Property Blues Arrive In China
Sydney Morning Herald
Saturday November 22, 2008
PROPERTY developers in China face a bleak 18 months as operating uncertainties mount, credit becomes harder to obtain, and new government regulations are implemented, Moody's Investors Service says.
DTZ's latest Pacific Investment Market Brief showed the value of real estate transactions fell 74 per cent across the region, compared with this time last year, which was considered the peak of the current cycle.The falling sales flow through to the development market, as no one will build if there are no serious buyers on the horizon.Moody's said in its report that China's rated property developers faced critical challenges in the near and medium term.Kaven Tsang, the report's lead author and a Moody's analyst, said contractions in sales volumes, price declines, and land purchases in the first half of the year had caused balance-sheet liquidity and financial profiles to deteriorate to such an extent that Moody's had had to take various negative rating actions over the past six months.Mr Tsang said that while some developers had access to overseas financing that could mitigate the handicap of limited or no overseas credit, increased borrowing from domestic banks presented subordination risks for bondholders."Some developers have been selling assets and equity interests in projects to raise cash and improve their liquidity, but opportunities for doing so have diminished. Potential overseas investors such as property funds have had to repatriate money to the US amid a credit crisis that has starved them of capital."A senior credit officer at Moody's, Peter Choy, said that as developers completed projects now under construction, the resulting rise in supply of new housing would further depress the market. The Chinese Government had made moves to stabilise the market with tax cuts and by relaxing restrictions on mortgages, alongside steps by local governments to encourage home purchases. "The impact of these actions remains unknown, and uncertainty over how regulators will approach the problem in the future has exposed developers to high regulatory risks."
© 2008 Sydney Morning Herald