HONG KONG (Reuters) – China’s large developers are tightening their hold on the country’s real estate market, capturing an ever-larger share even as sales growth is expected to slow and worries about debt persist.
According to the U.S. investment bank Citi, the top 10 China developers are forecast to achieve close to 35 percent market share this year, up from around 27 percent now. They held just 14.2 percent of the market in 2012.
The number of developers posting more than 50 billion yuan in sales increased to 40 in 2017 from 25 in 2016, with sales growth of 53 percent to 84 percent, real estate developer CREIS said. The number of smaller developers, with sales between 10 billion and 50 billion yuan, fell to 104 from 106.
And although the total number of home transactions is expected to drop about 5 percent, securities firms and rating agency analysts said Hong Kong-listed developers could see 30 percent sales growth on average this year, compared with an average of 40 percent growth in 2017.
But the growth will not be without risk. Ramped-up land purchases mean the developers will add debt, throwing uncertainty into the stated plans of some to deleverage.
China Evergrande (3333.HK) and Sunac China (1918.HK) had the highest gearing ratios at more than 200 percent in the first half of last year. Both said in October they intended to reduce their debt ratio, but neither halted their buying sprees.
If there is a market correction, developers’ liquidity will be tested. But Standard & Poor director Christopher Yip said even in that scenario, he didn’t see a large impact.
“We don’t think there’ll be a big probability for rated developers to be unable to repay their debt other than very weak ones with poor liquidity and refinancing prospects- others should have secured the financing before they buy land,” Yip said.
BUYING SPREE
The larger developers, despite sounding notes of caution, have continued to aggressively pursue growth.
According to data by property researcher CREIS, Evergrande bought a total gross floor area of 16.2 million square meters in the second half of 2017, compared to 9.7 million in the first six months, via both public land auction and mergers and acquisitions. Sunac bought 520,000 square meters in the second half, a slowdown from 1.4 million from January to June.
Country Garden, China Vanke (2202.HK) (000002.SZ) and Evergrande breached the 500 billion yuan ($76.93 billion) mark for annual sales for the first time in 2017, according to CREIS.
Top-performing developers spent 40 to 50 percent of their sales revenue on land acquisitions last year, CREIS said, much higher than smaller rivals, which spent 27-36 percent of sales revenue.
While big companies splurged 74 percent more on land purchases than the previous year, a bigger percentage rise went to smaller cities as tightening policies took hold elsewhere.
China has imposed measures to crack down on property speculation since early 2016, and China’s home price growth is likely to stall in 2018 as the boom in smaller cities is expected to lose steam, while measures to tighten credit and other property curbs constrain the market, a Reuters poll showed.
($1 = 6.4995 Chinese yuan renminbi)
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