Caixin
Nov 11, 2021 08:33 PM
BUSINESS

Real Estate Agency KE’s Shares Jump After Reporting $276 Million Loss

New York-listed shares of Chinese residential real estate agency KE Holdings Inc. are up nearly a quarter since the firm announced Monday that it had plunged more than 1.7 billion yuan into the red, on the back of a one-third decline in existing home sales.

The rally, which suggests markets may have expected worse results from the Tencent-backed firm, comes as the liquidity crisis at developer Evergrande continues to spook the property market, regulators and investors, and amid tight regulations on mortgage issuance and house prices.

KE’s share price closed up 24.2% at $22.26 on Wednesday from Monday’s close. Analysts at JPMorgan Chase & Co. upgraded KE on Monday from a neutral rating to overweight, saying its shares would likely rise to $30.

In the three months through September, KE reported a 1.77 billion yuan ($276 million) net loss, compared to a 75 million yuan net income last year. Revenue dropped 11.9% year-on-year to 18.1 billion yuan, according to the Monday earnings report.

The dismal performance is mainly due to “a significant downtrend in the existing home transaction market in first-tier cities and most second-tier cities,” said Stanley Yongdong Peng, KE chairman and CEO, during the conference call.

The company’s gross transaction value — the value of the deals it facilitated, from which it takes a cut — declined 20.9% yearly to 830.7 billion yuan during the period. Sales of existing homes plummeted 34.3% to 378.2 billion yuan while new home sales were down 2.5% at 410.1 billion yuan.

Despite the company sinking into a loss, the market reaction was optimistic.

KE’s share price closed up 24.2% at $22.26 on Wednesday from Monday’s close, after the stock took a dive in the third quarter, as the Evergrande crisis shook investors’ confidence in the Chinese real estate market. From trading at just over $50 on June 25 to its bottom on Aug. 20, KE’s stock price fell nearly 70%.

Pre-owned housing transaction volume in 13 major cities were down 30.6%, 36.6% and 46% year-on-year in each of the three months through September, according to a report from the Shanghai Yiju Research Institute, a real estate-focused think tank.

Volume fell a further 42.8% year-on-year in October, the report said. The slump continued even as banks expanded their mortgage lending compared to the previous month, loosening curbs introduced last December by the banking authorities to cap outstanding property loans as a proportion of banks’ total loans and their ratio of outstanding mortgages to total loans.

 

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Cover Story: How China’s Housing Market Landed in the Deep Freeze

In a commentary, UBS Chief China Economist Wang Tao wrote that “China’s super urbanization-property cycle is behind us.” Wang predicted that property sales and starts would continue to decline in 2022, in the worst-case scenario dropping by as much as 20%.

In February, Shenzhen set up reference prices for pre-owned properties in 3,595 residential compounds and prohibited banks from offering mortgages higher than the reference prices. Homeowners, however, still tend to demand prices as much as 50% higher than the reference, drastically hitting sales.

“Real estate agencies are closing offices and their staff are quitting,” said Hua Hong, the head of research at Shenzhen Real Estate Intermediary Association.

 

KE’s chain of realtors, Lianjia, disclosed in an internal memo in early September that it will close about 100 offices in the South China metropolis.

Many other major cities later followed in Shenzhen’s footsteps, including provincial capitals like Guangzhou, Chengdu and Xi’an.

Ren Jing contributed to the story.

Contact reporter Manyun Zou (manyunzou@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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