Good evening, ladies and gentlemen. Welcome to Shui On Land Limited 2020 interim results announcement online. This is the second time we have gone online, and we are very happy that a lot of you have chosen to join us this evening. Thank you very much. As usual, our presentation PowerPoint has been uploaded to the company's website under Investor Relations section. Please check there for reference. As always, we will welcome questions after the presentation to be submitted via the e-platform. Some of you have already, in fact, sent in questions. We will do our best to respond to those later on. Before I pass the mic on, I would like to introduce the four bosses we have today to speak with us, two in Hong Kong and two in Shanghai. In Hong Kong, we have the Chairman, Mr. Vincent Lo.
Hello.
Executive Director, Ms. Stephanie Lo.
Hello.
In Shanghai, we have Managing Director, Chief Financial Officer, and Chief Investment Officer, Douglas Sung.
Hi, everyone.
Yep. Also, we have in Shanghai, Jessica Wang, Managing Director, Shui On Management Limited. Without further ado, I would like to hand over to the Chairman to start, please.
Okay. Let me give a quick overview of our situation. I shall not go into any detail because I think my colleagues will explain to you in great detail later on. One thing I want to report is that, due to the significant impact from the pandemic, I think the COVID-19 has impacted on the global economy and disrupted social activities, and it has got significant knock-on effect on the property market and our company's business. Against that backdrop, unfortunately, Shui On Land has recorded a net loss omf CNY 1.622 billion during the first half of this year. Basically, that is because we have a decline in the fair value of CNY 1.962 billion for investment properties and other property assets. Then, of course, we have lower rental and leasing income due to the waiver of rental and other reliefs to our tenants.
There has been a delay in the construction and handover of residential units. Our balance sheet remains strong. We have now still a very healthy 58% net gearing as compared to 52% at the end of last year. Cash and bank deposits is CNY 13.96 billion as of June 30. Due to the environment and our business losses, we have decided not to declare an interim dividend for this current period. Maybe I will just stop there and let my colleagues do more detailed presentation for you.
Thank you, Chairman. Can I ask Douglas to speak to us about the financials, please, Douglas?
Yes. Thank you, Mr. Chairman. Let me walk through quickly the group's first half interim results. The key highlights here, I will just pick up a few points and then we can go through the numbers. As the Chairman mentioned, obviously, COVID-19 had a big impact to our business in the first half. You can see that in terms of revenue, there is quite a significant year-on-year decline. But partly driving the decline is also a timing issue because, during the first half this year, we do not have any new residential projects completed and handed over to buyers. There is very little revenue recognition from property sales. That made a big impact compared to first half 2019. Also, obviously, it has impacted our rental income because of the concession and relief we have given to tenants. Overall, rental income dropped by 11% on a consolidated basis.
But if we include our JV and associate companies, total rental income only dropped by about 1%, so it is essentially flat year-on-year. I will walk you through later on the decline in fair value of investment properties, which was about CNY 1.5 billion. That represents about 3.1% of the overall value of our income investment portfolio, investment properties. We think that this decline is more or less in line with some of the other commercial property companies who have also reported a decline in fair values in the first half. As the Chairman mentioned, overall financially, we are still very stable with gearing at 58%. Again, I will walk you through some of the information later. On the next page, on the P&L, we just highlight a few figures.
You can see that revenue side, property sales for the first half is only CNY 161 million. It is well below first half 2019. As I mentioned, that is because we do not have new completion and handover of new projects in the first half. The sales is really just a few leftover inventory units in our various projects. The rental income, I will show you a further breakdown later on. Gross profit of CNY 964 million, so it is about 70% decline from a year ago. But you will see that the GP margin was quite high at 66%. That is primarily because of composition of revenue. It is primarily coming from rental income in the first half, which typically has the higher GP margin and better efficiency. That other income is primarily interest income. SG&A expenses is quite typical.
On the fair value decline, as I mentioned, is about CNY 1.5 billion. I will walk you through the breakdown later on. Other gains and losses include a number of items, such as some of cost and fees relating to financing and relating to hedging costs. We have also made some impairment losses on some of our PUD, land bank under development. The net result is about CNY 160 million of losses. If you look at financing costs, down 7% year-on-year. But actually, in terms of the actual interest cost in the P&L was down quite a lot from first half 2019. You can see that it is about 37% lower.
