[photopress:real_estate_bad_news.jpg,full,alignright]Property prices are now showing signs of weakness in many of the country’s key markets. The Chinese government is on a high-profile campaign to clamp down on new bank loans, hoping to curb inflation.
News reports state that companies that leveraged big last year are now strapped for cash, unable to build on the land they have accumulated. Beijing pledged earlier this year to tax and seize hoarded land.
Ashley Howlett, a Beijing property lawyer with Jones Day who heads the firm’s greater-China construction practice said, ‘The swagger is gone.’
In recent months, he said, Chinese clients have been approaching him for ideas on alternative sources of funding, such as forming a private-equity joint venture with a global property fund or taking out a line of credit with a foreign bank.
The latest casualty of changed conditions: Guangzhou-based developer Evergrande Real Estate Group, which last week shelved an initial public offering it hoped would raise as much as $2.2 billion. Now it is looking to raise that money by different methods.
Evergrande wrote in its listing prospectus, ‘We are highly leveraged, and a deterioration of our cash-flow position could materially adversely affect our ability to service our indebtedness and to continue our operations.’
Soho China Ltd., a major commercial and residential developer in Beijing, recently dropped the idea of doing a domestic stock listing amid souring market conditions. Pan Shiyi, the company’s co-founder and chairman, told Shanghai Securities News that Chinese developers this year will ‘find themselves in extraordinarily difficult financial straits.’
In the past few months, Wang Shi, the head of megadeveloper China Vanke, a Shenzhen-listed company, surprised the market by slashing prices heavily on new flats and suggesting in a recent television interview that people wait three to four years before purchasing a new home.