In the first quarter of this year, the combined net profit attributable to shareholders of the parent company of 124 listed real estate companies on the mainland amounted to 19.5 billion yuan (RMB, same below), down about 19 billion yuan from the peak seen 2 years ago; the average net profit attributable to each company was also less than half of what it was 2 years ago. Some industry insiders believe that it is a trend that the overall profit margin of the real estate industry is declining.
According to the Securities Daily, data from mainland data service provider WinD shows that the net profit attributable to shareholders of the parent company of 124 A-share listed real estate companies in the first quarter of this year dropped 16% year-on-year.
And according to data compiled by the Securities Daily for the past 10 years, the peak quarterly profit of these 124 real estate enterprises appeared in 2019, when their combined net profit attributable to the mother company was 38.45 billion yuan. In contrast, in the first quarter of this year, A-share listed real estate enterprises earned about 19 billion yuan less than when the peak occurred 2 years ago; the average net profit attributable to each company also dropped to 160 million yuan, half less than 2 years ago.
According to the report, the fixed costs at the operating level of the real estate industry include land costs, preliminary engineering, construction and security costs and other expenses, of which land costs account for a relatively high proportion, so the high or low unit sales price almost determines the profit margin of a real estate company.
Generally speaking, large real estate enterprises regard “gross profit margin of 25% and net profit margin of more than 10%” as the red line, and will consider giving up bidding if they fail to reach this level in land acquisition calculations.
According to the performance of A-share real estate enterprises in the first quarter of 2021, among 124 listed real estate enterprises, 71 have a gross profit margin of more than 25%, accounting for 57%, and 85 in 2020, accounting for 69%; 57 have a gross profit margin of more than 30%, accounting for 46%, and 67 in 2020, accounting for 54%; 31 have a gross profit margin of more than 40%, accounting for 25%, and 30 in 2020, accounting for In 2020, there will be 30 companies, accounting for 24%; 39 companies, accounting for 31%, will be in the 10%-25% range, and 28 companies, accounting for 23%, will be in 2020.
This data shows that members of the high gross margin level echelon are downshifting. Liu Shui, deputy director of research of the corporate division of the China Index Research Institute, said in this regard: “Mainly affected by higher land costs, the previous high land price projects entered the carry-over period, pushing up operating costs, resulting in further squeeze on profit space.” Price restriction policies in first- and second-tier hotspot cities have suppressed premiums and restricted corporate profit margins. In addition, the revenue and net profit performance of the properties held are still to be recovered due to the plague and macroeconomic impact.
Pan Hao, a senior analyst at Shell Research Institute, believes that “the trend of industry gross margin decline will continue in the short term.” Overall, the gross margin level of the real estate industry is expected to remain down in the short term, rebound slightly in the medium term and stabilize at a medium level in the long term.
Tian Ming, chairman of the board and executive director of Lanson Property, said, “The overall profit margin of the real estate industry is declining, and it is a trend for profits to return to normal levels.” For real estate enterprises, the room for error is getting smaller and smaller, and any poor control of one link will lead to the impact on gross margin, and enterprises need to rely on refined management to improve profitability.