CRIC Research Center: 72% of typical listed real estate companies have made provisions for inventory depreciation in the first half of the year, with a total provision of 45.3 billion yuan.

Recently released reports from the Ke Research Center show that in the first half of 2024, 72% of typical listed real estate companies have made provisions for inventory impairment, totaling 45.3 billion yuan in provisions for inventory impairment. Historically, typical real estate companies have accumulated 424.2 billion yuan in provisions since 2021, with annual provisions averaging around 130 billion yuan from 2021 to 2023. In the first half of 2024, China's real estate control policies continued to be loose, with a focus on reducing inventory. Despite the loose policies, the overall real estate market continues to experience bottoming out. According to statistics from the National Bureau of Statistics, from January to June 2024, the sales area of new residential buildings nationwide was 479 million square meters, a year-on-year decrease of 19.0%, and the sales value of new residential buildings was 4.71 trillion yuan, a decrease of 25.0%. The market remains weak, with sales prices continuing to decline. Many real estate companies are speeding up sales by lowering prices, leading to a continuous narrowing of profit margins. Against this background, the industry has shifted from increasing revenue but not profit in 2023 to a decrease in both revenue and profit in the first half of this year. Compared to a 13% decrease in revenue, gross profit decreased even faster, by 34%. Net profit has remained in a deficit state since 2023, with net profit attributable to the parent company further expanding. Profitability has become a common phenomenon in the real estate industry, especially with the provision for inventory impairment. Currently, if the market continues to be weak, the existing provisions for inventory impairment may be insufficient, posing a risk of further write-downs in the future. Currently, the market is still in the process of bottoming out and clearing out negative factors, and in the short term, the profit scale and level of enterprises will continue to be under pressure. With deep industry adjustments, companies need to accelerate their transformation in business logic. Choosing projects wisely, investing prudently, ensuring project profitability levels, streamlining strategies, reducing costs, improving operating efficiency, returning to product quality, enhancing product development, and improving product marketability and pricing are crucial for companies to stabilize profits and navigate through the cycle. Revenue and profit both declined, industry profitability is not optimistic 1. Operating income decreased by 13% to 1457.2 billion, gross profit decreased by 34% In the first half of 2024, real estate control policies continued to be loose, with a focus on reducing inventory. Despite loose policies, market confidence and expectations have not fundamentally recovered. The real estate market is still undergoing a deep adjustment, with a 25% year-on-year decrease in total sales of new residential buildings nationwide in the first half of the year. According to the list of top 100 real estate companies published by Ke Research, sales for the top 100 companies decreased by 39.5% year-on-year. In this context, the overall settlement scale of enterprises has been affected, and the profit margins of residential development business are still narrowing. Based on the disclosed mid-year performance of companies until the end of August, in the first half of 2024, the typical listed real estate companies achieved a total operating income of 1457.2 billion yuan, a year-on-year decrease of 13%; operating costs were 1279.2 billion yuan, a year-on-year decrease of 9%. The growth rate of operating income has shown a decline since 2022, with the first decline of 13% in 2022, followed by a rebound to positive growth of 3% in 2023, but a renewed decline in the first half of 2024. In terms of gross profit, there has been a downward trend since 2021. In the first half of 2024, typical listed real estate companies achieved a gross profit of 161.5 billion yuan, a year-on-year decrease of 34%, which is a relatively high decline compared to previous years. With regard to net profit and net profit attributable to the parent company, due to factors such as asset impairment, declining revenue scale, starting from 2021, the net profit of typical listed real estate companies has significantly narrowed, with a 52% decline in net profit in 2021, increasing to 98% in 2022, and maintaining a deficit in net profit in 2023 and the first half of 2024. Net profit attributable to the parent company has been in deficit since 2022, and the overall industry profitability performance is not optimistic. In the first half of 2024, the overall net profit was a deficit of 37.3 billion yuan, and the net profit attributable to the parent company increased to 47.9 billion yuan. 2. Gross profit margin decreased to 11%, real estate companies' profit losses continued to expand Looking at various profit margin indicators of enterprises, in the first half of 2024, the overall gross profit margin of typical listed real estate companies was 11.1%, a decrease of 3.5 percentage points year-on-year, about 1.2 percentage points lower than in 2023; the net profit margin was -2.6%, indicating a deficit state; and the net profit margin attributable to the parent company was also -3.3%. Typical listed real estate companies, mainly the top 100 real estate companies, have shown relatively good overall operational conditions. However, if we look at the industry as a whole, the profit margin of real estate companies may decline further. Since 2021, the industry's profit level has sharply declined, with a deficit in net profit in 2023 and further increase in deficit in the first half of 2024. On one hand, the impact of high land prices acquired at historical highs and low-profit projects is still being transmitted. Secondly, in recent years, the pressure to clear sales has increased for enterprises, with many real estate companies ensuring the clearance of goods by offering discounts and "exchanging price for volume," exacerbating the performance of increased revenue but not profit. In addition, under the background of industry downturn, inventory depreciation and the shrinking of the book value of investment properties have led real estate companies to make provisions for impairment losses related to some projects and equity investments, which have a significant negative impact on current profit performance. 3. Commercial industry shows weak recovery trend, overall investment property income grows by 9% (partial) Affected by factors such as slowing economic growth, increased supply, weak expectations, and insufficient demand, office buildings and industrial parks are under pressure in terms of rent and occupancy rates; the apartment business is impacted by the weakness in the real estate market and the entry of rental housing, leading to increased competition. With the promotion of policies to increase domestic demand and stimulate consumption, consumer willingness has strengthened, leading to increased customer flows. The commercial sector is showing a weak recovery trend, with overall commercial rents experiencing a slight increase. In the first half of 2024, the overall investment property income of typical listed real estate companies was 61.3 billion yuan, a year-on-year increase of 9%. Looking at the specific performance of enterprises, nearly 60% of companies achieved year-on-year growth, with notable increases in CHINA RES LAND, LONGFOR GROUP, Seazen Holdings, China Overseas, China Merchants Shekou Industrial Zone Holdings, and others. In terms of comprehensive profitability, the ROE level of scale real estate companies continued to decline in the first half of 2024, with nearly 60% of companies experiencing a decrease. The ROE level of real estate companies is continuously decreasing.The main reasons for the increasing downward pressure include: continued market adjustments, slow project turnover, decreasing asset turnover speed, and decreasing enterprise turnover rate. In addition, the current real estate market is still weak, further narrowing the industry's profit margins.Overall, the industry as a whole has transitioned from increased revenue but no profit in 2023 to a double decline in revenue and profits in the first half of 2024. Difficulty in making profits has become a common phenomenon in the real estate industry, and the transformation of real estate companies is urgent. In this context, many real estate companies are firmly shifting their strategic focus to operating properties or other diversified sectors, in order to create a second growth curve of sustained growth.