Bloomberg News

Most Chinese Builders Face Payment Delays, Credit Suisse Says

November 27, 2011

Nov. 25 (Bloomberg) -- Most Chinese builders face payment delays from developers as the pace of construction slows from three months earlier amid tighter credit and a slowdown in home sales, Credit Suisse Group AG said in a report.

About 80 percent of construction companies said developers were behind on payments, and property companies expect them to put up more up front investments for projects, the brokerage said, citing a survey with builders. About 27 percent of the builders said developers wanted to slow down the construction process, up from 13 percent three months ago, it said.

“The China property market correction has just begun, and completion slippages and sales weakness will likely follow,” Credit Suisse analysts Wenhan Chen, Jinsong Du and Duo Chen said in a report sent today, maintaining their “underweight” rating on the nation’s real estate market. “With the property market remaining sluggish and the credit environment still tight, we expect developers’ cash flows to deteriorate further.”

Premier Wen Jiabao said this month that the government won’t relax property curbs. The government this year raised down-payment and mortgage requirements, and imposed home purchase restrictions in about 40 cities to avert a bubble. The central bank also increased interest rates three times and the reserves ratio six times this year.

Agile Property Holdings Ltd., the Chinese developer in which JPMorgan Chase & Co. owns a stake, will stop buying land until at least February and is slowing construction at some projects as sales dwindle amid the government’s property curbs.

‘Full Stop’

“We have put a full stop on land purchases,” Vice President Alex Liu said yesterday in an interview in the southern Chinese city of Guangzhou, which neighbors Zhongshan, where Agile is based. “We’ll stop for at least the next three months and probably assess the situation again after Chinese New Year.” The Lunar New Year runs Jan. 23-25.

Land purchases by Chinese developers plunged 42 percent in the first 10 months this year, according to China Securities Journal, citing data from B.A. & 515J Group. Residential land spending dropped to 65.7 billion yuan ($10.3 billion) at top 10 developers by sales, the newspaper said. The property companies, which include China Vanke Co. and Poly Real Estate Group Co., spent more on residential sites in the less affluent tier-two or tier-three cities than in the metropolitan areas for the first time, the newspaper said today.

Bursting Bubble

China’s property price “bubble” may burst, the Financial News newspaper reported, citing increasing financial risks in locations such as Wenzhou, Sihong and Ordos in Inner Mongolia. Regional financial risks are contagious and could become systematic, according to the newspaper published by the People’s Bank of China. In Ordos, known as the country’s “Ghost City,” home prices plunged 70 percent, China Enterprise News reported, citing sources it didn’t identify.

The country’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it scrapped the reporting of national average housing data this year, according to figures from the statistics bureau on Nov. 18.

Some Chinese developers have agreed to compensate buyers for homes whose prices drop after the purchase, Beijing Morning Post reported today, citing the developers. The real estate companies will buy back the properties at the original price, or compensate for the difference, the newspaper said.

China’s property market has reached a “tipping point” and the slowdown in the housing industry will have a spillover effect on demand for steel and other construction materials, according to Nomura Holdings Inc. this week.

The country’s property market will remain strong for 20 to 30 years, Economic Information Daily said today, citing Chen Huai, director of a policy research institute under the Ministry of Housing and Urban-Rural Development. Housing prices will rise as cities expand, Chen was cited as saying.

--Linus Chua, Bonnie Cao. Editors: Andreea Papuc

To contact Bloomberg News staff for this story: Linus Chua in Singapore at lchua@bloomberg.net; Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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