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China Property Stocks Fall 20% From May High as Concerns Linger

Sean Potter — Wed, 12 Jun 2024 08:09:35 +0000

China’s property stocks entered a technical bear market over concerns that Beijing’s efforts to bolster the sector are too small to end the rout.

A Bloomberg Intelligence gauge of Chinese developer shares fell 3.3% on Thursday, extending losses from a mid-May high to almost 21%. Sunac China Holdings Ltd. was the biggest laggard with a slump of 12%, while CIFI Holdings Group Co. sank 8.4%.

Real estate stocks have retreated amid skepticism over a broad support package unveiled by the central government on May 17. While investors initially cheered the policies, which include lower down-payment requirements for homebuyers, they have since questioned how useful they will be in reviving demand and addressing a housing inventory glut.

There’s also the concern about the size of the measures. Officials have said that a central bank program would incentivize bank loans worth 500 billion yuan ($69 billion), but that’s a small fraction of the value of China’s vacant apartments.

”The latest sales data show there’s not much improvement in property fundamentals,” said Jeff Zhang, an analyst at Morningstar Inc. “We may need to wait until the end of year to see a narrowing of declines or a rise in monthly sales as a result of the government’s rescue package.”

New-home sales at the 100 biggest real estate companies dropped 33.6% from a year earlier in May, easing from a 45% decline in April, China Real Estate Information Corp. data showed. While the slight month-on-month pickup buoyed property shares earlier this week, worries over the long-term outlook later pushed investors to take profits.

“We only do short-term investment in Chinese property stocks as the industry’s fundamentals are still weak,” said Joy Young, the founder of Shenzhen Infinite Fund Management Co.

As some investors wait for a clearer sales-recovery picture, others are seeking clues on major policy shifts that may be unveiled at the Third Plenary Session in July.

Beijing will likely follow other cities such as Shanghai and Shenzhen in relaxing housing curbs, according to John Lam, an analyst at UBS Group AG. Other possible measures may focus on destocking, he added.

Morningstar’s Zhang expects the Chinese government to be more active on property supports until July’s plenum, “but the room for policy adjustments may be smaller than before, as the May rescue package is already very forceful.”

Source: Bloomberg

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China’s Big Property Market Problem Will Take at Least 4 to 6 Years to Resolve

Jeffery Blair — Mon, 08 Jan 2024 10:52:32 +0000

BEIJING — China has a big problem within real estate that will take years to resolve, according to analysis from Oxford Economics lead economist Louise Loo.

Looking at nationwide data — whether based on official estimates of unsold inventory or the construction-to-sales ratio — Loo found it will take at least four to six years for real estate developers in China to complete unfinished residential properties.

That means efforts to boost funding to developers and other efforts to resolve China’s property market problems don’t directly address the bigger issue of uncompleted homes.

“However one slices the data, the existing excess supply in the market is likely to take at least another four years to unwind, absent a meaningful pickup in demand,” Loo said in a report Tuesday.

“Increasing supply coming from secondary market transactions – as households, worried about depleting profits from price declines, sell their second or third homes – is an additional drag to this process,” she said, noting that “developers’ inventory is far too large for households to absorb quickly.”

Apartment homes are typically sold ahead of completion in China, making it critical that developers finish constructing the houses if they are to sell more.

But financing struggles and other issues have meant developers have had to delay home delivery times — discouraging future home sales.

On the extreme end, residential construction in the relatively poor province of Guizhou could take well over 20 years to complete, Loo said in an email, while it will likely take at least 10 years in several other provinces such as Jiangxi and Hebei.

Nomura last month estimated the size of unfinished, pre-sold homes in China is about 20 times the size of property developer Country Garden as of the end of 2022.

Real estate and related sectors have accounted for about a fifth to one-fourth of China’s economy.

Ratings agency Moody’s said late Tuesday it expects that share to decline, in-line with Chinese government objectives. However, the firm pointed out the resulting drop in land sales means local governments may face financial strain if they are unable to offset what’s been a driver of more than a third of revenue.

