Slump drives home sellers to the wall
An increasing number of Chinese property developers are facing the threat of bankruptcy as their credit dries up and weak sales have cut their cash flow to a trickle.
Tight credit and weak markets are pushing some property companies to the brink, reports Hu Yuanyuan
"We welcome investment from any company that can address our problems," Guo Yaoming, chairman of Guang Real Estate Group Co Ltd, told Southern Metropolitan News.
The property developer, which is based in Shenzhen, Guangdong province, said in an online statement that the delivery of "a small amount" of housing units in Huizhou in the province had been delayed.
According to Guo, a capital injection of 300 million yuan ($48 million) to 500 million yuan would allow the company to weather the current crisis.
The company expanded rapidly in recent years, taking out a three-year private loan of 1.5 billion yuan to do so, only to see housing sales plummet. It has projects in 12 cities (including Beijing and Shanghai), and it employed 2,300 people as of the end of 2012, according to its website.
Guang isn't the only property developer facing financial woes this year.
In March, Zhejiang Xingrun Real Estate Co, based in Fenghua, a small city in Zhejiang province, was on the verge of bankruptcy. Published estimates said that the company owed 15 domestic banks a total of 2.4 billion yuan and individual investors another 1.1 billion yuan, although it had only 3 billion yuan of liquid assets. The company was at one time the largest developer in the city.
On Monday, media said that nobody had heard from the chairwoman of Qingdao Junlihao Holdings Ltd since late April. The company's debt could exceed 1.2 billion yuan, reports said.
Given sliding residential sales and prices in many cities, it's no surprise that concerns about the debt of overstretched borrowers continue to mount.
According to a report by Goldman Sachs Group Inc & Gao Hua Securities Co Ltd, the financial situation of 110 developers listed on the A-share market deteriorated in the first quarter. Those woes will have an impact on apartment prices during the second quarter, the report said.
About 30 percent of bank loans are estimated to be tied to real estate, and land and property are used as collateral for a majority of loans, according to Roubini Global Economics LLC.
The restructuring of Chinese homebuilders that began early this year will force uncompetitive developers out of the market and help mitigate oversupply risk in the long term, according to a report by Fitch Ratings Inc.
China's property sector has been experiencing weak sales and negative sentiment, along with tighter onshore funding and polarization among cities. This restructuring process has led to the separation of stronger developers from weaker rivals, the credit ratings agency said.
"Given that nationwide housing demand is still strong and rated developers only account for about 33 percent of market share, there is still room to grow for stronger-rated developers after restructuring and consolidation."
James Shepherd, head of research for greater China at Cushman & Wakefield Ltd, agreed with that assessment.
"We anticipate more consolidation in this lackluster market. Major listed developers will outperform in this volatile environment, with their solid financial positions and access to varied financing channels," said Shepherd.
A case in point is Shanghai Greenland Group Co, which recently announced plans to list a unit in Hong Kong this year as it seeks to enter the United States property market.
The company joins other large domestic developers such as China Vanke Co and Shimao Property Holdings Ltd that are increasingly tapping foreign countries for new residential property ventures.
Vanke and Shimao plan to attend the Expo Milano 2015, hoping to boost their brand image worldwide and expand business overseas.
"This is a perfect chance to show Shimao in the international arena, and we will seek opportunities to better integrate our domestic and international business," said Chairman Xu Rongmao.
William Kwok, director of Cheung Kong Real Estate Ltd, said the cooling market and the tight cash flow of some property developers will give his company a better chance to obtain sites in Beijing and Shanghai.
But even while some developers are struggling for survival, most analysts said that China's property bubble isn't about to burst - at least not yet.
Barclays Capital, a division of Barclays Plc, said there will be a gradual deflating of the bubble over 2014-15, based on price-sales dynamics, the central government's new stance and "bottom line" management by developers. It also cited "judicious" cyclical government policies such as monetary easing and the loosening of purchase restrictions.
"We believe the government will likely tolerate some further correction, although not too steep, and also allow local governments more discretion to use 'differentiated housing policies' that fit local situations," said Chang Jian, China economist with Barclays.
UBS AG said the central government can still use policy to mitigate the downturn.
"We believe the government still has the means and willingness to mitigate a property downturn, including by increasing infrastructure investment and relaxing property policies," said Wang Tao, China economist with UBS.
