Advertisement

Developers in a bind over revenue decline

Reading Time:2 minutes
Why you can trust SCMP
0

Mainland developers face mounting cash-flow challenges after achieving lower than expected revenue-generating property sales last month.

Developers that are strapped for cash are now pinning their hopes for a boost to revenues on the traditional peak season in September, but analysts say that if stronger sales fail to materialise, the developers will face higher operational risk and lower profitability for the year.

Credit risk, which had been aggravated by austerity measures such as a tightened lending policy, could affect developers in varying degrees, said UBS analyst Eric Wong.

'But in general, the smaller the property developer, the higher the credit risk,' he said.

In a research report on the mainland property market released recently, Calyon Credit Agricole CIB said developers' credit risk would depend on their execution power to pre-sell and deliver their products.

Their credit profiles would depend on the size of deposits from the sale of their properties, as against the amount of their guarantees to mortgaging banks.

Under the property selling procedure on the mainland, a developer receives a deposit from a buyer when a sale and purchase arrangement has been signed, with the balance of the sale price subsequently provided by a mortgage bank.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2-3x faster
1.1x
220 WPM
Slow
Normal
Fast
1.1x