That means Beijing may need to step in, posing “downside risks to China’s fiscal, economic and institutional strength,” Moody’s said. It downgraded its outlook on China’s government credit ratings to negative from stable.

Moody’s expects China’s growth domestic product to slow to 4% growth in 2024 and 2025 and average 3.8% a year from 2026 to 2030. The firm maintained an “A1” long-term rating on China’s sovereign bonds.

Spillover?

Despite persistent property market troubles, Oxford Economics’ Loo doesn’t expect significant spillover to the rest of the economy.

“We think China’s housing downturn will tread a different path than that of the US, Spain, or Ireland 10-15 years ago, and is unlikely to trigger a broader financial crisis,” she said.

In those situations, falling house prices, mortgage failures and bank lending were interlinked, Loo said, pointing out the difference in China: the greater role of policy, state-controlled banks and more stringent mortgage terms.

Other analysts also expect China’s economy will take its own path.

“We do see some similarities between China’s situation and the economic stagnation in Japan after the latter’s property bubble burst in 1991,” S&P Global Ratings said in a report Monday. “However, S&P Global Ratings believes China can avert this outcome, helped by regulatory action and the strength of its banking and corporate sectors.”

Source : CNBC

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Property Woes Loom Large Over China’s 2024 Outlook: Economist

Victor Lyons — Sun, 31 Dec 2023 01:13:09 +0000

Sustained property woes will continue to be the biggest drag on the world’s second-largest economy next year, with potential buyers hesitant to purchase and developers struggling for cash, according to a prominent economist.

“The real estate sector does show some signs of stabilising, but has it bottomed out? I don’t think we can make such a conclusion right away,” Lu Ting, chief China economist at Japanese investment bank Nomura, said in Beijing on Saturday.

Lu said that with delayed delivery of roughly 20 million presold homes – mostly in lower-tier cities where many private developers have been ensnared – there was a “negative feedback loop” between a public reluctance to buy new homes and a lack of cash among developers to build homes.

It also led to lower income for local governments, which rely heavily on land sales revenue, which in turn meant pay cuts for public sector workers and further drop in new home purchases, he added.

“Without cleaning up the mess [from undelivered presold homes], the real recovery of the property sector still faces a huge obstacle,” Lu said.

Beijing has implemented a series of stimulus measures to prevent the property market from further falls in the second half of the year, but sales have remained sluggish and prices dropped.

Without power from the traditional growth engine, some emerging economic drivers might also come to a standstill in 2024, including the investment boom in the new energy sector and the pent-up demand in the domestic service sector, Lu said.

“The rebound of consumption in the travel and catering sectors may slow down notably, because of the fading of a low base,” he said.

Investment in green energy industrial chains such as solar panels and electric vehicles – which were among the few export bright spots this year – might slow due to overcapacity and rising trade barriers in key overseas markets such as Europe, Lu added.

And weakening external demand as well as lasting geopolitical tensions would further weigh on China’s export sector and foreign investment, he said.

Despite the worsening global slowdown, falling yields in developed economies and a weaker dollar could give Beijing more space to ramp up its fiscal spending, with funding either from markets or its own central bank, according to Lu.

“Weak external demand also limits inflation and leaves more room for the [People’s Bank of China’s] money-printing, which might be essential for rescuing many projects left unfinished by developers,” he said.

He added that neither commercial banks nor local governments had the ability to put an end to the property crisis.

To save the economy, “first, the real estate sector is critical. Second delivery of presold homes is critical. Third, it should be financed by the central government.”

Source : SCMP

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Country Garden’s Chair Says Confident in Repairing Balance Sheet

Tyrone Santiago — Sat, 30 Dec 2023 01:06:31 +0000

(Bloomberg) — Country Garden Holdings Co.’s Chair Yang Huiyan says she is “very confident” the company can repair its balance sheet and pledged the founding family’s support for the ailing Chinese property giant.