"As such, our base case forecast is for the property downturn to remain manageable," Wang added.
"We welcome investment from any company that can address our problems," Guo Yaoming, chairman of Guang Real Estate Group Co Ltd, told Southern Metropolitan News.
The property developer, which is based in Shenzhen, Guangdong province, said in an online statement that the delivery of "a small amount" of housing units in Huizhou in the province had been delayed.
According to Guo, a capital injection of 300 million yuan ($48 million) to 500 million yuan would allow the company to weather the current crisis.
The company expanded rapidly in recent years, taking out a three-year private loan of 1.5 billion yuan to do so, only to see housing sales plummet. It has projects in 12 cities (including Beijing and Shanghai), and it employed 2,300 people as of the end of 2012, according to its website.
Guang isn't the only property developer facing financial woes this year.
In March, Zhejiang Xingrun Real Estate Co, based in Fenghua, a small city in Zhejiang province, was on the verge of bankruptcy. Published estimates said that the company owed 15 domestic banks a total of 2.4 billion yuan and individual investors another 1.1 billion yuan, although it had only 3 billion yuan of liquid assets. The company was at one time the largest developer in the city.
On Monday, media said that nobody had heard from the chairwoman of Qingdao Junlihao Holdings Ltd since late April. The company's debt could exceed 1.2 billion yuan, reports said.
Given sliding residential sales and prices in many cities, it's no surprise that concerns about the debt of overstretched borrowers continue to mount.
According to a report by Goldman Sachs Group Inc & Gao Hua Securities Co Ltd, the financial situation of 110 developers listed on the A-share market deteriorated in the first quarter. Those woes will have an impact on apartment prices during the second quarter, the report said.
About 30 percent of bank loans are estimated to be tied to real estate, and land and property are used as collateral for a majority of loans, according to Roubini Global Economics LLC.
The restructuring of Chinese homebuilders that began early this year will force uncompetitive developers out of the market and help mitigate oversupply risk in the long term, according to a report by Fitch Ratings Inc.
China's property sector has been experiencing weak sales and negative sentiment, along with tighter onshore funding and polarization among cities. This restructuring process has led to the separation of stronger developers from weaker rivals, the credit ratings agency said.
"Given that nationwide housing demand is still strong and rated developers only account for about 33 percent of market share, there is still room to grow for stronger-rated developers after restructuring and consolidation."
James Shepherd, head of research for greater China at Cushman & Wakefield Ltd, agreed with that assessment.
"We anticipate more consolidation in this lackluster market. Major listed developers will outperform in this volatile environment, with their solid financial positions and access to varied financing channels," said Shepherd.
A case in point is Shanghai Greenland Group Co, which recently announced plans to list a unit in Hong Kong this year as it seeks to enter the United States property market.
The company joins other large domestic developers such as China Vanke Co and Shimao Property Holdings Ltd that are increasingly tapping foreign countries for new residential property ventures.
Vanke and Shimao plan to attend the Expo Milano 2015, hoping to boost their brand image worldwide and expand business overseas.
"This is a perfect chance to show Shimao in the international arena, and we will seek opportunities to better integrate our domestic and international business," said Chairman Xu Rongmao.
William Kwok, director of Cheung Kong Real Estate Ltd, said the cooling market and the tight cash flow of some property developers will give his company a better chance to obtain sites in Beijing and Shanghai.
But even while some developers are struggling for survival, most analysts said that China's property bubble isn't about to burst - at least not yet.
Barclays Capital, a division of Barclays Plc, said there will be a gradual deflating of the bubble over 2014-15, based on price-sales dynamics, the central government's new stance and "bottom line" management by developers. It also cited "judicious" cyclical government policies such as monetary easing and the loosening of purchase restrictions.
"We believe the government will likely tolerate some further correction, although not too steep, and also allow local governments more discretion to use 'differentiated housing policies' that fit local situations," said Chang Jian, China economist with Barclays.
UBS AG said the central government can still use policy to mitigate the downturn.
"We believe the government still has the means and willingness to mitigate a property downturn, including by increasing infrastructure investment and relaxing property policies," said Wang Tao, China economist with UBS.
"As such, our base case forecast is for the property downturn to remain manageable," Wang added.
