| HONG KONG
HONG KONG Feb 7 Chinese property companies are
rushing to the dollar bond market, almost matching last year's
sales in the first month of 2013 alone, in a frenzy that could
inflate the sector's gearing and the broader risk of a housing
In a highly competitive sector where even the biggest
developers have market shares of just low single digits, nobody
wants to get left behind building up cash as optimism grows that
a recovering Chinese economy will boost housing prices.
And with foreign investors desperate for the yields on
offer, developers can't match demand and their funding costs are
"Even if you were not planning on buying land this year, the
fact that your competitors are doing so at potentially cheaper
prices at the start of a new cycle by raising cheaper funding
changes that equation," said Raghav Bhandari, credit analyst
Three developers among the first to tap the market this
year, Shimao Property Holdings, Kaisa Group Holdings
and Country Garden Holdings, offered a total
of just over $2 billion of dollar bonds.
Orders exceeded $45 billion.
Total dollar bond sales by Chinese property companies in
January was more than $6 billion, just shy of the $7 billion
issuance for all of 2012.
Sector benchmark Country Garden issued 10-year bonds at a
7.5 percent coupon, 4.25 percentage points lower than the coupon
on its 5-year bonds in 2009. Fast-expanding Kaisa, which sold
5-year bonds at 12.875 percent in September, was able to sell
7-year bonds at 10.25 percent in January.
The easy access to long-term funding is a boon for
developers, but the concern for policymakers is the cash merely
pushes up land prices and creates a housing-price bubble.
"That may put more pressure on land prices if developers
start aggressive land acquisitions. That may in turn push
property prices higher and if the situation becomes
uncontrollable, there are fears these restrictive measures will
return," said Jacphanie Cheung, credit analyst with Deutsche
A government campaign to cool exuberant prices by limiting
home purchases, raising mortgage rates and downpayment levels is
stretching beyond its third year, but results are mixed.
Officials remain sensitive to the risk of a sudden price
spike and government leaders have stressed their intention to
keep curbs in place, and even introduce new ones such as taxes.
On Tuesday, Vice Premier Li Keqiang, who is expected to
become premier next month, said controls would remain to ensure
a healthy property market along with the construction of
affordable housing, the official Xinhua News agency reported.
China's housing market picked up in the second half of 2012,
consistent with signs the economy had bottomed out.
"Even if the government takes fresh curbing measures this
year, it might not be able to stop the stabilising and rising
trend of home prices," Ren Zhiqiang, chairman of Huayuan
Property, said last week.
Loans to homebuilders and buyers rose 39 percent in the
second half of 2012 from the first, and the average price of
land for residential homes in 105 cities rose 1.2 percent in the
fourth quarter from the third, when they had risen 0.9 pct.
This is feeding through to home prices, with data showing
average prices in the top 100 cities rose 1 percent in January
from December, the eighth straight monthly rise.
China Vanke Co Ltd, the country's largest real
estate developer by revenue, said its January sales soared 56
percent to 19.1 billion yuan ($3.1 billion).
A Reuters poll found economists expect a 7.0 percent
increase in house prices in 2013 and 5.0 percent in 2014.
"We will be more active in the land market in Beijing this
year and we are also looking at some land parcels outside of the
capital, which should be qualified for quick development," said
Wang Yi, board secretary of Beijing Capital Development Co Ltd
, a mid-sized listed developer.
While authorities worry about housing prices, analysts are
also worried about how developers will use their windfalls.
"Fundamentally, I am worried about companies' expansion
plans and there is a risk that they could become more aggressive
in their land acquisitions this year," said Agnes Wong, credit
analyst with Nomura.
The reliance on debt funding, rather than equity, will also
increase gearing, which could become a problem if property
prices fall or housing stock cannot be sold.
"It would be good to see them use these improved conditions
to de-lever themselves a little bit. Data has been so good that
people forget that the gearing on these balance sheets is high,"
said ANZ Bank's head of Asia credit strategy, Owen Gallimore.
(Editing by John Mair)