The path to fix the balance sheet is “very clear and can be achieved,” Yang said at a monthly management meeting held Friday, according to a statement on the developer’s WeChat account. Country Garden “will strive to become a model for the quick recovery” of distressed companies, she added.

Country Garden’s debt struggles have epitomized the property crisis engulfing the country’s economy. The remarks come as China introduces new measures to put a floor under a property market that’s been roiled since the introduction of measures three years ago aimed at cutting the industry’s reliance on debt.

The developer, a poster child of China’s property crisis, defaulted in October for the first time on dollar bonds, and will face a test next week to avoid the same fate on a local note — an outcome that a regulator signaled it’s trying to avoid.

Yang said that Country Garden can maintain “positive assets” for the next ten years “as long as our inventory assets are sold normally.”

Separately, the company said in the statement that it will have three tasks over the next 12 months: ensuring delivery, operation, and credit and it expects to deliver more than 400,000 units in 2024.

Source : BNNBloomberg

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Wealthy Chinese Firms Go Bargain Hunting in China’s Stagnant Property Market

Rick Casey — Sat, 23 Dec 2023 12:21:24 +0000

(Yicai) Dec. 6 — A number of cash-rich Chinese distillers and coal miners have started to buy up land and properties in the country amid a sluggish real estate market.

An affiliate of liquor maker Jingpai paid CNY3.5 billion (USD490 million) for a sought-after land plot in Suzhou, eastern Jiangsu province, in October at a premium rate of 15 percent. The company has bought up a lot of property in Nanjing and Suzhou this year and is cooperating with real estate developers to let it operate them.

And coal miner Inner Mongolia Manshi Coal Group splashed out CNY4.1 billion (USD575.8 million) on three luxury apartment buildings in Shanghai. Two other coal producers, Erdos Group and Huineng Group, also recently spent CNY2.6 billion and CNY6.2 billion, respectively, on property in Shanghai.

Now is the time to pick up bargains as the real estate market is still stagnant and there are stimulus policies that should soon take effect, Zhang Hongwei, founder of Jingjian Consulting, told Yicai. Companies with deep pockets can buy up properties with a long-term view. They should look for prime properties in good locations that have a low price, he added.

Whether it is time to bargain hunt or not depends on the situation and it is still necessary to pay attention to market and policy risks when getting involved in real estate because of the volatile nature of the market, said Bai Wenxi, chief economist of IPG China.

Real estate is a capital-intensive industry with a lack of liquidity so investors need to carefully weigh up the pros and cons before they make a decision, he said.

Source : YiCaiGlobal

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China’s Unfinished Property Projects Are 20 Times the Size of Country Garden

Rick Casey — Thu, 21 Dec 2023 03:35:09 +0000

BEIJING — The size of unfinished, pre-sold homes in China is about 20 times the size of property developer Country Garden as of the end of 2022, according to a Nomura report on Wednesday.

Country Garden has been the largest non-state-owned developer in China by sales. It ran into financing troubles this year, and defaulted on a U.S. dollar bond last month, according to Bloomberg News.

“We estimate that there are around 20 million units of unconstructed and delayed pre-sold homes,” said Nomura’s Chief China Economist Ting Lu and a team.

About 3.2 trillion yuan ($440 billion) is needed to complete those remaining units, according to the analysts’ estimates.

Apartments in China are typically sold ahead of completion. Ensuring construction of the homes has been a government priority since delays make people less willing to buy new apartments.

At some point next year, the issue of home delivery could turn into a social issue and endanger social stability, and Beijing may eventually need to significantly ramp up policy support.

Nomura

“In our view, amid the collapsing property sector and widespread credit fallout among property developers, home buyers might get increasingly impatient while waiting for the delivery of their purchased new homes,” the Nomura report said.

“At some point next year, the issue of home delivery could turn into a social issue and endanger social stability, and Beijing may eventually need to significantly ramp up policy support,” the analysts said. “We see this as the key to truly restoring the confidence in the property sector and economy.”

