China’s property market appears set for consolidation as large developers have begun to cut home prices in first-tier cities amid continuing policy headwinds, adding to the pressure on small local players to offload assets to meet debt repayment obligations.
Zhejiang Xingrun Real Estate Co. Ltd., the largest property developer in Ningbo, is in danger of default over net debt of up to 800 million yuan (US$129.2 million) and amid total liabilities of 3.5 billion yuan, according to a Tuesday report by China.com.
The construction of a French-style luxury property project of Xingrun has been suspended several months ago, the report said. Due to declining land prices in Fenghua in Ningbo over the last four years, Xingrun saw its asset value decrease by 1.4 billion yuan. The local government has held discussions with 15 banks which had granted loans to the company and hopes to resolve the problem.
Xingrun has also illegally borrowed more than 700 million yuan from the public, with 98 people involved, including seven government officials, the report said.
Meanwhile, property developers are slashing prices in top-tier cities such as Beijing and Guangzhou to boost sales, Beijing Times reported Tuesday. China Vanke Co. Ltd. (000002.CN) offered a discount of up to 3,000 yuan per square meter over the weekend on a new project in Beijing, while Poly Real Estate Group Co. Ltd. (600048.CN) lowered the down-payment for its newly launched development in Guangzhou to 10 percent of the apartment price, the report said.
Weakening property prices point to poor homebuyer sentiment amid China’s economic slowdown, observers say. It is not a good sign for property developers if the larger players have to cut prices for their apartments during the traditional peak season in March and April.
It is likely that more small developers will face financial difficulties in the coming months, especially those that only focus on projects in the lower-tier cities, observers say. But it will be a good chance for property developers that have strong cash-flows to replenish their land banks and expand their businesses.
China ramps up energy price reform
China is stepping up reform of the power sector by allowing major consumers to choose their own suppliers, Shanghai Securities News reported Wednesday, citing an unidentified official. Grid operators will be required to gradually stop selling electricity. Users will be allowed to negotiate prices with their chosen suppliers and will no longer be subject to state-mandated price ceilings. The National Energy Administration will pick 10 provincial power grid companies for the scheme. They will be encouraged to manage their own financial affairs. The reform is expected to lower electricity prices for consumers, the report said.
P2P lender eyes rural land mortgage loans
Peer-to-peer (P2P) lender CreditEase Corp. has signed a letter of intent with the Inner Mongolia government under which the former will offer mortgage loans with management rights of rural land in Huhhot city as collateral, Economic Information Daily reported Wednesday, citing unidentified sources. If successful, it will mark the first case of P2P lenders’ participation in the new round of rural land system overhaul as the government has allowed farmers to secure financing through pledge of such rights to financial institutions, the report said. However, as CreditEase is not qualified to issue mortgage loans directly, it needs to find a guarantee firm or insurer to be the main entity in the loans, the report said.
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