[photopress:property_real_estate_1.jpg,full,alignright]Directly below this article is a story of Vanke blasting along making profits galore. This is not an universal story. Some local developers in China are feeling the pinch from tighter lending standards and the swing from a seller’s to a buyer’s market.
There may only be a tenuous connection with the American sub-prime problems — loans you would never give unless you were barking mad — but the problem is similar in that money is tight and loans are difficult to get on something which has any element of risk. The banks want not just belt and braces as security but also a touch of super-glue.
Few analysts expect an all-out housing crash (remember it was analysts who murmured not a word about the sub-prime crisis when the savvy operators started bailing out well over a year ago).
However, analysts (a bit devalued at the moment) say, the day of reckoning could be at hand for hundreds, even thousands, of smaller developers that leveraged up on land purchases and expanded into new geographic areas amid easy credit.
Flush with cash from sales and pre-sales of yet-to-be-built projects many developers exercised their ambitions at just the wrong time. That is a pretty frightening scenario outlined by Market Watch.
Bei Fu, an analyst of corporate and infrastructure rating with Standard & Poor’s in Hong Kong said, ‘This is going to be a volatile year for players in the sector. The funding channel has tightened significantly since last year.’
Times changed in the fourth quarter last year as the government stepped up austerity measures to cool speculation. What emerged, analysts say, was a double-squeeze.
Banks cut back on lending to developers and home buyers alike as the People’s Bank of China lifted the ratio of deposits that must be set must aside as reserves. Additional measures saw tightened mortgage lending to second-home buyers and new rules that block developers from using bank loans to finance land purchases. The government also tightened controls over the banking system to make it more difficult for developers to use funds from presales of projects to aid expansion.
Funding from the stock market dried up as regulators delayed listing approvals in a bid to make it harder to raise capital. Companies have effectively been shutout from fund raising on bond and equity markets since markets in Hong Kong and China peaked last October.
Life, indeed, for the developer without access to funds is far from grand. China’s real estate markets may have missed the massive declines seen elsewhere around the globe, but conditions in its 70 major cities have cooled sharply since the fourth quarter.
Vanke, in the story above, is one of the major companies which can easily weather this slight storm. But even Vanke will be giving an extra-careful evaluation of each new project.