China's biggest property developer Country Garden Holdings has reported a 96 percent drop in profits, blaming a "severe depression" in the country's realty sector in which "only the fittest can survive".
Unlike its largest peers, Country Garden focuses on the lower end of the market, making it more vulnerable to weakening demand from homebuyers during a slowdown. Many of its customers are migrant workers who are finding it harder to upgrade residences as incomes dwindle and job security worsens, The Guardian reported.
Preliminary net profit of the Hong Kong-listed company fell from 2 billion yuan ($15 billion) to 612 million yuan ($88 million) in the first six months of the year.
The stock of Country Garden, which has thousands of projects and a presence in almost 300 municipalities, fell 2.3% on Tuesday to HK$2.54.
The drop in profits is bigger than the over 70% fall the firm had predicted earlier this year.
"In 2022, the property sector faced myriad challenges, including the market's weakening expectations, sluggish demand and a fall in property prices," the company said.
"All these exert mounting pressure on all participants in the property market, which has slid rapidly into severe depression. The harsh business environment in which only the fittest can survive means even higher requirements for businesses' competitive strength."
A sector-wide liquidity crunch has prompted concerns about debt repayment for even the largest developers, and many have sought extensions. Chinese authorities have recently stepped up support for the debt-straddled industry, including on fundraising.
A year ago, Evergrande, China's second-largest developer, said it might not be able to repay the offshore, dollar-denominated portion of its massive $300 billion debt mountain. At the time, market watchers believed that companies such as Country Garden – which did not have such high borrowings – would not be tainted by the problems.
The debt contagion has spread from Evergrande to the $60 trillion Chinese real-estate market, resulting in a 40 percent drop in sales, falling prices, and a mortgage strike by frustrated homeowners.
The bleak outlook has been compounded by zero-Covid lockdowns that have strangled economic activity all over China in the past 12 months, and Country Garden also blamed the recent extreme weather for upsetting profits.
The company's problems have also seen its majority shareholder – Yang Huiyan, daughter of the founder – lose half her $24 billion fortune.
However, the company still managed to strike an optimistic note and said there was hope for an upturn in fortunes because urbanisation of the population was still progressing.
"China's economy has proven resilient and its strong fundamentals for long-term development remain intact," it said. "The country's new type of urbanisation still has a long way to go and the desire for a good life will always remain dear to people's hearts. The real estate industry will always exist," the firm said.
"We will persevere and remain hopeful despite adversity. Country Garden keeps its feet on the ground as it works hard to get through a harsh winter and anticipates the arrival of spring," it added.Disclosure: Moneycontrol could not independently confirm the news development.