Rate rise to hurt small mainland developers

PUBLISHED : Saturday, 29 April, 2006, 12:00am
UPDATED : Saturday, 29 April, 2006, 12:00am

The central bank's surprise announcement of an interest rate rise on Thursday has dealt a psychological blow to the mainland real estate market and hurt investment sentiment, according to developers.

They said small domestic developers, who rely heavily on bank loans, would suffer the most while overseas-listed players would still be able to tap the international capital markets to finance their projects.

Mainland property stocks suffered yesterday after the People's Bank of China raised its benchmark one-year lending rate by 27 basis points to 5.85 per cent.

Shares of China Overseas Land & Investment dropped 4.8 per cent to close at $4.95; Lai Fung Holdings, the mainland property arm of Lai Sun Development, fell 4.11 per cent to end at 35 cents and Agile Property dropped 3.22 per cent to close at $6.

Lai Fung executive director Edmond Yew said the rate rise would hurt developers that lack financial strength.

But for overseas-listed companies, such as Lai Fung, he said: 'We have other alternatives to seek funding besides mainland bank borrowings.'

He said several shopping malls still under construction might face financing problems following over-investment in the sector in a number of provinces.

Developers also expect an imminent rise in mortgage rates which would dampen buying interest.

Coastal Greenland Group, which specialises in mid-market residential developments, said the company's strategy was to take a 'wait and see' approach amid concerns that the interest rate rise would affect investor sentiment.

The company has a land bank of three million square metres in gross floor area mainly in Beijing, Shanghai, Wuhan and Anshan.

This year, Coastal Greenland plans to release 500 units for sale, about half of last year's sale of 1,000 units.

'It is only a preliminary target. Our sales strategy will be adjusted according to the market condition,' executive director Paul Cheng.

Meanwhile, Beijing Huarong Investment vice-president Ju Jin said it was inevitable that financing and development costs would increase.

He said the company, with a gearing ratio of 70 per cent, might look for other ways of financing than bank borrowings.

However, he said the residential market in Beijing would be relatively unscathed by the increase in borrowing costs since 'genuine demand for housing remains strong'.

Although the residential market was expected to slow down over the next few months, Beijing Huarong Investment believes home prices would still increase by more than 10 per cent this year.