Chinese Property Giant Country Garden is trying to prove its doubters wrong

HONG KONG—In a real estate sector plagued by plummeting home sales and record-breaking bond prices, one of China’s largest private developers is trying to convince homebuyers and investors that it’s doing fine.

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the country’s largest developer by contracted sales, announced on Wednesday that its 2021 net income fell 23% to the equivalent of $4.2 billion in a year of turmoil and upheaval for China’s real estate development industry.

The company, based in south China’s Guangdong Province, said the slowdown in the real estate market and a tougher financing environment “have presented major challenges for all industry participants.” However, Country Garden added that it has acted prudently and is in a strong financial position and believes it can weather the downturn.

Mo Bin, the company’s president, said the past year has been volatile and it may take some time for the Chinese real estate market to fully recover. However, he said recent regulatory changes have primed the industry for long-term healthy growth. “We are confident about the future of the market,” Mr Mo told reporters.

Chinese property developers have been hit hard by an unprecedented regulatory crackdown on their borrowing, coinciding with the coronavirus pandemic and a slowing economy. More than 10 real estate companies have defaulted on dollar debt in the past year, and many others have seen their stock and bond prices fall sharply as the investor confidence crisis dragged on for months.

The malaise has also hit Country Garden, which has long been viewed by investors and global credit evaluators as one of the more financially prudent developers. The company’s bonds — some of which have investment-grade ratings, as opposed to the junk-rated bonds of most Chinese developers — fell to a low of about 40 cents on the dollar earlier this month, before recovering recently, according to Tradeweb . Hong Kong-listed Country Garden shares have fallen 39% over the past year.

The company’s release of verified results has been offset by delays reported by at least nine Chinese developers over the past few days. Industry heavyweights China Evergrande Group and Sunac China Holdings GmbH.

were among those who said they could not release their audited annual results until March 31. Accountants have resigned from a number of property companies and some developers have blamed the delays on Covid-related disruptions.

Country Garden was founded by Yang Guoqiang, an entrepreneur who wanted to capitalize on China’s urbanization three decades ago. His daughter, Yang Huiyan, now controls the company and is the wealthiest real estate tycoon in mainland China.

The company expanded rapidly for years, but did so without aggressively borrowing like Evergrande. In the first half of 2016, Country Garden boasted it had acquired 181 lots — an average of about one a day — and began selling homes less than five months after acquiring the property, according to its website. Last year, it said it bought 219 lots in the first half and cut the average time between home purchase and sale by more than a month.

A large part of Country Garden’s business is building affordable housing in smaller and less developed cities in China. The company said more than two-thirds of its 2021 sales will come from what it calls Tier 3 and Tier 4 cities. Many smaller cities have experienced larger declines in sales and price declines over the past year than more densely populated and economically advanced cities.

According to Country Garden, contracted sales for 2021 totaled 558 billion yuan ($87.7 billion), down about 2% year-on-year. Average selling prices, however, fell 6.6% year over year and were 11% below pre-pandemic levels in 2019.

Some of the developer’s price cuts have upset buyers who previously paid more for apartments. In February, some homeowners at a Country Garden project in Shenyang, Liaoning Province wrote letters to the city’s mayor, complaining that the developer had cut prices significantly, affecting the value of their properties. The local real estate agency said it was looking into the matter and concluded the price cut did not violate any law. The regulator also said it asked developers to “control the pace and extent of price cuts and consider the psychology and interests of the owners who bought homes.”

Earlier this month, as Country Garden’s bonds sold off sharply, the company stepped up efforts to reassure investors. It said it has received regulatory approval to issue new onshore debt and secured the equivalent of $8.6 billion in financing from two major state-owned banks to acquire projects from other developers and provide mortgage loans to homebuyers . It also said it had repurchased some dollar bonds and fully redeemed all of its yuan bonds maturing this year.

The world’s most indebted property company, Evergrande, has launched a social media campaign to show construction has resumed and says it is doing what it takes to deliver homes. WSJ compares these posts to those of angry shoppers. Photo composite: Emily Siu

Kenny Ng, a securities strategist at Everbright Securities International,

said Country Garden’s 2021 results showed a significant business slowdown.

On the bright side, given its uncertain operating environment, Country Garden has reduced its debt and taken steps to conserve cash. “Country Garden’s business will still face some pressure in the short term, but as one of the industry leaders, it is expected that after the downturn, the group will still have the opportunity to resume its pace of growth in the future. added Mr. Ng.

write to Cao Li at li.cao@wsj.com and Rebecca Feng at rebecca.feng@wsj.com

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