China’s Third-Biggest Home Seller Tells Staff 'Live Frugally'

China’s third-largest home seller by sales – a state-backed property giant with no sign of a debt crisis – this week told its staff to “live frugally” as the industry faces a gloomy outlook.

Likening the circumstances to “war time”, China Vanke asked its employees to cut spending on everything from travel and gifts to printing and air-conditioning, as well as to do things in-house as much as possible, according to an internal document dated November 16 seen by Asia Financial.

The firm asked its staff to “do less and spend less in areas that do not create value” and urged upper management to act as role models.

Vanke’s move to tighten the budget comes amid stresses in China’s $52 trillion property industry and in particular the $305 billion debt mountain accumulated by the teetering developer Evergrande. The industry has seen a string of missed offshore debt payments and developers frantically putting assets up for sale to stay afloat.

Vanke chairman Yu Liang has been predicting a real estate slump since 2018, and thus has remained prudent of land acquisitions.

Vanke’s balance sheet held 141 billion yuan ($22 billion) in non-restricted cash as of June, and was deemed “more than sufficient” to cover short-term debt according to Fitch Ratings. Such prudence has helped its bonds retain their investment-grade rating.

Well-Behaved, But Stressed

But even such a “well-behaved” property giant is showing stress.

The company’s contracted sales in October were down 31% compared with a year earlier, albeit with a 3% month-on-month increase, according to Nomura research. Vanke’s net profit declined by 23.3% to 5.64 billion yuan ($884 million) in the third quarter as government price restrictions and rise in land prices continued to squeeze its margin.

With tight liquidity and financing constraints, Chinese’s real estate sector posted weak investment and sales figures in October. New home sales dropped for a seventh straight month in October, falling nearly one-fifth since March, according to the analysis of Capital Economics.

Total investment in real estate development was down 5.4% year-on-year in October, marking the deepest dip in a month since China reopened its economy last year after the initial Covid-19 lockdown, according to data from China’s national statistics bureau.

With home prices now falling, regulators are adopting a more supportive stance, stepping up new mortgage lending and somewhat relaxing developer borrowing.

Data tracked by Capital Economics suggest that sales are bottoming out. “But financing constraints will continue to limit new construction, and property investment is unlikely to bottom out until late next year,” the research firm said in a note on Friday.

October sales for the 16 developers Nomura tracks were up 8% month-on-month, despite a 21% year-on-year decline, according to a note released by Nomura earlier this month.

• By Iris Hong