Even the best-performing developers, such as China Overseas Land and Investment and Longfor Properties, cannot escape the trend towards soaring debt ratios as the downturn in the mainland's property market continues.
They can cut back on but cannot do without new construction or replenishment of their land banks. Meanwhile, sales have fallen and cash collection has slowed.
"We expect gearing to rise for most developers and will be interested in 'embedded' debt [perpetual loans, outstanding land premium and jumps in accounts payable] since the level of cash in/outflows will vary by developer," Lee Wee Liat, head of Asia-Pacific property research at BNP Paribas, said in a report.
He cautioned about the rising levels of perpetual debt securities at Evergrande Real Estate Group, one of the top 10 mainland developers by sales revenue. If those were included, the firm's net gearing would have been 149 per cent at the end of last year.
Evergrande has yet to announce its interim results. But developers that have released their latest balance sheets all reported soaring debt ratios.
China Overseas Land, the biggest Hong Kong-listed mainland developer by market value, posted on Friday a jump in net gearing ratio to 37.2 per cent at the end of June from 28.4 per cent six months earlier.
The company said approvals for mortgages and the release of money to developers took a much longer time in the first half than previously as liquidity was tight in the financial sector and mortgage rates were relatively low, compared with other loans.
As a result, sales in the period fell 6.9 per cent to HK$40.5 billion from a year earlier.
Meanwhile, capital expenditure grew to HK$44.25 billion from HK$29.6 billion. Of that, land premium was HK$23.97 billion. About HK$13 billion went to taxes, operations, marketing and other financial expenses.
China Overseas Land has long been a top pick among analysts for its low funding cost and proven sales track record. Its earnings surprised on the upside last week.
Another top pick, Longfor, reported a rise in net-debt-equity ratio to 66.2 per cent at the end of June from 58 per cent six months earlier.
China Merchants Land's net-interest-bearing-debt-equity ratio jumped to 35 per cent from only 4 per cent during the period.
Analysts expect few developers to report a reduction in gearing ratios amid the downturn, which will probably ease towards the end of the year as the firms cut back on land acquisitions and lower prices to speed up sales, with government policies now turning favourable.
Both China Overseas Land and Longfor said they would exercise caution in buying any new parcels in the rest of this year.
"We will further slow our pace of new construction and land purchases," Longfor chairman Wu Yajun said.
"Land prices are still high," chief executive Shao Xiaoming said. "Governments in first-tier cities haven't changed their attitudes [and won't cut prices] despite recent failed auctions of land parcels."
But local officials are keen to help revive housing demand. Almost 30 cities have relaxed home purchase restrictions.
"Cities will speed up the relaxation of home purchase restrictions," said Chen Cong and Fu Yu, analysts at Citic Securities in Beijing. "It's only a matter of time before cities such as Beijing and Guangzhou phase out such controls, although they have denied this recently."