First property firm fails under mainland curbs

PUBLISHED : Wednesday, 11 April, 2012, 12:00am
UPDATED : Wednesday, 11 April, 2012, 12:00am

A Hangzhou property firm has become the first developer to file for bankruptcy since the central government introduced curbs on the housing market last year. And more struggling small property firms are expected to go bust soon.

Hangzhou Glory Real Estate, which developed a residential complex in Yuhang district, is undergoing liquidation after filing for bankruptcy, according to Zhejiang T&C Law Firm, which is handling the case.

The bankruptcy bodes ill for the outlook of mainland developers that are creaking under the weight of debts and are desperate to shore up sales as Beijing maintains its tough stance on the property sector.

It might also put policymakers between a rock and a hard place as they balance austerity measures against a broad market meltdown.

Glory Real Estate is not able to complete the housing project and it owes 24 million yuan (HK$29.5 million) in taxes.

The troubled firm is not alone. Executives with several other developers said they would not be able to survive the government curbs amid sluggish sales.

'It is a do-or-die situation facing those small developers,' said Huang Feng, the chairman of Yinshu Capital. 'More debt-ridden developers will have to liquidate if the government chooses not to relax controls.'

Beijing began cooling the housing market early last year, hoping to cap soaring home prices.

In Shanghai, the government barred residents from buying a third home while imposing a property tax to keep demand in check. The curbs led to a downturn in the market as would-be homebuyers expected housing prices to drop further.

The lacklustre performance of the property sector also had a huge negative impact on the economy, with related industries such as construction materials and home appliances suffering losses.

Half of the country's listed developers said they missed their sales targets. Speculation heightened last month that some provincial and city governments would ease restrictions to revive the ailing market.

Top policymakers including Premier Wen Jiabao and Vice-Premier Li Keqiang, however, dashed expectations of a turnaround, pledging to keep the curbs in place.

Macquarie Capital Securities said the tightening measures could not last too long because of the fears of jeopardising the economy.

'We believe poor sales will lead to policy relaxation,' it said. 'While the central government does not generally sympathise with developers, rapidly decelerating real estate investment growth is a major concern.'

In Shanghai, the city government collected 6.8 billion yuan in land sales proceeds in the first quarter, down 80 per cent from the same period last year.

The municipality is attempting to rejuvenate the housing market to bolster the economy but it has to follow Beijing's directions.

Analysts said major developers would be able to survive the tough business climate this year because it was easier for them to secure banking loans.

'Banks are still willing to issue credit to big developers,' said Joe Zhou, a research head at Jones Lang LaSalle Shanghai. 'The chances of a big player collapsing are small and the long-term outlook of the mainland home market remains bullish.'