You are here: Home » Reuters » News
Business Standard

Analysis: China's top developers poised for strong sales as debt woes linger

Reuters  |  HONG KONG 

By Clare Jim

(Reuters) - China's large developers are tightening their hold on the country's real estate market, capturing an ever-larger share even as growth is expected to slow and worries about debt persist.

According to the U.S. Citi, the top 10 developers are forecast to achieve close to 35 percent market share this year, up from around 27 percent now. They held just 14.2 percent of the market in 2012.

The number of developers posting more than 50 billion yuan in increased to 40 in 2017 from 25 in 2016, with growth of 53 percent to 84 percent, CREIS said. The number of smaller developers, with between 10 billion and 50 billion yuan, fell to 104 from 106.

And although the total number of home transactions is expected to drop about 5 percent, securities firms and rating agency analysts said Hong Kong-listed developers could see 30 percent growth on average this year, compared with an average of 40 percent growth in 2017.

But the growth will not be without risk. Ramped-up land purchases mean the developers will add debt, throwing uncertainty into the stated plans of some to deleverage.

and had the highest gearing ratios at more than 200 percent in the first half of last year. Both said in October they intended to reduce their debt ratio, but neither halted their buying sprees.

If there is a market correction, developers' liquidity will be tested. But said even in that scenario, he didn't see a large impact.

"We don't think there'll be a big probability for rated developers to be unable to repay their debt other than very weak ones with poor liquidity and refinancing prospects; others should have secured the financing before they buy land," Yip said.

Several major developers told that they were confident in double-digit growth this year. The companies could not be identified as the information is not yet public.

"Last year we sold so many flats, we'll need to replenish; our land acquisition budget has to be larger than last year because our size is also larger," said a of a Shanghai-based developer, who declined to be identified as he was not authorised to speak to the media.

A softening but still resilient market, underpinned by steady prices, would be welcome for both China's policymakers and developers. is eager to keep the market stable as the government tackles an alarming build-up in debt.

Many investors are overlooking debt risks and focusing more on revenue, as evidenced by surging share prices.

stocks were among the best performers in in 2017, propelled by robust sales, with up 480 percent, jumping 460 percent, and climbing 270 percent. Nine other developers saw shares surge more than two-fold.

Some analysts questioned whether the expansion rate of China's largest developers could be sustained.

"China's shares rallied in 2017 thanks to top-line growth, but this momentum will slow in 2018. The growth story this year will be weaker," said "Last year, many were from smaller cities, but as liquidity tightens, to these cities will be more difficult."

The price to earnings ratio of the sector rebounded last year after the share rally, but it was still at relatively low levels.


The larger developers, despite sounding notes of caution, have continued to aggressively pursue growth.

According to data by researcher CREIS, bought a total gross floor area of 16.2 million square metres in the second half of 2017, compared to 9.7 million in the first six months, via both public land auction and mergers and acquisitions. bought 520,000 square metres in the second half, a slowdown from 1.4 million from January to June.

Country Garden, Vanke and breached the 500 billion yuan ($76.93 billion) mark for annual for the first time in 2017, according to CREIS.

Top-performing developers spent 40 to 50 percent of their revenue on land acquisitions last year, CREIS said, much higher than smaller rivals, which spent 27-36 percent of revenue.

While big companies splurged 74 percent more on land purchases than the previous year, a bigger percentage rise went to smaller cities as tightening policies took hold elsewhere.

has imposed measures to crack down on speculation since early 2016, and China's home price growth is likely to stall in 2018 as the boom in smaller cities is expected to lose steam, while measures to tighten credit and other curbs constrain the market, a poll showed.

($1 = 6.4995 Chinese yuan renminbi)

(Reporting by Clare Jim; Editing by and Gerry Doyle)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 11:36 IST