That's because we have actually capitalized more interest in the first half because we have new projects kicked off construction, such as Qingpu, our Panlong Tiandi, and also our Hong Shou Fang project, which for which we applied at the end of last year. So in the first half of this year, we were able to capitalize more interest into these projects. Next page. I think the taxation, maybe just highlight a little bit, you see a tax credit in this period of CNY 689 million. This is primarily because, A, we have operating loss, so that's a tax credit rather than tax liability, and also because of the write-down in the fair value of the investment property. Historically, in the past, when we have the IP portfolio upward revaluation, we also provide for deferred tax liability.
Because we now have reversed some of these gains in the past, the previous deferred tax liability were also reversed as well. So that's why you are seeing a relatively big tax credit in this period. Then taking out minority interest and also the interest on the perpetuals that we have, the net loss attributable to shareholders was CNY 1.62 billion. As the chairman mentioned, the Board has decided to withhold declaring interim dividend in this period. Next page. This is just for your reference. You can see that basically we have very little property sales revenue in the first half. It's really just a few unsold units that we sold in the first half of the year. Next page. But on the subscribed sales, it's actually a big increase compared to first half 2019.
We have about over CNY 9 billion of subscribed sales, subscribed but not yet contract, which we'll be contracting in the coming months. This include the CNY 9.2 million. A large bulk of it includes the Lakeville Phase V residential, the last residential phase in Taipingqiao in Shanghai, which we pre-sold at the end of June. So that's about CNY 6.4 billion of subscribed and contracted sales. We contracted about half a billion before the end of June. We have about CNY 5.9 billion subscribed sales from Lakeville coming through, which we'll be signing contract in the coming months. This will go into contracted sales in the following months, before the end of the year. In terms of sales, the sales has definitely picked up compared to 2019. Next page on rental income.
I think this is obviously one of the main focus in the first half. On the next page. Oh, yeah. You can see that basically, we have across the board, pretty much across most of the projects, you can see that rental income showed a decline year-on-year in various degrees. The rental income in first half already includes the waiver of rental and rental concession. Also, it's also partly affected by lower occupancy rate. You can see that basically, most of the projects have lower occupancy rate compared to the end of last year. This is a direct result, first of all, of the COVID-19 impact. A number of tenants, particularly some smaller tenants, because of the impact of COVID-19, have decided to close business, so have vacated.
We are also, during this period, more actively repositioning some of our properties. For some of those properties that we believe we need to put a new tenancy and new tenancy mix, we have been more actively rotating some of these tenants. That also caused some short-term increase in vacancy as well. We are basically, for some of these projects, we have already done or gone through some of the repositioning. We are expecting that basically in the coming months, in the second half of the year, occupancy will gradually move back to a more normalized level. It probably won't reach end of 2019 level yet, but I think it will get closer to overall occupancy in the mid to high 80% range rather than at the low 80% range during the first half.
Also o f notice, if you look at the virtual income on the consolidated level, it's down 11% year-on-year, but if we include some of the JV projects and associate income, it's more or less flat year-on-year. Some of the loss in the group level was offset by new contributions in the JVs and associates. On the next page, is the IP valuation, of course, is a big focus this half. I mentioned that we have taken about CNY 1.5 billion of decline in fair value. You can see that the biggest decline is really coming from Wuhan and Chongqing Tiandi. Wuhan is, I think, quite obvious because it's the center of the outbreak at the initial stage.
The whole city was locked down until mid-April, so basically all our properties have closed for almost three months, so it has a big impact to the income and to the valuation. Chongqing, I think it's also because of the initial recovery was quite slow as well. In these two properties, we have taken a larger write-down on the fair value, but you can see that for the mature core properties like Shanghai Xintiandi, for example, The Hub, KIC, the valuations generally are very stable, less than 1% - 2% decline. This is also reinforcing what the chairman mentioned earlier, that I think the focus for the group will continue to be on the Shanghai market in the medium to long-t erm. Overall, the attributable gross asset value to the group after the first half is about CNY 43.5 billion. Okay.
On the next page, I think on the financial position, we talked some of these figures already. You can see that net debt is pretty much flat compared to the end of last year. The increase in gearing is because we have paid off our $225 million convertible perpetual in June. That was classified as an equity in our balance sheet. Using cash to pay down that perpetual bond means a direct impact of about 56% on gearing. That's the main reason why you've seen the noticeable increase in gearing in the first half. You can note that at the footnote, we also have benefited from much lower average cost of debt in the first half. Our average borrowing cost is now down to 4.8%.
