FinanceAsia Magazine

Issue: June 2014

A real estate slowdown in China does not augur well for economic growth.

Research boutique GaveKal estimates China’s annual growth could drop below 7% by the end of the year. The group questioned whether reforms will continue apace as the state needs a backdrop of steady economic growth to push through change, if only to avoid a groundswell of protest.

China’s property market has expanded over the last decade, fuelled by rapid urbanisation and an explosion of shadow banking credit. There have been bumps along the way: demand is highly reactive to macro economic conditions and prices stalled in both 2009 and 2012.

Forecast calls for pain
The sector is once again facing headwinds. Housing transactions have dropped from their recent early 2013 peak.

House sales fell 15.7% year-on-year in April and new construction starts fell by more than 20% year-on-year in the first quarter, following a rise of 30% year-on-year in the fourth quarter. Inventories in first- and second-tier cities hit 14 months at the end of April, weakening developers’ pricing power and pressuring working capital as well as profit margins.

Banks are partly to blame for taking longer to approve and disburse mortgage loans following a spate of defaults. Non-performing loans in China increased to 1% in December from 0.95% in December 2012.

Meanwhile, developers are struggling to fund themselves and are increasingly tapping offshore markets. Debt-funded rapid growth has left developers such as Country Garden and Agile Property vulnerable while Shanghai Zendai Property and Zhong An Real Estate are susceptible to refinancing risk, say analysts.

The government is already taking action to forestall a painful property crash. The People’s Bank of China recently urged banks to offer more mortgage financing to first-time homebuyers and is allowing domestic equity issuance for developers.

China’s property market is unlikely to collapse as long as the central bank has such an arsenal of such policy measures and isn’t timid about using them.

While wobbles in the near term are likely, over the long term urbanisation continues apace and the two-year policy to curb property demand masks real demand. While the economy may avoid a hard landing, problems in real estate will hamper financial liberalisation and SOE reform. Stormy weather for reformers.

 

About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

Greenshoe
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

Soapbox
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.

 

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