For China’s developers, a ‘stable’ 2017 beckons

[email protected] China Post

Analysts say realty market conditions may be challenging now, but bright spots abound too 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-and-manage” 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 Shanghai-based 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 million 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.