Strain 'watch list' provides gauge for industry

All eyes are on a few developers particularly vulnerable to slow sales and tight credit as the mainland property market enters a new downturn, with a view to gauging the effects likely to felt by the whole industry.

On the watch list are Hopson Development, Renhe Commercial, Glorious Property and Coastal Greenland, all suffering either weak sales or high debt ratios, global ratings agencies say.

They are scheduled to announce annual results today and tomorrow. Glorious issued a profit warning last week, saying that lower gross profit margin, provision for impairment losses on some unsold units and smaller gains in the fair value of investment properties would result in "a significant decrease" in net profit for last year.

At the end of June, Glorious (36 per cent) and Hopson (42.8 per cent) had the lowest proportion of cash versus short-term debt among all mainland developers rated by Moody's.

Adding to their cash strain is the extra caution being exercised by domestic banks when lending to developers after the collapse of a small private property firm in Ningbo and the first onshore debt default by a solar energy firm earlier this month.

"We believe financiers and investors will become more selective and favour borrowers with relatively strong credit quality," said Franco Leung, a property analyst at Moody's Investors Service.

Both Leung and Matthew Kong from Standard & Poor's ruled out the possibility of any short-term systemic risk, while expecting bigger developers to become even stronger.

"Bankruptcies are less likely, as [developers] can opt to sell assets to peers," Kong said.

Shou Bainian, chief executive of Greentown China, said on Monday: "If [developers'] assets are good, there is still hope (of survival). "But if their assets are not so good, neither is their reputation - then it will become more difficult."

Longfor Properties chief financial officer Wei Huaning said: "The market is changing and maturing faster than expected. "We need to stay calm and seek sustainable growth."