Real es­tate sta­bil­ity

De­vel­op­ers fore­cast slower yet pos­i­tive growth for 2017

China Daily (Hong Kong) - - FRONT PAGE - By WU YIYAO in Shang­hai wuyiyao@chi­

China’s de­vel­op­ers will ride out chal­leng­ing mar­ket con­di­tions like slow­ing sales growth, debt pres­sure and fewer fi­nanc­ing chan­nels, and see a “sta­ble” 2017 marked by slower yet pos­i­tive growth, in­dus­try an­a­lysts said. Debt man­age­ment will im­prove, de­mand for hous­ing in key cities will sus­tain, and the “de­velop-and­man­age” model will find ac­cep­tance, which will help de­vel­op­ers to ex­plore new paths for de­vel­op­ment, they said. “A con­ven­tional con­cern for surg­ing debt pres­sure seems to have found so­lu­tion with more de­vel­op­ers us­ing fi­nan­cial tools to hedge risks,” said a re­search note from Ping An Se­cu­ri­ties. China’s real es­tate de­vel­op­ers have been clear­ing their US dol­lar-de­nom­i­nated debts to pre­vent losses as the cur­rency was strength­en­ing against the Chi­nese yuan in re­cent months, a sit­u­a­tion that may pile on more pres­sure on smaller play­ers than big­ger ones. De­vel­op­ers’ fi­nan­cial con­di­tion wors­ened re­cently af­ter the mar­ket saw sales growth slow­ing due to pol­i­cy­mak­ers’ moves against po­ten­tial over­heat­ing in the res­i­den­tial mar­ket in key cities and spec­u­la­tive buy­ing, said an­a­lysts.

Dol­lar-debt is­suers have been learn­ing lessons from the past — they are re­duc­ing losses caused by ex­change rate fluc­tu­a­tions through swap trans­ac­tions or by re­tir­ing debts well be­fore ma­tu­rity.

Is­su­ing US-de­nom­i­nated bonds in over­seas mar­ket used to be a ma­jor fi­nanc­ing chan­nel for many de­vel­op­ers in the past three years. For, in­ter­est rates here were lower than other chan­nels. But now, this “low-cost” fi­nanc­ing op­tion is no longer eco­nom­i­cal for de­vel­op­ers as the dol­lar has gained more than 3 per­cent against the yuan in the past two months.

Ac­cord­ing to data of Shang­haibased Wind, a fi­nan­cial in­for­ma­tion provider, China’s real es­tate de­vel­op­ers have been re­tir­ing dol­lar-de­nom­i­nated debts be­fore ma­tu­rity since the be­gin­ning of Novem­ber. So far, they have cleared off debts of more than $1 bil­lion in all.

For in­stance, on Nov 28, Hong Kong-listed, Chongqing-based LongFor Prop­er­ties Co Ltd in­formed the Hong Kong Stock Ex­change that it has re­deemed callable bonds of $417 mil- lion ma­tur­ing in 2019.

An­a­lysts said that such moves will help de­vel­op­ers to re­duce loss caused by ex­change rate fluc­tu­a­tions, and will help them to cre­ate more room for fur­ther fi­nanc­ing.

“The trend is that more de­vel­op­ers that have bought US-dol­lar debts are go­ing to do the same, as they are likely to shift from over­seas mar­ket back to the do­mes­tic mar­ket for fi­nanc­ing,” said Zhang Dawei, an an­a­lyst with Cen­ta­laine Prop­erty.

A re­search note from Moody’s, which rates 50 listed de­vel­op­ers in China, said the out­look for de­vel­op­ers for 2017 is “sta­ble” as sup­port from mar­ket de­mand re­mains, in­come is steady and pres­sure for fi­nanc­ing and re-fi­nanc­ing is un­der con­trol.

“Credit in­di­ca­tors of rated de­vel­op­ers… have been im­prov­ing, cre­at­ing eas­ier fi­nanc­ing con­di­tions that po­ten­tially brings more liq­uid­ity to the mar­ket. To­tal size of de­vel­op­ers’ debts that ma­ture in 2017 is rel­a­tively small, and both loans and bond mar­kets are open to de­vel­op­ers, so risks for re­fi­nanc­ing are un­der con­trol,” said Yang Liu, an an­a­lyst with Moody’s, in the re­search note.

The re­port fur­ther said risks that de­vel­op­ers face are largely not from ex­ter­nal mar­ket con­di­tions but in­ter­nal fac­tors, in­clud­ing de­creas­ing sup­port from the par­ent group con­cerned, or dis­agree­ments among share­hold­ers, which vary case by case.

Only two out of 50 rated de­vel­op­ers are fac­ing con­sid­er­able pres­sure of re-fi­nanc­ing, said Moody’s.

Ren Zhiqiang, for­mer chair­man of real es­tate com­pany Huayuan Prop­erty Co Ltd and a real es­tate mar­ket vet­eran, said as long as eco­nomic growth is pos­i­tive, job op­por­tu­ni­ties will in­crease, ur­ban­iza­tion will pro­ceed apace, solid de­mand for res­i­den­tial prop­er­ties in key cities will

To­tal size of de­vel­op­ers’ debts that ma­ture in 2017 is rel­a­tively small, and both loans and bond mar­kets are open to de­vel­op­ers, so risks for re­fi­nanc­ing are un­der con­trol.” Yang Liu, an an­a­lyst with Moody’s

re­main ro­bust, and de­vel­op­ers that hold qual­ity projects in such cities are likely to see sta­ble cash flow through sales.

Ur­ban­iza­tion and China’s shift­ing eco­nomic growth pat­tern driven by con­sump­tion will gen­er­ate more diver­si­fied de­mand, giv­ing de­vel­op­ers more op­por­tu­ni­ties to de­velop new types of projects, said an­a­lysts.

A re­search note from CICC Ltd said that about 100 mil­lion res­i­dents will be mi­grat­ing to ur­ban ar­eas in the next few years, cre­at­ing a leas­ing mar­ket whose size will ex­ceed 1 tril­lion yuan.

“We ex­pect that longterm leas­ing ser­vices will take some 20 per­cent of the en­tire leas­ing mar­ket in the next few years, and it is ob­served that more de­vel­op­ers are en­ter­ing this mar­ket,” said the re­search note.

In­creas­ing num­bers of de­vel­op­ers listed in Shang­hai, Shen­zhen and Hong Kong are also adopt­ing more so­phis­ti­cated busi­ness mod­els, shift­ing from pre­vi­ous “de­velop-and-sell” to “de­velop-and-man­age”.

Some de­vel­op­ers are build­ing up com­mu­ni­ties, which in­te­grate com­mer­cial prop­er­ties, res­i­den­tial prop­er­ties and pub­lic fa­cil­i­ties all to­gether, said an­a­lysts.


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