I think this is one of the lowest level ever for the group, and it is a direct reflection that a lot of our bank borrowings, which is based on HIBOR and LIBOR, has come down a lot in the first half because of the movement in HIBOR and LIBOR during this period. Next page. This is a reference point just on the gearing and net debt. Then the next couple of pages are some of the numbers on this page on our outstanding debt liability. We did a liability management in February, earlier this year, February. Then the debt profile on page 24, you can see that maturity profile. A week ag o, we also issued a new note, $500 million four-year maturity U.S. dollar note. This is at the bottom of this table here.
This table just gives you a reference of the various maturity dates. Then on the next page, lastly, on the balance sheet, at the end of the period, we have a total asset of about CNY 110 billion. We can see that over the last two to three years, the size of our balance sheet has remained relatively stable. Even though we have a markdown in our IP portfolio this year, it has not really affected the overall balance sheet that much. On the right-hand side, you can see that about 55% of the total assets are commercial properties or commercial-related assets. That explains also why we have perhaps compared to some of the other mainland Chinese property companies, we have seen a much bigger impact on our financials in the first half because of our more heavy exposure to commercial properties in China.
I think I will stop here for my portion and turn it over to Stephanie.
Thanks, Douglas. I will share here with you a little bit more about our retail and office portfolio and our market outlook. Firstly, we are seeing a very steady retail recovery in China in general, and in our own portfolio within our shopping malls in Xintiandi, footfall and sales have reached, actually as of today, near 90% of pre-COVID levels. This obviously varies by location, and I have a more detailed chart later that we can share with you. We project that without any major market fluctuations or additional waves of COVID coming, the retail momentum will continue to rise steadily. Our retail market, our view is that it will become more bifurcated and the premium market, specifically the luxury market, will be largely driven by domestic reshoring spend.
We've seen the luxury sector rebound rapidly as travel restrictions have prevented a lot of these consumers from purchasing luxury goods abroad. And we project that a lot of this reshoring spend will continue. We're actually cautiously optimistic about the retail market in general, and we continue to foresee that this sector has a lot of growth potential. The online sales, though, we've seen a huge growth naturally due to everyone being locked at home in the beginning of this year. The China online sales accounted for 25.2% of the total retail volume at the end of June as compared with 20% at the end of last year. That's quite a large jump for a six-month period.
Our online iTiandi membership base grew by 15% in the first half of this year to close to 2 million members, with sales through our platform of over CNY 570 million in the first half of 2020. From an office point of view, our rental income remains very stable. In fact, in the first half of 2020, we saw a 4% increase versus the same period last year. We think that the diversified premium quality office portfolio for us has been more resilient in terms of market volatility. However, the Shanghai office market is experiencing some short-term headwinds. For the next one to two years, we foresee that there will be some strong headwinds due to a number of factors. One is a large supply coming onto the market still.
Secondly, due to COVID and also the trade tensions between the U.S. and China, there are a lot of multinational companies that are contracting in terms of demand, and this will affect the office market naturally. But in the long run, we're still very bullish on the Shanghai office market in general, due to the growth of the domestic Chinese economy. The nature of office space also is fast evolving. Many people have experienced work from home for a very protracted period. There's actually a very strong demand for a total office solution that enhances flexibility, mobility, and customization after COVID. We launched a platform earlier this year called SHUI ON WORKX, and it's an office platform that's meant to address the need for a more flexible office solution.
Everything from the types of spaces down to the way that you use the spaces and how you can actually be more collaborative in terms of teams, and how the office spaces are being used. Next page. Douglas shared with you earlier about the reduction in our rental income in the first half, largely due to the COVID-19 impact. But one thing I'd like to point out here is in terms of our Shanghai portfolio, it's up 1%, so essentially flat, but we are undergoing several AEIs, one of which is actually within Shanghai Xintiandi. And s o the south block, the mall within the south block, has actually been closed for a while, and this is a big contribution to actually a reduction in the rental income from that portfolio. Next page.