Last year, many homebuyers in China decided not to pay their mortgages on property purchases due to long delays in construction. Developers have faced a financing crunch since Beijing’s crackdown in 2020 on their high reliance on debt. Covid-19 restrictions last year also made construction difficult.

“Assuming 20% volume growth in new home completions for the current year, developers will only manage to deliver 48% of the homes pre-sold between 2015 and 2020, leaving 52% still subject to delays,” the Nomura analysts said.

Source : CNBC

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China Pushes State Banks to Accelerate Funding for Private Property Developers

Billy Day — Mon, 11 Dec 2023 01:20:07 +0000

Chinese authorities are putting pressure on state banks to accelerate lending to private property developers, as they strengthen efforts to revive the country’s debt-stricken real estate market by supporting some of its biggest and most precarious companies.

Chinese regulators have instructed state banks to ensure the amount of loans to private property developers at least match the sector-wide average, according to two people who attended a gathering in Beijing on Friday of senior government and banking officials.

Shares of private developers jumped on Tuesday. The companies, which lack the support of their state-backed rivals, have been at the heart of a crisis in China’s property sector, which previously accounted for more than a quarter of economic activity in the country.

A barrage of defaults at private developers, led by Evergrande, the world’s most indebted property company, in 2021, has shaken confidence in China’s economy, leaving creditors to chase unpaid debts and real estate projects to sit unfinished across the country.

The unfolding funding crisis has pushed Country Garden, once China’s biggest private developer by sales and long thought of as more financially stable than its peers, into bond default this year.

“These new measures reflect concerns of policymakers on the credit risk of private developers,” said Larry Hu, chief China economist at Macquarie. “It would boost the short-term market sentiment for sure,” he added, while cautioning that “what commercial banks can do is limited”, pointing to the lack of success of previous support packages.

At the meeting on Friday, regulators also told state lenders to issue mortgages to home buyers purchasing property from private developers at least at the same pace as they issue mortgages to buyers from all developers.

The latest moves, conveyed to banks in person by representatives from the People’s Bank of China, the Central Financial Commission, the National Administration of Financial Regulation and the China Securities Regulatory Commission, illustrated authorities’ urgent concern about arresting the downward spiral in the property sector.

Regulators also pledged on Friday to consider unwinding some restrictions, such as caps on bank loans for mergers of developers.

Previous piecemeal support measures have failed to reverse the slowdown. A flagship $27bn PBoC bailout scheme has disbursed only about 3 per cent of its funds after state lenders could not find creditworthy developers.

At the Friday gathering, China’s biggest banks, brokerages and distressed asset managers were directed to meet property developers’ funding needs to a “reasonable” degree, according to an official readout.

The People’s Bank of China, NAFR and CSRC did not immediately respond to requests for comment.

Shares in Chinese property developers gained on Tuesday, with the Hang Seng Mainland Properties index, which tracks Hong Kong-listed Chinese developers, rising 2.9 per cent, well ahead of a 0.6 per cent increase for the broader Hang Seng benchmark.

Shares in developer Sunac China leapt 19 per cent after disclosing on Tuesday that it had begun implementing a $10bn debt restructuring. Country Garden climbed 7.8 per cent and Longfor Group rose 5.8 per cent, while China Vanke and China Overseas Land added 5 per cent and 3 per cent, respectively.

“A key thing to watch is whether and when policymakers will take bolder action, such as creating a lender or buyer of last resort for property developers,” Hu said. “If it happens, this will be the turning point for the property market.”

Source : FinancialTimes

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China’s Property Sector Needs More Government Support as Crisis Deepens

Cecil Vega — Sat, 09 Dec 2023 00:58:03 +0000

BEIJING — China’s property market, which makes up a substantial chunk of the country’s economy, needs more government support to prevent it from deteriorating further, analysts said.

Existing home prices fell in October by the most since 2014, while outstanding property loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note Friday.

That indicates increased drags on both the demand and the supply side.

