Chinese property developers facing 3-year slump as good times end

Most agree tough times are ahead, but optimists see recovery later this year if government acts

PUBLISHED : Friday, 30 May, 2014, 1:10am
UPDATED : Friday, 30 May, 2014, 1:10am

China's current property market downturn will probably last three years and eliminate a third of the players, the founder of a Hong Kong-listed mainland developer said yesterday.

His comments added fuel to an already heated debate about the industry's outlook given slowing growth in the world's second-largest economy.

"A problematic correction will probably take three years," said Tian Ming, chairman of Landsea, a green-tech developer based in Nanjing, Jiangsu province. He was the most pessimistic among six developers in a property forum panel in Hong Kong. "I am an honest man," he said.

If Tian's forecast proves correct, it will be China's longest property market correction since the global financial crisis in 2008. The industry is a major driver of the economy and it would impact more than 40 sectors.

"In the past 10 years, you could win as long as you were aggressive enough and were able to buy land and borrow money. It's different now," said Zhou Xin, chairman of mainland real estate service firm E-House (China) and sponsor of the forum.

"I see blood in the future. That is only normal and means the market is mature," he said.

The consensus among the industry is that the best days are over for the mainland's property market. But some developers anticipate the market could recover in the last quarter of this year with government assistance.

So far, some cities have relaxed policies to stimulate demand and the central bank urged lenders to speed up mortgage loan approvals.

Developers, including Tian, foresee no collapse of the once bubbly real estate market, as policymakers still have many cards to play in the short term and the country's urbanisation push will support housing demand in the next decade. But they all realise the need to sharpen their competitiveness in a fierce market consolidation.

A summary of all Chinese developers listed onshore and offshore by E-House showed they were ill prepared financially, with their leverage hovering at historically high levels.

The average net gearing ratio was 80 per cent at the end of last year, up from 63 per cent in 2012.

"Listed developers are facing rising pressure after they increased land spending in recent years and encountered growing inventories in some cities," Liu Zhifeng, a former vice-minister of housing, told the forum.