Following earlier reports of some mid-sized developers slashing prices for Hangzhou housing units, the headlines surrounding the mainland property market have gone from negative to scary. The latest grim news is from Shenzhen Guang Real Estate Group.
A microblog message started to circulate on Weibo late Tuesday about Guang Group’s failure to deliver a number of projects and its potential collapse, according to Guangzhou Daily. The bankruptcy rumor snowballed since then with widespread reports by other media in last 24 hours.
Some of the company’s assets were reportedly frozen by the court and the group is also said to have pledged some projects to its constructors and suppliers due to fund shortage.
Signs of problems emerged well before the bankruptcy rumor. Guang had failed to meet delivery deadline on several projects. Some are nearly finished except that critical infrastructure, such as lifts, water facility and gas pipelines, is missing. Flat buyers have been protesting, drawing the media’s attention.
Set up in 2002, Guang Group spent its first decade building a few flagship projects in Huizhou, a second-tier city in Guangdong. Business was booming and the company earned its reputation as a solid local home brand. But the company later became overly aggressive, paying a heavy price for that now.
In recent years, Guang Group had been expanding rapidly in Shenzhen, Dongguang and Tianjin, putting mounting pressure on its financing, Guangzhou Daily noted. An IPO was once planned to take care of the liquidity needs but that float never materialized.
The company acknowledged its funding issue to mainland media but tried to play down the problem, saying that it still has the full backing of its main bankers, and that it is speeding up the construction work. It also said it will arrange compensation to customers affected by project delays.
With a tarnished name, Guang Group now may have no option but to scale back its ambition, rebuild its finances and repair its brand before anything else.
Listed among the top 100 Chinese developers, Guang’s woes suggest that the industry shake-up is still in its early days as a slower economy and sluggish property market will expose more weak players in the coming months.
The Guang Group news has led to a broad selloff in property shares on the stock market. Rattled investors will probably continue to stay away from the real-estate sector in the near term amid concerns over falling housing sales and a tight credit environment.
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