China's property bottom leaves few standing tall

3 minute read

A person walks past by a gate with a sign of Vanke at a construction site in Shanghai, China, March 21, 2017. Picture taken March 21, 2017. REUTERS/Aly Song

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HONG KONG, June 30 (Reuters Breakingviews) - Few are standing tall in the troubled world of Chinese real estate. China Vanke (000002.SZ), the second-largest developer by sales, reckons parts of the housing market are recovering. But weaker rivals are struggling and a rebound requires access to borrowing markets where investors remain sceptical.

China blinked one year into a property deleveraging exercise that slammed the brakes on the economy. In June so far, more than a hundred cities rolled out some 120 stimulus measures to put a floor under tanking home sales, per consultancy Centaline. Vanke Chairman Yu Liang says half of top tier cities are recording higher asking prices, and expects notable sales increases in June over the previous month.

Such optimism demands caution. The central bank’s latest survey of commercial bankers suggests loan demand weakened further in the second quarter. In a break from previous stimulus cycles, Chinese households may be unwilling to take out mortgages while they are repeatedly slammed by lockdowns as Beijing sticks to its zero-Covid strategy.

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A strong upswing for property giants would require easier access to debt markets. Beijing has offered some credit support but confidence will take time to rebuild. Onshore debt issuance for developers without state ownership fell 73% year-on-year in the first four months of 2022, according to S&P Global Ratings. Offshore markets remain largely closed. Several companies including China Evergrande (3333.HK) are fighting winding-up petitions that could have knock-on effects further rattling investors. read more

In that context, it is easier for an investment grade borrower like Vanke to talk about a recovery. Elsewhere, nearly 60% of the 41 high-yield Chinese property developers Moody’s rates are now on a list of names considered speculative and subject to high credit risk, compared to 4.9% a year ago. The agency predicted in May that high-grade developers’ sales would cover debt due, but that lowly junk-rated borrowers would generate revenue covering only 70% as they slashed prices in the hope of generating cash quickly.

A big test is just around the corner. Nearly 100 billion yuan ($15 billion) of debt falls due onshore and offshore in July, the highest monthly amount for the rest of the calendar year, per Gavekal Dragonomics. The wall of maturities will see how far Vanke’s optimism might be shared.

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Yu Liang, chairman of Chinese developer China Vanke, said on June 28 the property market has bottomed in the short term, with a clear month-on-month rise in sales in June. A transcript of his comments made at the company’s annual general meeting was posted on the company’s official WeChat account.

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Column by Yawen Chen in Hong Kong and Jennifer Hughes in London. Editing by Una Galani and Pranav Kiran

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.