Here are more detailed charts, showing our recent tenant sales as well as our tenant shopper traffic within our portfolio. As I mentioned earlier, many have recovered to 90% compared with the last same period in 2019. Next page. As online sales have increased a great deal, I think it is inevitable that we, as a developer, also have to go online. We have talked about our omni-channel strategy for some time, but actually a lot of these trends have pushed us to move even faster. As one example, Shanghai Fashion Week, which has historically always been held at Shanghai Xintiandi on the lake, was unable to be held for the first time on site. We launched online fashion week as well as partnered with Tmall and Shanghai Fashion Week to launch the first online retail shop together with them in conjunction with fashion week.
We had a live broadcast station within Social House at Shui On Plaza, and a lot of the fashion designers as well as the KOLs came to do a live broadcast, and you could actually buy a lot of the products directly off iTiandi and Tmall. This was a great new initiative for us that we hope to continue to push ourselves to innovate on. Next slide. Our first in China, first in city flagship leasing policy continued, and despite COVID, we were still able to open several flagship stores. YSL's Cosmetic and Perfumery opened at Xintiandi. We opened NARS as well as Jo Malone, and some new entertainment tenants and F&B tenants as well. Despite the impact to the retail market, we were still able to launch a lot of these flagship stores. Next page.
Xintiandi's positioning as a culture and social destination, I think, through this COVID period, has really strengthened our conviction about this positioning because I think ultimately, it will be a battle on experience and a war on service and service quality. Our iTiandi membership base, iTiandi, which is our online membership platform, which we hope to use to deliver new service and new content to our consumers, our membership base grew 15% in the first half, and it is now close to 2 million members. The retail flow through our iTiandi membership base in the first half of this year was over 500 million CNY. Next page. Here as a recap, we are one of the leading commercial developers and larger commercial portfolios in Shanghai. The asset value is up to 75 billion CNY.
We increased our portfolio by acquiring two new pieces of land, Hong Shou Fang in Putuo District, as well as Panlong Tiandi, which is in Qingpu, but it is two subway stops away from the transportation hub in Hongqiao. Next page. From a commercial portfolio, in this chart, you can see the entire Shanghai commercial portfolio. The asset value attributable to the company amounted to 43 billion CNY, which is approximately 58% of the total portfolio in terms of ownership. We have a number of projects under development now. One of which is 123 and 124, which is a site that we acquired last year and a JV that we have with CPIC. This is the landmark project, the last piece of the puzzle to our Taipingqiao Xintiandi master plan development.
In Rui Hong Xin Cheng, the Hall of the Sun is a large commercial complex, 330,000 sq m, and it is due to open in phases starting next year. I will stop here and I will hand over to Jessica.
Thank you, Stephanie. Next page. Let me share with you for the contract sales of the group. Despite the challenges from COVID-19, the group's contract sales increased by 82% to CNY 6.2 billion compared to 2019. The residential contract sales totaled around CNY 6.1 billion, mainly due to the strong sales performance of Rui Hong Xin Cheng Lot 1 and Wuhan Tiand i B10. Up to the end of June, the total subscribed sales was CNY 9.2 billion. This sales is expected to be recorded as contract sales in the coming months, and has mainly come from Taipingqiao Lakeville we launched in June. Next page. Here I will give some detailed information for different projects. The sales of Wuhan Tiand i Lot B10 is very outstanding. Just shortly after we opened the city, we launched the remaining portion of Wuhan Tiand i Lot B10.
Without the sales office and the showroom, over CNY 1.6 billion sales were achieved online in a few minutes. The selling price remained the highest one in Wuhan. It shows that people are still confident in Wuhan, and the demand of upgrading houses is very strong. Next page. We launched Taipingqiao Lakeville Lot 018 in June. Over CNY 6.4 billion subscribed sales in June. The average selling price is still one of the highest selling price in Shanghai. It is very interesting that according to our analysis, the buyers is getting younger, more than 54% are under 40, and even 29% are under 30. Most of the buyers are coming from Shanghai, and most of them are buying for self-use. They trust our brand, and they are confident to the development of Taipingqiao community. Next page.
For the second half, the residential GFA available for sale or presale will be about 388,000 sq m, mainly from the residential part of Taipingqiao Lakeville, Rui Hong Xin Cheng Lot 1 and Lot 7, Panlong Tiandi Wuhan Optics Valley, and Chongqing Tiandi. Next page. Here I would like to share with you for the Panlong Tiandi. The newly acquired land Panlong Tiandi residential unit will be launched in the second half of this year. The total GFA available for sale is 94,000 sq m. The location of Panlong Tiandi is very convenient, which is part of the Hongqiao CBD. We will redevelop a historical town with Tiand i style and surrounding with more than 230,000 sq m green land. The project there will be another landmark in Shanghai. Next page.
