Economy

Real estate market faces a tough time next year

By Hu Yuanyuan (China Daily)
Updated: 2010-12-11 10:20

BEIJING - The cash flow of many Chinese property developers is being squeezed as the central government further tightens financing channels to curb the property price growth.

The move will provide room for a further price drop and better investment opportunities for real estate funds, industry analysts told China Daily on Friday.

The market situation is likely to become more complicated as the ongoing Central Economic Work Conference, which began on Dec 10, may reveal details of the nation's new real estate policies.

"Quite a number of small- and medium-sized property enterprises are experiencing tightened cash flow, and their financial situation is expected to deteriorate further in the first half of 2011," said Wang Gehong, president of Beijing GrandChina Real Estate Fund.

The fund, which has 500 million yuan ($74.6 million) under management, will invest in a residential project in Beijing, as the property developer involved is now suffering financial difficulties.

"Without rigorous real estate policies, we could hardly find such an opportunity in Beijing," said Wang. China's banking regulator has ordered lenders to tighten the controls on loans to property developers.

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On Dec 8, the regulator told the nation's trust companies to inspect compliance and assess the risks of loans to property developers. They were also instructed to review loans individually and ensure that borrowers meet qualifications and have adequate cash flow for repayments, it said in a statement on its website.

According to a managing director at one of the world's largest private equity companies, many more property developers have approached him recently, including some of the country's leading real estate companies. "Besides smaller developers, some of country's biggest names in the field are also experiencing financial difficulties because of flat sales and limited financing channels," the individual, who declined to be named, told China Daily. "If the government's tightening measures continue, property developers experiencing difficulties may cut prices to stimulate sales," he added.

Wang Tao, head of China economic research at UBS Securities, said the government's stringent real estate policies, such as restricting the number of homes a family can purchase in some cities, and requiring a 50 percent down payment for second-home buyers, will continue next year unless overall economic growth tumbles.

According to Yin Bocheng, director of the real estate research center at Fudan University, the Central Economic Work Conference will pay more attention to China's economic structural reshuffle and people's livelihoods. Such a change will also affect some property developers' external environment, thus posing a risk to their cash flow.

"The following one to two years will be a time-window for real estate funds," GrandChina's Wang said. For Gregory Peng, head of BAML's China real estate investment business, property developers will see soaring capital demand in the second and third quarters of next year. However, James Pan, chief executive officer of Everbright Ashmore (Beijing) Real Estate Investment Consultancy Co Ltd, said he hadn't experienced much change in the market, as his fund mainly focuses on the commercial property market in second- and third-tier cities. The fund is the property investment arm of Hong Kong-based China Everbright Ltd.

"So far, we haven't experienced a tightened cash flow in the commercial sector, as the government's rigorous measures mainly target the residential sector," Pan said.