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image source: visual china

author | yue jiachen

editor | wang weikai

produced by | prism·tencent xiaoman studio

"housing prices have returned to a relatively reasonable level." on august 30, vanke chairman yu liang said this at the performance briefing.

after the market closed on august 30, vanke released its 2024 interim performance report and held a performance press conference. faced with the "oversold" housing prices and the industry downturn, vanke's operating income in the first half of the year was 142.78 billion yuan, a year-on-year decrease of 28.93%; the net loss attributable to the parent company was 9.85 billion yuan, a year-on-year decrease of 199.8%.

however, compared with profitability, debt repayment ability is obviously a more important indicator of whether a real estate company can "survive". the financial report shows that in the first half of the year, vanke paid off a total of 52.4 billion yuan in debts, including 7.3 billion yuan in domestic public bonds and medium-term notes, and about 10.4 billion yuan in overseas public bonds.

as of now, vanke has repaid all its overseas public bonds this year, and there is still one medium-term note of 2 billion yuan remaining in its domestic public bonds. in the first half of the year, vanke obtained a total of 61.2 billion yuan in new financing and refinancing, with an additional comprehensive financing cost of 3.66%, and 92.4 billion yuan in cash on hand.

as of the end of the first half of the year, vanke's total liabilities were rmb 1,037.762 billion, down 19.02% from the same period last year, and its debt-to-asset ratio was 72.94%.

“i feel deeply sorry for the loss”

nowadays, there are only a handful of real estate companies that still hold performance conferences as scheduled. following the annual performance conference in march this year, vanke held its 2024 mid-term performance conference as scheduled.

in the first half of the year, vanke achieved operating income of 142.78 billion yuan and a net loss of 9.85 billion yuan attributable to the parent company. according to the data of the previous performance forecast, vanke expected a net loss of 7 billion to 9 billion yuan in the first half of the year. in fact, vanke's loss in the first half of the year slightly exceeded the forecast range.

"we feel deeply guilty about the performance loss," said zhu xu, secretary of vanke's board of directors, at the performance meeting.

this is also the first time that vanke's net profit is negative. in comparison, in 2023, vanke's operating income was 465.74 billion yuan and its net profit attributable to the parent company was 12.16 billion yuan.

why did the real estate giant vanke record huge losses?

in the announcement, vanke stated that the negative net profit was mainly due to the decline in the settlement scale and gross profit margin of the development business, losses in bulk and equity transactions, losses in some non-core financial investments, and impairment provisions.

inventory is the main component of real estate companies' current assets. the semi-annual report shows that as of the end of the first half of the year, vanke's inventory amounted to 620.4 billion yuan, a decrease of 11.6% from the end of 2023.

specifically, the inventory includes 91.32 billion yuan of products under development, accounting for 14.7%; 421.37 billion yuan of products under development, accounting for 67.9%; and 104.7 billion yuan of products completed for development, accounting for 16.9%.

it is worth noting that vanke has made provisions for impairment of a large amount of inventory. this means that in a large number of development projects, "flour is more expensive than bread". this is also one of the reasons why vanke's net profit turned from profit to loss.

the semi-annual report shows that based on the current market prices and actual sales of the projects, projects such as vanke jinhua wansheng huafu, changzhou vanke xiwanhui, huizhou wenhan garden, changzhou park avenue, xiamen bailu county, changsha golden dream, nanjing duhui muyu, changsha peninsula international, and weifang vanke city are at risk of price decline. therefore, vanke has set aside 1.928 billion yuan in inventory impairment provisions.

as of the end of the first half of the year, vanke's accumulated inventory impairment provision balance reached 8.3 billion yuan.

the gross profit margin of real estate development is only 6.8%, and the price-for-volume trade-off leads to profit loss

declining profitability is also the main reason why vanke's net profit turned negative.

in the first half of the year, before deducting taxes and surcharges, vanke's gross profit margin was only 8.12%, a year-on-year decrease of 10.75 percentage points, and its net profit margin was -5.97%. specifically, the gross profit margin of real estate development projects dropped significantly, only 6.8%, a year-on-year decrease of 13.5 percentage points.

according to the revenue settlement rules of accounting standards, real estate companies usually recognize revenue and costs based on the time point of house delivery, not the time of signing the sales contract. this means that in the first half of 2024, the settlement income of real estate development business mainly corresponds to the projects pre-sold in 2022 and 2023 and the inventory of ready-to-move-in houses and nearly ready-to-move-in houses consumed in the first half of 2024.

most of these projects are land acquired before 2022, and the land acquisition cost is relatively high. as the subsequent market continues to decline, the actual sales and housing prices are generally lower than the expectations when investing in land. this is the reason for the decline in gross profit margin.

