Analysts generally expect state-owned firms to outperform non-state-owned developers in the recent real estate recession. Pictured on August 15, 2022 in Guangxi, China, is a real estate complex developed by state-owned conglomerate Poly Group.
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BEIJING — China’s property developers’ cash flows have fallen this year after a decade of steady growth, according to Oxford Economics.
According to Tommy Wu, the company’s chief economist, developer cash flow fell 24% year over year on an annualized basis through July.
Data show that growth has slowed sharply almost every year since at least 2009. Total funding as of July stood at 15.22 trillion yuan ($2.27 trillion) on an annualized basis, compared to his 20.11 trillion yuan in 2021.
The decline came as China’s credit demand was weaker than expected in July and property developers struggled for a long time.
About two years ago, Beijing began cracking down on developers relying heavily on debt for growth. especially, Evergrande is the default The end of last year.like other developers Shimao will default on its debts, Although it appears to have a healthier balance sheet.
Investors are wary of Chinese real estate firms, but developers now face the risk of losing homebuyers’ advance payments, another important source of cash flow.
Homes in China are usually sold before they are completed. But since late June, some homebuyers have protested delays in apartment construction. Stopping mortgage payments.
“The crux of the problem is that property developers don’t have enough cash flow to keep their projects going, either because of debt service costs, slowing home sales, or misuse of funds.
“Fixing this issue will help rebuild homebuyers’ confidence in developers, which will support home sales and, in turn, improve the financial health of developers.”
More than $2 billion of high-yielding real estate developer debt will be paid in September, according to Morgan Stanley analysis as of Aug. 10. This is more than double what he did in August.
About a quarter of homebuyers who bought a property before it was completed tended to stop making mortgage payments if construction stopped, a U.S. investment bank said in a report Aug. 15. Citing our own AlphaWise consumer survey.
Not just real estate Most of China’s household wealth, but analysts estimate that real estate and property-related industries account for more than a quarter of China’s GDP. A downturn in real estate has contributed to an overall slowdown in economic growth this year.
In an effort to support growth, the People’s Bank of China cut interest rates. Unexpected cut on monday 10 basis points of one-year interest rate for institutional investors, known as the medium-term lending facility.
The PBOC may hope the cuts will make it easier for homebuyers and help developers get financing, but financing isn’t the only problem, says JLL’s chief economist and Greater China. said Bruce Pang, head of research at .
He noted how difficult it was for developers to raise their own funds and had to rely on pre-sales to homebuyers. But people are becoming more cautious about buying new homes in anticipation of future employment and returns on existing investments, he added.
The central government has yet to officially announce broad support for real estate, despite multiple reported plans by the government to keep funding for developers. According to materials from a government meeting held last month, Local governments are responsible for handing over completed homes.
According to Wu’s analysis, out of the three main sources of funding for developers, prepayments and deposits have fallen the most this year, down 34%.
Annualized data showed credit as a source of funding was down 22% and own capital, which includes stocks and bonds, was down 17%.
Investment funds are mostly staying away from Chinese property developers, reducing potential funding sources.
“A concern is the willingness and willingness of top policymakers to solve the financing problems of property developers,” Carol Lai, assistant portfolio manager at Brandywine Global, told CNBC in an email. It’s a lack of speed,” he said.
Lye said the investment management firm’s allocation to Chinese real estate is low, with Brandywine holding “prioritized quality real estate bonds in terms of government support.”
Some investors turned to companies in other parts of Asia.
“We’ve pretty much let go of our residential holdings in China. She declined to share the timeframe for those sales.
“There are still many options in the region, especially Singapore, which is currently reopening, and Australia are basically back to full reopening and the fundamentals are strong,” she said.
Top holdings she co-manages Horizon Asia Pacific Property Income Fund Capital Fund Investment, Mapletree Logistics Trust, Hang Lung Properties and others.
Morningstar’s Patrick Gee said in a report this month: Some funds are turning from Chinese real estate to other Asian high-yield sectorsSuch as Indian renewable energy companies and Indonesian real estate.
Overall, investment in Chinese real estate funds fell by 59% in six months, according to the report.
However, investment giant BlackRock is one of the companies buying Chinese property bonds, including Shimao, according to the report.
The asset manager did not respond to CNBC’s request for comment.
— CNBC’s Michael Bloom contributed to this report.