China's real estate industry is about to go down the shitter! Uh-oh!
During the past 15 years, almost 300 million Chinese (equiv to the entire population of the US) have moved into Chinese Urban centers fueling the largest RE boom on record. Guess what? The party's over! That plus the fact that China's rapidly aging population will eventually create a relative shortage of workers (& shift large portions of the population into elderly care) means that those bastards may be for some rougher sledding.
BTW: Thanks for the pandemic asshole!
As Property Downturn Drags On, Chinese Developers See an Uncertain Future
A historic real-estate boom is over, say property analysts, and the market could get worse before it gets better
A China Vanke residential development in Xining, Qinghai province. Vanke’s net profit fell 46% last year, declining for only the third time since the company went public in 1991.
By Cao LiFollow
April 7, 2022 5:30 am ET
HONG KONG—After suffering through a bruising property-market downturn, the Chinese developers still standing are predicting a starkly different future from their hard-charging days of the past.
Last week, at least two dozen Chinese real-estate companies whose shares trade in Hong Kong failed to file audited financial results for 2021 by a March 31 deadline, according to data compiled by CreditSights, Nomura and a review of exchange filings. Those developers that managed to do so painted a sober picture of their challenges as new home sales continue to decline, selling prices tumble and funding remains hard to come by.
Yu Liang, the chairman of industry giant China Vanke Co. , apologized to the company’s shareholders for its poor performance last year, calling it “a wake-up call.” Vanke’s net profit fell 46%, declining for only the third time since the Shenzhen-based company went public in 1991, after it recorded impairments on the value of some projects.
Mr. Yu rued the developer’s past pursuit of high growth, saying it led to some “aggressive investments with over-optimistic judgment of the market.” He pledged to turn things around, achieve stability and beware of “ungrounded and aggressive sentiments.”
Vanke is among the developers that have come to the realization that a historic real-estate boom that lasted for more than two decades is over, say property analysts, and that the market could get worse before it gets better. More than 10 Chinese property firms have defaulted on their dollar debt since last year, and more are likely to follow.
Despite government efforts to loosen mortgage lending, remove home-purchase restrictions and lower the down-payment ratio for home buyers, China’s real-estate sector has struggled to recover from a government crackdown on developers’ heavy borrowing and a slowing economy.
The country’s top 100 real-estate developers experienced a 53% decline in sales in March from the same month a year ago, according to data from China Real Estate Information Corp. It marked the ninth consecutive month of declines and the steepest for the industry since the downturn began last summer.
The world’s most indebted real-estate firm Evergrande has embarked on a social media campaign to show construction has resumed and says it’s doing whatever it takes to deliver homes. WSJ compares these posts with ones from upset buyers. Photo Composite: Emily Siu
China has been battling outbreaks of the Omicron Covid-19 variant since March, and major cities including Shenzhen and Shanghai have had to impose lockdowns and close businesses to contain the spread of the highly infectious virus and conduct mass testing of residents. That has further damped consumer confidence and people’s willingness to buy homes.
“In our view, the resurgence of Covid-19 will cripple the property market recovery given China’s zero-Covid policy,” said Shu Hui Woon, a credit analyst at Lucror Analytics.
The developers that missed the deadline to file their annual reports included China Aoyuan Group, which said Covid-19 restrictions were a reason for the delay, and Sunac China Holdings Ltd. , whose liquidity troubles have mounted in recent months. Auditors have also resigned from multiple developers, leading some of them to release unaudited results to avoid share-trading suspensions.
Given the industry’s recent troubles, the companies that filed audited financial statements signaled that they are doing relatively better than those that didn’t. “It has become almost a luxury to be able to complete the auditing process on time,” said Philip Tse, director and head of Hong Kong and China property research at Bocom International Holdings Co.
Most of the developers that released results reported steep declines in their land purchases in the second half of 2021, as well as lower sales volumes and lower average selling prices.
Country Garden Holdings Co. , one of the country’s largest developers by contracted sales, acquired 42 plots of land between July and December last year, versus 219 plots in the first half when the market was still booming.
The slowdown shows no signs of abating. In the first three months of this year, the volume of land sales in 300 Chinese cities dropped 60% from the same period in 2021, and only 30% of the top 100 real-estate companies acquired land, according to CRIC. The decline means developers will have fewer new projects to sell in the future, said Mr. Tse.
Many developers also missed their annual targets for contracted sales of apartments, and didn’t release new targets for the current year. Multiple companies parroted the Chinese government’s guiding principle of “houses are for living in, not for speculation,” and its plan to give priority to stability in land and home prices.
Zhenro Properties Group, a smaller developer that is facing liquidity challenges, said it expects the real-estate sector to remain under pressure in 2022. As such, it is trying to accelerate sales and speed up cash collection. It is also trying to get lenders to extend deadlines on some of its borrowings, and allow it to obtain new loans.
An editorial by state-owned China Real Estate Newspaper earlier this week said: “It is not an exaggeration to say it is the most difficult time since before the dawn of the industry.” It went on to add that the financial risks in China’s property sector have been eliminated, and it is time to support the sector with consolidated efforts from government departments, financial institutions as well as developers. The editorial has since been deleted.
Xiao Yunxiang, a senior analyst at Tongce Research Institute in Shanghai, said Chinese authorities have gone too far with their deleveraging policies and pushed many companies over the edge. The downturn is also forcing the Chinese developers to transform what used to be rapid-turnover and highly leveraged business models to slower-growing operations with thin profit margins.
“There will certainly be painful periods in the process,” Mr. Xiao added.
Write to Cao Li at email@example.com
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