"as regional and sector markets change, trading price for volume results in profit loss," said han huihua, vanke's executive vice president and chief financial officer, at the performance meeting.

although "trading price for volume" has affected profitability, the positive aspect is that in the second quarter of this year, vanke's operating net cash flow turned positive, achieving positive cash inflow of 4.2 billion yuan.

in this regard, han huihua said at the performance meeting that vanke achieved positive operating net cash flow in the second quarter through active sales, large-scale transactions and resource revitalization, and gradual withdrawal from non-core businesses and investments. the above three tasks collected a total of about 137 billion yuan.

in terms of bulk asset transactions, as of the end of july, a total of 20 billion yuan of bulk transactions had been signed, covering 31 projects including offices, commercial, hotels, and apartments.

on may 27, vanke sold the shenzhen bay super headquarters base t208-0053 plot at a listing price of 2.235 billion yuan. the transferees were shenzhen metro group and shenzhen baishuo yinghai investment co., ltd.

"there are currently 19 projects under negotiation," vanke executive vice president and chief operating officer liu xiao revealed at the performance meeting.

yu liang: housing prices have returned to a relatively reasonable level

when talking about expectations for the future, yu liang, chairman of vanke's board of directors, said at the mid-term performance meeting that in the medium and long term, although potential housing demand has passed its historical peak, the absolute scale is still huge; in the short term, after three years of adjustment, the cost-effectiveness of new homes is improving, and policy support for diversified housing needs is also continuing to increase.

he believes that these are all accumulating energy for the recovery of market demand and providing soil for the arrival of a new development stage. "after three years of adjustment, housing prices have fallen back to a relatively reasonable level. the cost-effectiveness of new housing products has been greatly improved," said yu liang.

according to the semi-annual report, in the first half of the year, vanke's cumulative sales reached 127.33 billion yuan, with a collection rate of over 100%. since the second quarter of this year, vanke's average monthly sales have remained above 20 billion yuan.

in addition, according to the real estate sales list released by the third-party agency china index academy, in the first seven months of this year, the total sales of the top 100 real estate companies was 2390.94 billion yuan, a year-on-year decrease of 40.1%. among them, vanke's sales in the first seven months were 146.53 billion yuan, ranking fourth; sales area was 10.786 million square meters, ranking second.

calculated based on total sales amount and sales area, vanke's average sales price in the first seven months was 7,360.95 yuan per square meter. in comparison, vanke's average sales price in 2023 was 6,539.91 yuan per square meter and in 2022 it was 6,211.59 yuan per square meter.

at the performance meeting half a year ago, yu liang said that although it was impossible for the industry to return to its highs, vanke had not changed its judgment that the industry was "oversold."

"so far this year, the area of ​​newly started residential construction has dropped by another 24% year-on-year. according to this trend, the total area of ​​newly started residential construction is expected to be around 500 million square meters for the whole year. even compared with some countries where urbanization has been fully mature, the current supply level is relatively low." yu liang believes that the improvement in the supply and demand relationship has provided conditions for the market to get out of the trough and regain upward momentum.

after 2022, vanke took the initiative to invest in 52 projects.

the launch cycle is an important indicator for measuring the operating efficiency of real estate companies. according to data provided by han huihua, the average launch cycle of the above 52 projects is 5.7 months, 4.1 months shorter than before. the cash flow return cycle is about 12 months.

"as various types of rental-guaranteed housing and talent housing provide more options for people in urgent need to solve their housing problems, improved products that meet customers' pursuit of a higher quality of life have occupied an increasingly important position in the new housing market." zhang hai, co-president of vanke and chief partner of the development and operation department, looks at the future development opportunities of the real estate development business in this way.

"real estate companies have also begun to 'roll' products and 'roll' services. the real estate industry finally has a bit of the flavor of building houses like building cars," said yu liang.