Policy so far has focused on boosting demand. But the government hasn’t “addressed the most important issue: credit risk related to developers,” according to a Macquarie report.

“Without a lender of last resort, a self-fulfilled confidence crisis could easily happen as falling sales and rising default risks reinforce each other,” the report said. “Indeed, some large developers have recently seen their credit risks rising rapidly.”

Beijing has sought to reduce real estate developers’ high reliance on debt to fuel growth, while tamping down on a surge in home prices that has made buying an apartment in major cities prohibitively expensive for many young Chinese households.

UBS analysts estimated that real estate and related sectors now account for about 22% of China’s gross domestic product, down from around 25% levels seen in recent years.

Since November 2022, Chinese authorities have rolled out a raft of measures aimed at improving developers’ access to financing and reducing mortgage rates.

However, real estate behemoth Country Garden still ended up defaulting on a U.S. dollar bond last month, according to Bloomberg News.

On the homebuyers side, Nomura analysts last week estimated about 20 million units across China have been sold — but not yet completed.

Apartments are typically sold ahead of completion in China. Developers’ inability to finish construction on pre-sold properties prompted many homebuyers last year to stop mortgage payments on homes they had already bought but had yet to receive.

Markets ‘too optimistic’?

Recent figures indicate that property sector troubles are only worsening.

The average price for existing homes across 70 major cities fell by 0.6% in October from the prior month, compared with a 0.5% drop in September, with China’s largest cities leading declines, Nomura analysts said in a report last week citing official data.

That’s concerning since larger cities are expected to have a more sustained demand for homes due to the availability of jobs.

“China’s property sector has yet to bottom out,” the report said. “Markets appear to have been a bit too optimistic about the property stimulus policies over the past two months.”

More high-level signals

Policymakers in the last few days have made an effort to signal more support.

The People’s Bank of China late Friday announced it held a meeting with other financial regulators to allow lending to real estate developers that are “operating normally”, among other signals of support. The authorities also called for developing affordable housing, according to the readout.

“The meeting should help avoid an undesirable contraction of credit extension in the final two months of the year, as financial institutions try to time new loan deals to the new year to engineer a strong start,” Citi analysts said in a report Monday.

“The continued emphasis on supporting real estate financing and LGFV debt resolution will continue [to help] prevent risks [from] escalating,” the report said. “As fragile growth continues to call for an accommodative monetary environment, the meeting is moving along the needed direction while more supports are still needed to boost private sentiment.”

Shares of several major property companies closed higher on Monday, with developer Sunacrising 5.9% in Hong Kong trading.

Source : CNBC

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HSBC’s Quinn Says China Commercial Property Hit Lowest Point

Rick Casey — Mon, 04 Dec 2023 15:43:44 +0000

HSBC Holdings plc chief executive officer Noel Quinn said China’s commercial property sector had reached a trough, but investors shouldn’t expect a swift reversal following the recent downturn.

“The commercial real estate market in China has had a huge policy correction, and I think we are at the bottom of the market,” Quinn said on Bloomberg TV from London on Monday. “But it will take quite a while for that market to recover and regain momentum. So, I am not expecting a massive reversal in that sector in the next 12 months or so, but I do expect it to be a gradual improvement from where we are.”

Investors are concerned about banks’ exposure to China’s property market, amid developer defaults and relatively sluggish economic growth. Standard Chartered plc shares plunged last week after profit missed estimates due to charges related to investments in China, and as chief financial officer Andy Halford said it remains difficult to call the bottom for commercial real estate.

Of US$1.1 billion (RM5.24 billion) expected credit loss charges announced in HSBC’s third-quarter earnings on Monday, about US$500 million was related to the commercial real estate sector in mainland China. HSBC has charged a total of US$800 million against the China property portfolio this year.

“There remains the potential for a further deterioration in credit conditions during the last three months of the year, given the continued uncertainty around liquidity support for state-owned enterprises and ongoing weakness in property market fundamentals,” HSBC said in a statement. “Borrowers are therefore subject to a high degree of performance uncertainty and offshore refinancing risk.”

