As the dawn of 2025 unfolds, China's real estate market finds itself in a precarious positionDespite a series of measures such as interest rate cuts, reserve requirement reductions by the central bank, and special bond issuances aimed at bolstering the sector, persistent issues loom large—high inventory levels, diminishing demand, and stressed financial chains plague the industryAmong the prominent players, New City Holdings, listed as 601155.SH, is experiencing concerning declines in their sales performance, starkly contrasted against the backdrop of a weakening market.

Documented data for January 2025 illustrates the severity of the downturn: New City Holdings reported a mere ¥1.017 billion (approximately $148 million) in contracted sales, marking a staggering decrease of 72.45% year-on-yearThe area sold plummeted to a mere 115,600 square meters, down 77.44% from previous figuresThis declining trend, which is an extension of the annual decline experienced throughout 2024, showed the company’s severe struggle with contracted sales totaling ¥40.171 billion (around $5.78 billion) for the entire year, lower by 47.13% compared to 2023, and a sales area of 5.3882 million square meters, down 44.38%. In comparison, national statistics indicated that the overall sale area of commercial housing in China declined by only 12.5% in the same period, highlighting New City Holdings' underperformance relative to the industry at large.

On a more optimistic note, despite the slump in sales, New City Holdings witnessed a rebound in its stock price towards the end of the fourth quarter of 2024. Following September 2024, the real estate sector saw the launch of an enhanced policy known as the "Three Arrows," targeting immediate support measures such as the acquisition of existing land via special bonds, the relaxation of purchase restrictions, and support for operational loans in the sectorThis led to a brief recovery in the market, exemplified by a reported 200% year-on-year increase in new home transactions in Beijing during the National Day holiday period, as indicated by the Central Plains Real Estate Research Institute.

Bolstered by these favorable policy developments, New City Holdings experienced a valuation uplift in the secondary market, culminating in a stock price rise to ¥11.85 (around $1.72) per share on February 12, 2025, which reflected a gain of 3.77% and a market capitalization of ¥26.73 billion (approximately $3.87 billion). Nonetheless, prospects of sustained recovery remain shrouded in uncertainty.

Distinctively capable of offsetting the slump in residential sales, New City Holdings' commercial real estate segment proved remarkably resilient

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For January 2025, the company's total operating revenue from commercial transactions reached ¥1.162 billion, with rent income alone accounting for ¥1.084 billion, a year-on-year rise of 13.4%. In 2024, the overall revenue from commercial operations soared to ¥12.81 billion (approximately $1.86 billion), marking a 13.1% growth against 2023, successfully achieving a revenue target of ¥12.5 billionThe rental income specifically hit ¥11.95 billion, reflecting a solid 13.0% increase, while the occupancy rate soared to 97.86%.

This dual strategy of combining residential and commercial ventures afforded New City Holdings a critical safety net amid the prevailing sluggish residential marketAs of the close of 2024, the firm has launched or managed a total of 173 Wuyue Plazas, with a lightweight expansion covering 7.13 million square meters of operational space and a lettable area of 9.58 million square meters, registering a year-on-year increase of 1.41% in occupancy ratesThe stable cash flows and financing capabilities generated from the commercial segment stand in stark contrast to the uncertainties in the residential sector, offering a buffer during this period of adjustment.

However, an inherent risk appears in the form of New City Holdings' land reserve structure, which poses a potential hindrance to future developmentsAccording to statistics sourced from the China Index Academy, approximately 60% of the company's land reserves are concentrated in third- and fourth-tier cities, where the new housing transaction volume has fallen by 10% year-on-yearAt the same time, first- and second-tier cities reported a 3% increase in transaction volume, indicating a significantly quicker market recovery in these urban centers compared to their lower-tier counterparts.

The population drain in third- and fourth-tier cities, along with soaring inventories and declining purchasing power, portends a continuation of residential depletion pressures for New City Holdings, leading to potential asset impairment risks

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Between 2022 and 2023, provisions for asset impairments averaged around ¥4.2 billion (approx. $605 million) in the second half of the year, while the first half of 2024 saw a mere ¥2.1 billion in provisionsThe ongoing decline in housing prices may mean that 2025 could bring even further impairment pressures.

The liquidity constraints and debt pressures remain daunting for New City HoldingsThe financial report for the third quarter of 2024 reflects operating revenue of ¥51.563 billion, down 27.66% year-on-year, with a net profit attributable to shareholders of ¥1.455 billion, down 41.31%. Although profits exceed some of its peers (such as Vanke and Jindi, which reported losses), liquidity risks persist at an elevated level.

As of June 30, 2024, the company held cash and equivalents amounting to ¥15.782 billion, yet faces a substantial obligation with interest-bearing debts due within a year coupled with accounts payable exceeding ¥103.15 billionThis yields a funding gap upwards of ¥87 billionAlthough New City Holdings managed to reduce its interest-bearing liabilities from ¥71 billion in 2022 to ¥55.8 billion by mid-2024, and slightly lowered its financing costs from 6.20% to 6.05%, it remains under substantial liquidity pressuresThe challenge of optimizing its debt structure becomes critical in determining the company’s ability to sustain healthy growth moving forward.

The latter half of 2024 attracted heightened attention due to the release from prison of company founder Wang ZhenhuaAlthough he has not officially resumed a position within the company, his re-engagement in management has raised questions about New City Holdings' strategic trajectoryCompounding this scenario is the repeated turnover within the company's management team, with key figures including former Vice President Ni Lianzhong and former General Manager of the Central China Business Unit Yuan Xin being relieved of their duties and subsequently facing legal repercussions

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