Chinese property developers face credit crunch as Beijing’s latest policy tightening takes effect

No corporate bonds issued by Chinese real estate firms in February

PUBLISHED : Wednesday, 01 March, 2017, 8:31am
UPDATED : Wednesday, 01 March, 2017, 10:59pm

Chinese developers continue to face hurdles in domestic bond sales amid government efforts to tighten credit to curb the speculative fervour in the property market.

Underscoring the credit squeeze in construction and real estate development, the corporate debt market appears to have ground to a halt for real estate companies in mainland China during February, as no debt was issued by a company in the sector last month, according to data from Haitong Securities.

State-owned Beijing Capital Land suspended its 10 billion yuan (US$1.46 billion) corporate bond offering on February 22, according to the Shanghai Stock Exchange.

“Policy tightening is the main reason,” said Bryan Feng, head of investor relations at Beijing Capital Land.

Since October, Beijing has tightened rules ranging from home purchases to land auctions in an effort to help cool house prices amid concerns of an emerging property bubble.

Bond issuance by real estate developers has also cooled since austerity measures were introduced in October.

Only six property companies issued corporate debt in January, down from the over 50 property companies which issued debt each month on average in 2016.

Bond sales by the property sector raised 121 billion yuan during the fourth quarter, or roughly one-third of funds raised in the third quarter.

Haitong Securities bond analyst Jiang Chao said in a note on Tuesday that the six property companies that issued bonds in January had received approvals long in advance.

“In fact, there have been no bond applications from developers since November that have obtained approval [from regulators],” Jiang said.

The are no signs the austerity measures will be loosened any time soon.

The Securities Association of China plans to revise rules on private bond sales to restrict issuance by property developers, sources told Reuters last week.

Under the revised rules property developers who speculate on land prices, hoard land or properties, or drive up home prices will be banned from issuing bonds via private placement, it reported.

The government is not just tightening the taps on bond offerings, but tightening every possible financing channel including bank loans, equity financing, asset-backed securities, trusts and asset management plans.

“The Chinese government hopes to cool down home prices in the biggest cities by reducing lending to property companies,” said Toni Ho, a property analyst at RHB-OSK Securities. He added that it is increasing difficult for developers to obtain loans to buy land.

New home prices were flat in China’s top-tier cities in January. Shenzhen, one of the nation’s most vibrant housing markets after prices surged 50 per cent in 2016, reported a 0.5 per cent easing in January from a month earlier.

Jiang warned of an increasing default risk for small developers with weak balance sheets due to slowing sales amid the government’s policy tightening.

Ho said developers financing costs are likely go up as they look to the offshore bond market, which leaves them exposed to higher interest and forex exchange risks.

Thirty Chinese property companies issued offshore US dollar bonds from November to February, compared to 35 placements during the January to October in 2016, according to Dealogic data.