The firm pared its reliance on the sector, with its total mainland China commercial real estate exposure at US$13.6 billion, down roughly US$600 million from the second quarter, which it said was “mainly due to write-offs”.

“I’m encouraged by some of the policy measures that were announced recently,” Quinn said on Bloomberg TV. “They will take time to have effect, so I’m not expecting a rapid turnaround, but I do think we are at the bottom of the market, and will now have to have a slow recovery.”

Source : Bloomberg

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India’s Red-hot Real Estate Market Attracts Global Private Credit Investors

Scott Mcdonald — Mon, 04 Dec 2023 00:26:32 +0000

NEW YORK — China’s property market troubles have global private credit investors looking increasingly toward India as Prime Minister Narendra Modi’s infrastructure push drives up real estate prices.

More than $4 billion flowed into India in the form of private credit during the first half of 2023, with over 50% going into real estate, Ernst & Young reports. This compares with $5.3 billion in all of 2022. Fund managers surveyed by the firm expect real estate deals to continue to increase in the next year and a half.

“It has a lot to do with the strong economic fundamentals, but India has also benefited from the shift of sentiment away from China,” said Edwin Wong, a partner at Ares Management and head of Ares Asia.

India surpassed China as the world’s most populous country this year, U.N. projections show, and also has overtaken China in economic growth. Last year the Indian economy grew faster than any other major market, a feat it is expected to repeat through fiscal 2024, when the economy is projected to grow 6.3%, according to the International Monetary Fund.

“When people look at India’s economic achievement in the past years, its favorable demographics and strong and stable government that has been pushing through reforms that are beneficial to foreign investors, the growth story of India does look quite promising,” Wong said.

Private credit investors provide loans in deals where traditional bank financing is unavailable. They serve a niche market in India, where regulations limit banks’ ability to fund or lend in real estate transactions, especially in early stages of land development.

Following the pandemic, consumer preference shifted toward home ownership, and for larger homes, said Nishant Kabra, head of land and capital markets for North and West India at JLL Capital.

“That sort of flip has really continued, and it doesn’t seem to be abetting,” he said. “So you have residential setting new highs quarter after quarter. That has created more liquidity in the system, and real estate developers have become aggressive on land acquisitions.”

India’s real estate sector makes up 6%-7% of gross domestic product, a share projected to double by 2025, according to accounting firm Grant Thornton’s India branch. The country’s real estate market is expected to reach $1 trillion by 2030.

Modi has emphasized infrastructure spending to drive economic growth, and India’s capital investment increased 33% in its full budget laid out earlier this year.

This kind of capital investment into roads, railways and affordable housing will accelerate the country’s already rapid urbanization, which has exacerbated housing shortages.

“Much of the capital that is needed to fund the growth of India is going to come from the private sector,” Wong said.

A 2016 real estate regulation act and recent changes to bankruptcy codes have helped boost investor confidence in India, but navigating the complex web of land leasing and approvals remains daunting for outside investors, and working in private credit can help investors overcome some of those hurdles.

“Investors can work alongside many of the established players in the equity space,” said MSCI’s Benjamin Chow, who leads research on commercial real estate capital markets in Asia. “Private credit also targets a relatively safer portion of the capital stack, as investing via debt rather than equity provides a bigger buffer against losses.”

Chow said there have been only a few explicit investment announcements regarding scaling down in China while ramping up in India, but overall appetite for China’s real estate from global institutional investors has waned.

“Against this backdrop, this is India’s moment to shine,” he said.

But the Indian rupee’s weakness against the U.S. dollar is dampening the appetite at least for some.

“Unless you’re a local operator looking to make returns in rupees and have difficulty exporting your capital, in which case on a relative basis it’s likely that property lending is more appealing than corporate [lending] right now, it is very hard to justify investing there relative to many other places in the Asia Pacific,” said Dan Zwirn, CEO of Arena Investors.

Source : NikkeiAsia

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