January contracted sales reports released in recent days by more than a dozen Chinese developers showed year-over-year declines ranging from about 10% to more than 80% for some companies. They also reflected price reductions by industry heavyweights such as Country Garden Holdings Co. Ltd. and Sunac China Holdings Ltd.
In all, total contracted sales of the country’s 100 largest developers saw a year-over-year drop of nearly 40% in January, according to earlier data from Chinese data provider CRIC. The industry has registered yearly declines for seven straight months, going back to when property giant China Evergrande Group’s financial problems began to spook the market last summer. Evergrande, which has defaulted on its dollar bonds, hasn’t released January figures, but its disclosures earlier this month showed its new home sales largely ground to a halt in the past few months of 2021.
Financially weaker developers such as China Aoyuan Group Ltd., Modern Land (China) Co. Ltd. and Fantasia Holdings Group Co. Ltd. suffered a sales drop of more than 70% last month compared with a year ago, according to their stock-exchange filings. Meanwhile, some stronger developers also didn’t manage to escape the slowdown in sales. Sales of China Vanke Co. Ltd. fell more than 50% to the equivalent of $5.6 billion.
While home sales in January and February tend to be lower than other months of the year due to the Lunar New Year Holiday in China, last month’s figures were weak regardless, said Kaven Tsang, senior vice president at Moody’s Investors Service in Hong Kong.
“Home buyers are still cautious,” Mr. Tsang said, adding that many are likely waiting to see how things play out in the sector before deciding whether to purchase homes.
The problem for developers however, is that month after month of sharply lower sales also means much less cash is coming in, which has implications for the companies’ debt and other financial obligations. Land purchases by private developers have also slowed sharply, as their borrowing has been sharply curtailed. “The main source of internal funding for developers is still sales proceeds,” Mr. Tsang added.
Global investors have sold off stocks and dollar bonds of numerous Chinese developers on expectations of more defaults, following those of Evergrande and about a half-dozen other property firms last year.
On Monday, the Hong Kong-listed shares of some Chinese real-estate companies tumbled anew, with declines led by Sunac and by Zhenro Properties Group Ltd., which fell 12% and 15% respectively. The Hang Seng Mainland Properties index fell by more than 5%.
Zhenro’s decline followed a 66% plunge in its shares on Friday. The same day, Cailianshe, a state-owned Chinese media outlet, reported a market rumor that the Shanghai-based firm wasn’t planning to redeem a $200 million perpetual bond next month, and that it was planning to restructure its offshore bonds. Also on Friday, the company released its January contracted sales numbers, which showed a 29% year-over-year decline to the equivalent of $1.2 billion.
On Monday, Zhenro, a smaller developer, released a statement decrying “untrue and fictitious” articles online about the company. It said its operations remain normal. Zhenro’s perpetual bond was recently bid at 27.5 cents on the dollar, according to Tradeweb, a level that indicates investors see little chance of getting repaid.
Chinese regulators have introduced some supportive measures in recent months to help ease property developers’ access to funding. Late last week, authorities were reportedly moving to loosen restrictions on companies’ access to funds raised by presold apartments. However, analysts said the change is unlikely to eliminate the liquidity stress that many are currently facing.
The measure could help revive cash-strapped developers in the long-term—if their contracted sales are consistently strong, said Adrian Cheng, a senior director at Fitch Ratings, who rates Chinese property companies.
Boosting sales may be a more complicated challenge to tackle, said Charles Macgregor, Asia head at the credit-research firm Lucror Analytics.
Buyers are currently hesitant to buy houses from developers with funding uncertainties. Meanwhile, many also have reservations about the real-estate market as a whole since Beijing is seemingly determined to try to slow down price increases, Mr. Macgregor said.
The bigger test of home-buyer demand will likely come in March, several analysts predicted. William Wu, a Shanghai-based property analyst at Daiwa Capital Markets, said he expects sales to pick up slightly from the past few months, which could result in smaller year-over-year declines. He pointed to the government’s recent easing measures for the sector, lower interest rates on mortgages in some cities, and efforts by banks to expedite loan approvals. “These policies will likely release pent-up demand in the sector,” he said.
This story has been published from a wire agency feed without modifications to the text
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