Future Land's Sustained Growth Depends on Land Replenishment
Future Land's fast-churn strategy helped to boost total contracted sales significantly by 144% yoy to CNY28bn. Its sales efficiency (measured by contracted sales/total debt) increased to over 2.0x from 1.5x in 2015. The company has also revised its full-year sales target to CNY52bn from CNY 40bn, and said it will continue to target Yangtze River Delta - its core market - to replenish land. Leverage has remained stable at 37% as it maintains stable land bank reserves, replenishing a similar amount of gross floor area (GFA) that it sold in 1H16.
Fitch believes there will not be a major rise in land reserves, as Future Land avoids paying hefty prices for land. The company paid CNY2,778 per square metre (sq m) for land acquired in 1H16, CNY640 per sq m more than in the whole of 2015. This compares favourably with the CNY1,167 per sq m increase in its average selling price to CNY11,115 per sq m over the same period.
Future Land has been able to contain its land-cost escalation as 94% of its attributable land bank is located in cities in the Tier 2 category or lower. The slow rise in land reserves, however, means that Future Land's 25.6 million sq m land bank by GFA as of end-June 2016 could only sustain its development for less than five years, down from over seven years in 2015.