For Rui Hong Xin Cheng Lot 1 and Lot 7, I think most of you are very familiar with it. Until now, there are only 24 units left for Lot 1. In second half, we will launch Lot 7. Next page. We still have [Foshan Lingnan Tiandi] Lot 38 and Wuhan Optics Valley residential lot outside to launch in the second half of this year. Next page. In the central market, we have a strong pipeline and sellable resources based on the current market valuation. The estimated value of our sellable resources amount is about CNY 77 billion, with the attributable value to the group is about CNY 51 billion. These sellable resources will be launched in time in future. Meanwhile, we still have a very strong pipeline on commercial properties in Shanghai and other cities.
In Shanghai, we have around 800,000 sq m commercial assets, and in other cities, we have 247,000 sq m commercial properties. These commercial developments will act for the long-term rental growth and capital recycling for the group. Thank you. Over to Stephanie here.
I just will take two minutes to go through our sustainability strategy and ESG updates, while I realize there are a lot of questions that are coming online. From this year, because it is a very unique year, we are talking a little bit more about how we are dealing with COVID. The safety of our customers, tenants, and employees has always been a top priority. In response to the pandemic, we took a number of emergency measures to ensure that our workplace and our properties were safe, in terms of everything from disinfecting the locations, projects, as well as control of our MEP systems. In response to this pandemic, SOL has actually donated CNY 10 million to the city of Wuhan to help with relief efforts.
We also arranged and donated many medical supplies to be sent to the hospitals in the city, in conjunction with one of our partners. We revised a lot of our property management protocols now in response to this new normal, to ensure that our properties are safe. We continue to use this to push ourselves to innovate so that our properties can be more resilient in the future, for a more healthy and well environment. Actually, through this pandemic, it has reinforced our determination and commitment to creating sustainable communities, and our vision of this is ever more clear than before.
Yeah. Well, let me close our presentation by sharing with you our market and strategic outlook. We can see very clearly that the global economy is suffering a very severe blow from COVID-19, and it's not over yet. We're still seeing quarter of a million new cases every day. Particularly the last few days, when we see a case in Hong Kong, the infected person was cured, and then he went on a trip to Europe and come back with a new infection. I think that's most worrying. I think this is going to be having major impact on the world situation and economy. China's very swift response to the COVID-19 and have it under control within a short time, I think it's really notable.
I think that's because the Chinese government took a very, very strong line, hard line on how to control the pandemic. At the same time, I think, realizing that the economies need to have a boost, too. I think the expansionary fiscal and monetary policies introduced, I think it's going to help restore the GDP growth rate to around 2.5% for this year, which is, I think, most outstanding looking at the worldwide situation. Everybody else is in major recession. Just now, Jessica talked about the residential market. The first quarter was basically dead because of the lockdown, but the sales has been recovering very, very strongly and even achieving positive year-on-year growth by June of this year.
I believe the residential sales will continue to be strong because I think, first of all, if you look at all the other investment alternatives, the stock market is volatile. What else do you put money in? The bank is not giving you any interest. I think property, residential is obviously, I think, the favorite right now in China. Especially, I think, after a few months of lockdown at home, you realize how important the home is. I think people all want to upgrade. I think it's a very positive outlook for the residential market in China. Stephanie talked about the office market in Shanghai. We do believe that there will be a lot of pressure on the office market because there's going to be a lot of supply.
With the Sino-U.S. confrontation at this stage and then also worldwide recession, the demand for offices will b e diminishing. Also rental will come under pressure as well. At the same time, I think it's going to offer us good opportunities to pick up some of the very, very attractive prices because we still believe strongly that Shanghai will become the international financial and business center for Asia in the long- term. On the retail side, Stephanie has shared with you the things that we have been doing for our retail assets. I believe our location, and we are basically all landmarks of the cities, our retail properties will do well. Also, I think we've got a good name with the Xintiandi. Lastly, I believe the COVID-19 will bring the global economy to a halt and accentuated a move towards de-globalization.
The uneven economic recovery will strain international relations and further increase market volatility. In view of the unsettling and highly uncertain market outlook, we will continue to closely monitor the changing market dynamics and make our new investment very selectively and prudently. I will finish there. Thank you.