China Vanke Sees Surging Land Costs as Hurdle for Profit Margins

China Vanke Co., the nation’s largest residential developer, said soaring Chinese land costs are making it difficult for property companies to turn a profit as housing prices fail to keep up.

Land costs have risen much faster than the pace of home prices since the second half of last year, squeezing margins for developers, Tan Huajie, Vanke’s board secretary, said Monday in an investor webcast in Shenzhen, where the company is based.

“As a developer, if you don’t buy landbank, you’ll have nothing to sell, but if you do, you face huge risks of financial losses,” Tan said. “This is awful.”

A rebound in home sales and prices is not yet translating into property investment, which remains a drag on China’s economic growth. Property development growth slowed in the first seven months of the year as developers bought 32 percent less land in the period, while new construction slumped 17 percent, according to government data on Aug. 12.

In the second quarter, the average land transaction price in 14 cities jumped 42 percent from a year earlier, Tan said. If home prices don’t increase, developers acquiring expensive land will make a loss, he said.

The developer aims to keep its gross profit margin stable at the current level, Vanke President Yu Liang said at a press conference in Hong Kong on Monday.

Vanke’s first-half profit rose 0.8 percent from a year earlier, it said in a statement on Sunday.

Vanke declined 3 percent in Hong Kong at the close of trading. The shares fell 1.3 percent in Shenzhen, compared with a 1.2 percent advance in the Shanghai Stock Exchange Property Index, which tracks 24 developers.

— With assistance by Emma Dong

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