Vanke to show extent of property crisis that’s bruising Chinese banks

CHINA Vanke and China Overseas Land & Investment should continue to paint a pessimistic picture of China’s property sector when they report earnings, showing the limits of the government’s stimulus efforts.

A shortage of liquidity and surplus of unbuilt homes have plagued developers. The country’s rescue package that included a 300 billion-yuan (S$54.9 billion) re-lending programme has done little to stem the rout. New home residential sales slumped further in July by almost 20 per cent. 

Vanke said in July that it expected to post a first-half net loss of seven billion yuan to nine billion yuan as it resorted to discounts to reduce inventory and boost cash flow. “Vanke’s huge net loss for the first-half reflects widespread pressure on developers’ margins and write-off of housing inventories,” said Morningstar analyst Jeff Zhang. He expects China Overseas Land to be more resilient given its bigger presence in wealthier Chinese cities.

Chinese lenders including Bank of China, Agricultural Bank of China, Industrial & Commercial Bank of China and China Construction Bank, which are also due to report, remain exposed to the property crisis and stagnant consumption, Francis Chan at Bloomberg Intelligence said.

“Home sales see no path to recovery, and most bank funding is unlikely to wind up at distressed private developers,” Chan added. “Against that backdrop, risks remain for lenders’ balance sheets.”