Country Garden, Shimao among Chinese home builders betting on new sectors to boost profits amid struggling property market

Pearl Liu
·4-min read

China’s major home builders are betting on new areas of business to shore up profit after the boom era of the 16 trillion yuan (US$2.3 trillion) housing market was brought to a halt by the Covid-19 pandemic crushing the economy and the government’s persistent cooling measures.

Country Garden Holdings, the country’s second biggest developer by sales, has been heavily investing in robotics and hopes this sector will buoy future growth.

“We are hoping that robotics can increase our productivity and make our traditional property business and other new businesses grow together and help the company maintain sustainable development,” said Mo Bin, president of Country Garden after the company reported declines in both profit and sales on Tuesday.

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Shimao Group Holdings, which has tended to focus mainly on home building, aims to generate more revenue from other areas such as hospitality and management.

“In the future, our diversified units including property services management, hotels and commercial properties can [account for] up to one fifth of the company’s income,” said Hui Sai-tan, vice-president of Shimao Group Holdings, according to the finance section of Sina, a major Chinese news portal.

Shimao reported a 9 per cent rise in net profit from core business in the first half of the year on Tuesday, and a 14 per cent increase in revenue.

Hui said the company, one of the top 10 home builders by sales in the country, will also speed up the development of financial services.

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China Evergrande, the country’s biggest property developer by sales, earlier this month unveiled six models of electric car under its Hengchi brand and said it was on track to start mass production next year.

Sales of properties in China in the first seven months of the year came to 8.14 trillion yuan, down 2.1 per cent year-on-year. Moody’s downgraded the outlook for the country’s property sector to negative in April.

“Home sales will contract and property companies need something new and exciting to maintain growth,” said Lung Siu-fung, a property analyst at CCB International Securities. Lung expects nationwide sales to fall by 5 per cent to 10 per cent in 2020.

A symposium was organised by the housing ministry, the People‘s Bank of China and some developers in Beijing last week, according to the Housing Authority, looking at ways to establish a long-term regulatory framework for the real estate sector.

Meanwhile, local governments have been reapplying curbs that were lifted earlier amid weaker buying appetite. The country’s answer to Silicon Valley, Shenzhen, for example, has brought in stringent new measures to crack down on illicit second-home purchases.

“Beijing is quite determined to prevent another property bubble, and thus has introduced one measure after another to cool property markets,” said Ting Lu, chief China economist at Nomura.

Country Garden said it has so far spent 1.03 billion yuan developing robotics, a key new business, and 35 out of 50 construction robotics it is developing have been tested on site. It is expecting to put them into production next year and generate revenue.

Meanwhile, it has opened six fully automated restaurants with robot chefs making Chinese and Western dishes.

Country Garden said core net profit, excluding valuation gains and foreign-exchange losses, dropped 8.5 per cent in the six months ending June 30, to 14.6 billion yuan, according to a filing with the Hong Kong stock exchange on Tuesday.

It was the first core net profit decline since 2013 when the company started to track the figure.

Revenues dropped 8.4 per cent in the first half to just under 185 billion yuan.

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