BEIJING – Country Garden Holdings, China’s largest property developer, reported a first full-year loss since its 2007 listing in Hong Kong and signalled that it would pivot away from its expansion in smaller cities.

The company posted a net loss of about 6.1 billion yuan (S$1.18 billion) in 2022, compared with a profit of 27 billion yuan a year earlier. The developer warned of the loss earlier this month.

The result underscores how a slump in China’s real estate sector is weighing on some of the strongest private builders that have avoided a default so far. Once considered a safer investment among developers, Country Garden has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product.

While early signs of stabilisation in the housing market have finally emerged, the turnaround remains tenuous. A chunk of Country Garden’s land bank is in smaller cities, which usually have higher inventory and weaker housing demand.

In reaction, Country Garden has vowed to change its traditional push to expand in lower-tier cities. It plans to increase its land bank in “tier-1 and tier-2 cities to about half of the total by value” in three to five years, president Mo Bin said in a post-earnings press briefing.

Country Garden vice-executive president George Cheng said that some smaller tier-3 and tier-4 cities see “evident deterioration” in supply and demand, which has led to sharper fluctuation in prices.

Currently, only about 40 per cent of Country Garden’s land bank are in tier-1 and tier-2 cities, according to the company. The developer has recently started to bid regularly in government land auctions, but has been largely losing out to competitors, he added.

The developer may “lag behind peers in the sector’s sales recovery”, Bloomberg Intelligence property analysts Kristy Hung and Patrick Wong wrote in a preview before the earnings release. “This could cast a shadow on Country Garden’s 2023 earnings recovery.”

Broadly, China’s housing market may hold steady or slightly decline this year, Mr Mo said. His forecast stands in contrast with smaller rival Greenland Holdings, whose chairman foresees the home market to slump again this year.

Country Garden’s loss last year mainly stemmed from erosion of profitability as adjusted gross margin plunged 10 percentage points to 7.6 per cent, a record low.

The firm “had to make a concession” in profitability amid a downturn in “a year like no other” to ensure repayment of its bonds due in 2022, the developer said in a filing.

Revenue stood at 430 billion yuan, roughly in line with the 427 billion yuan estimate compiled by Bloomberg. Core net profit, which adjusts for items including property revaluation, reached 2.6 billion yuan. BLOOMBERG