoverable amount of the inventory item is lower than its book value, and it is also one of the important financial risks faced by enterprises. Since 2021, the phenomenon of inventory impairment provision in the real estate industry has been normalized, which has had a great impact on the profitability of enterprises.
In 2023, due to the continued low operation of the market and insufficient expectations, the inventory impairment provision of real estate enterprises will continue. The inventory impairment losses of 65 typical listed real estate companies totaled 137.03 billion yuan, a decrease of 8.2% compared with 2022, and the overall scale of provision slowed down.
Among them, more than 40% of the enterprises with reduced inventory impairment provisions will be provided, and some enterprises such as OCT A, Jinke Co., Ltd., and Rongsheng Development will experience a significant reduction in inventory impairment losses in 2023 after experiencing large provisions in 2022. For example, OCT's inventory impairment loss will reach 11.51 billion yuan in 2022 and 3.39 billion yuan in 2023, a year-on-year decrease of 70.5%. In addition, 8 companies, including R&F Properties, Kaisa and Fantasia, have not made any further provisions.
Some real estate companies are affected by the layout, de-industrialization expectations and buyers' confidence, and the provision is still large. Greenland Holdings' provision loss reached 12.73 billion yuan, directly resulting in a net profit loss of 11.12 billion yuan. Sunac China has made an inventory impairment loss of more than 10 billion yuan for three consecutive years, reaching 11.52 billion yuan in 2023, with a net profit loss of more than 10 billion yuan.
In general, the risk of inventory impairment is still spreading, and the profitability of enterprises is deeply affected, especially the situation is not optimistic for real estate companies and enterprises with poor project liquidity.
3. The loss of joint venture investment narrowed, and Greentown, China Merchants and other companies achieved stable growth (omitted)
4. Eighty percent of the sales and management rates of real estate enterprises have risen, and China Overseas and Binjiang have advantages
In recent years, in the face of market downward adjustment, "cost reduction and fee reduction" has become the consensus of the industry, and major enterprises have strengthened operation control and sought benefits from management. In 2023, the overall sales and management expenses of 65 typical listed real estate companies will reach 254.83 billion yuan, a year-on-year decrease of 10.4%. From the perspective of sales and management fees (sales and management fees/sales amount during the reporting period), the average overall sales and management rate of typical listed real estate enterprises was 6.4%, an increase of 0.5 percentage points year-on-year, and the median was 10.0%, an increase of 3.2 percentage points compared with 2022.
On the whole, although the industry has achieved certain results in "reducing costs and fees", and the scale of sales and management costs has been reduced, but due to the continued downturn in the property market, sales are facing a large decline, which has affected the realization of overall efficiency.
Specifically, from the perspective of enterprise performance, the sales and management rates of leading state-owned enterprises and some high-quality private enterprises with strong regional characteristics have advantages. Among the private enterprises, Binjiang Group and Greentown China are the most prominent, and Binjiang Group's sales and management rate in 2023 is only 1.2%, which has an absolute leading advantage in the industry; Greentown China's sales and management rate in 2023 will be 2.6%, which is further lower than that in 2022. The leading central state-owned enterprises such as China Overseas Land & Investment, China Merchants Shekou, Poly Development, and Huafa are also at the forefront of the industry, and the sales and management rate of China Overseas Land & Investment in 2023 will be 2.3%, the same as in 2022.
However, the differentiation trend is also continuing, especially the real estate companies that have not yet come out of the debt predicament, and they are not enough to do so, such as R&F Real Estate, China Aoyuan, Rongsheng Development, etc., are under more obvious pressure, and the sales and management rates are facing a large increase, and some small private enterprises are also under greater control pressure, and there is still a long way to go in the future.
04 Summary
At present, the market is still consolidating at the bottom, and the sales resources of low-margin projects have entered the delivery carry-over period, and it is expected that the industry's profitability will continue to be under pressure. On April 16, Vanke A also said on the interactive platform that this year's settlement gross profit margin is expected to be under some pressure. All in all, in the face of the superimposed impact of multiple negative factors, enterprises need to actively adjust, strengthen the control of investment, management, products and other links, and expand profit margins through structural adjustment. On the one hand, adjust the investment structure, pay attention to the quality of land acquisition, and stabilize the overall gross profit margin with the higher gross profit margin of incremental projects; On the other hand, adjust the organizational structure, improve management efficiency, and create business benefits; In addition, as the key grasp of market competition, optimizing the product structure and enhancing the ability of product premium will also help improve the profit margin of enterprises.