HONG KONG -- Guangzhou R&F Properties has raised its sales target for the year as the Chinese developer is upbeat on its prospects in lower-tier cities in eastern China despite government measures to cool the property market.
The Guangzhou-based developer announced on Friday a contracted sales target of 73 billion yuan ($10.5 billion) for 2017, up 21% from a year ago. "Maintaining our annual sales target at 80-90 billion yuan in the next three years won't be a problem," said R&F's Chairman Li Sze-lim at the company's earnings briefing.
Li's upbeat remarks came despite tightening measures, including home purchase restrictions, were rolled out in major cities last October to cool property prices. However, China has deferred plans to launch a nationwide property tax this year, according to a spokesperson for China's legislature on March 4.
"I suspect the new tax will not come before three to five years," said Li, referring to the long period needed to introduce new legislation. With the land market heated up and recent record land deals in the country, "we have reason to believe that home prices will hardly fall," he said.
Li predicts a single-digit increase in average home prices this year but an "explosive growth" in second- and third-tier cities in eastern China, thanks to the country's growing express railway network. Plans have been floated to build a one-hour commuting circle around major hubs such as Nanjing and Shanghai.
R&F's net profit reached 7.1 billion yuan last year, up 5% on the year. Revenue rose 21% to 53.7 billion yuan, buoyed by a soaring home market amid lax lending policies in the first three quarters of 2016.
Last year, the group had about half of its 61 billion yuan contracted sales from first-tier cities such as Guangzhou, Beijing, Shanghai and Hangzhou. While some lower-tier cities are still plagued by high inventory, it has about 62% of its 40 million sq. meter land bank in second- and third-tier cities. It also acquired new sites in places like Huhhot in Inner Mongolia and Qinghuangdao in northern China, in addition to plots around the Yangtze and Pearl River Deltas.
Commenting on the competitive land market, Li said the group would increase its land bank in a "reasonable" manner by avoiding high auction prices and by entering mergers with project companies.
Still, R&F has a steep learning curve overseas. The developer was embroiled in a legal dispute that almost wound up its overseas subsidiary, R&F Mega Property, in Australia.
The subsidiary, which splashed $35 million for a site to build the tallest residential tower in south Brisbane, was ordered by the local court to liquidate in February following a misunderstanding with a creditor, but eventually settled the case by paying a huge fine. It also acquired a site in Brisbane despite concerns over soil contamination, according to local media reports.
Meanwhile, rival Country Garden closed showrooms on the Chinese mainland for a flagship residential project in Malaysia, following Beijing's bid to prevent capital flight.
Asked about the impact on R&F, Li said the group had "little concern" about the measures as only a third of its buyers are from the mainland. Also, overseas sales are expected to account for only 6% of the group's contracted sales target this year.
In December, R&F entered a joint venture with U.S. casino operator Caesars Entertainment to build an integrated resort in Midan City, Incheon, South Korea. According to a company filing, R&F is committed to an initial $30.5 million for its 50% stake in the project and Caesars will account for the rest.
"By no means is this a shift in our business focus," said Li, stressing that the group would not be involved in casino operations in the project. "Nonetheless, entertainment and leisure has been a hot investment theme these days."