• Sun
  • Aug 31, 2014
  • Updated: 12:20pm

Developers fail in Guangdong, Hangzhou

PUBLISHED : Friday, 20 April, 2012, 12:00am
UPDATED : Friday, 20 April, 2012, 12:00am

Two more property developers in Guangdong and Hangzhou have filed for bankruptcy, highlighting the growing pressure on cash-strapped small players that are struggling amid Beijing's efforts to cool the housing market.

Guangdeye Property Development in Shunde, southern Guangdong, declared bankruptcy on Wednesday due to its inability to repay debt, according to the People's Court in Shunde.

The private firm has not undertaken new projects since completing a commercial project, Shunde Commercial City, in 2008, when it reportedly started encountering financial difficulties.

Over in Hangzhou, Hangzhou Jinxiu Real Estate, which was developing a luxury serviced-apartment project on the West Lake, has reportedly filed for bankruptcy. It comes a week after the collapse of Hangzhou Glory Real Estate, says Hangzhou's news website, zjol.com. The firm was unavailable for comment.

David Ng, a property analyst at Macquarie Equities Research, believes more small players would fold if the property downturn persists.

'The polarisation trend between small and big developers will become obvious, given major players' easier access to bank loans and their ability to offer big discounts to speed up property sales,' Ng said.

Smaller developers, particularly those with just one project on hand, would find it hard to survive if they fail to generate cash flow from property sales, he said.

'I would not be surprised to see the wave of bankruptcies spread to other cities, such as Beijing and Shanghai,' he said.

Already, small property firms in Tongzhou in Beijing, Jiangding in Shanghai, and Xisha in Hangzhou were facing increasing difficulties as housing prices plummeted after the introduction of restrictions on purchases to curb speculation, he said.

'In the absence of speculators, prices immediately collapsed in these suburban areas and put developers' cash flow under pressure,' Ng said.

Alan Jin, a Mizuho Securities analyst, says he believes Beijing is unlikely to ease its restrictions on home purchases in the short term.

'Forcing poorly-managed small developers out of business is part of the central government's unspoken intention behind the property curbs,' Jin said.

'While the central government may plan to keep the current policy unchanged, local governments need to clean up the mess from company collapses, and they probably want some sort of discreet policy relaxation.'

While it is hard to say how many developers will fail, Jin is ruling out a 'widespread meltdown', saying that's not what Beijing intended to achieve through its property curbs.

Industry watchers believe there are about 60,000 property firms on the mainland.

Cash-rich developers may prefer to buy land at land auctions rather than acquire troubled firms, Jin says. 'There may be hidden problems which due diligence cannot always spot,' he said.

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