China - Housing 05 (Jul 16 - Oct 21)

[winston]

Chinese developers to focus on debt reduction until 2023 to meet ‘three red lines’ deadline

China introduced the ‘three red lines’ deleveraging campaign in August last year to improve the financial health of the real estate sector

China Resources Land and Logan Group have successfully met all three criteria, according to Beike Research Institute

by Sandy Li

Debt reduction will be a top priority for Chinese developers until 2023.

Three Red Lines:-
Limit borrowings by defining thresholds on:-
1. Liability-to-Asset ratio at 70 per cent
2. Net Debt-to-Equity ratio of 100 per cent and
3. Cash-to-Short-Term debt multiple of more than one time

Source: SCMP

https://www.scmp.com/business/article/3 ... 2798e6cac6

[winston]

China property crackdown alarms analysts as economic risks grow

by Sofia Horta e Costa, Kevin Kingsbury & Nasreen Seria

The credit squeeze in the property sector is “unnecessarily aggressive” and may weigh on industrial demand and consumption.

The industry accounts for more than 28% of gross domestic output.

Property loans rose at the slowest pace in eight years in the first seven months of the year.

Property firms defaulted on US$6.2 billion worth of high-yield debt through mid-August, or about US$1.3 billion more than the previous 12 years combined.

Restrictions on the real estate market also affect the sale of construction materials, furniture and home appliances.

Tightening of funding conditions for highly-leveraged developers, who rely on access to the bond market, bank loans and trust loans for liquidity.

Real estate firms made up around 30% of the first half’s defaults and some of their bonds are now blacklisted.

Source: Bloomberg

https://www.theedgemarkets.com/article/ ... risks-grow

[behappyalways]

Evergrande Bonds Tumble After Report Of Technical Default; Contagion Slams China Property Market
https://www.zerohedge.com/markets/everg ... a-property

[winston]

Home sales plunge in mainland

Home sales by value slumped 20 percent last month from a year ago, the biggest drop since the onset of the coronavirus shut swaths of the economy at the start of last year, according to calculations based on National Bureau of Statistics data released yesterday.

New-home prices in 70 cities, excluding state-subsidized housing, rose 0.16 percent from July, the slowest pace this year, the data showed.

Of the 70 cities, 46 saw their new-home prices rise, down from 51 in July.

Prices in Guangzhou dropped while other top-tier cities, like Beijing, Shanghai and Shenzhen, still saw a slight increase.

Prices in the secondary market dropped for the first time since last February, slipping 0.02 percent.

National Bureau of Statistics spokesman Fu Linghui said yesterday some large-sized property companies are encountering some difficulties and that the impact on the industry needs to be monitored.

Source: The Standard

https://www.thestandard.com.hk/section- ... n-mainland

[winston]

China Property – Expectations reset

The recently concluded 1H21 earnings season has shown a divergence in financial performance for Chinese developers.

Given the deleveraging drive by the Chinese government such as the implementation of the ‘Three Red Lines’ policy, developers that were more highly leveraged faced bigger pressure to reduce their gearing ratios and thus saw slower growth.

We have broadly lowered our core earnings forecasts for the Chinese developers under our coverage, largely on weaker gross profit margin assumptions.

Some key observations during the 1H21 earnings season are:
i) margin compression trend was broad-based,
ii) land market was heated in 1H21, but there are expectations of a moderation in 2H21,
iii) contracted sales saw median growth of 20% for 8M21, but expected to ease or even decline for the remainder of year,
iv) regulatory landscape expected to remain tight; deleveraging to continue, and
v) improved ESG disclosures by some developers.

Chinese developers have continued to de-rate after the 1H21 earnings season given the margins compression trend, coupled with restrictive policy measures and growing concerns over Evergrande’s liquidity issues and contagion risks to the property sector and other related industries.

Chinese developers are now trading at trough valuations, with a forward price-to-earnings (P/E) and price-to-book (P/B) ratio of 4.0x and 0.61x, which is 2.4 and 2.2 standard deviations (s.d.) below their respective 10-year averages.

The forward dividend yield has increased to 9.6% (3.4 s.d. above 10-year average of 5.3%), according to Bloomberg consensus.

We do see selective buying opportunities in good quality developers with healthy balance sheets and an increasing ESG focus, but caution that it would be tough to bottom-fish amid an uncertain regulatory landscape.

On the other hand, while Chinese property management companies have shown continued solid earnings growth in 1H21, the sector has also come under pressure given concerns over future growth prospects amid an expected slowdown in the physical market, which could translate into lower GFA that could come under management.

The Chinese property management sector is now trading at an average blended forward P/E ratio of 14.9x, according to data from Bloomberg.

On average, these companies’ forward P/E ratios are 1.8 s.d. below their historical mean.
Over a longer-term horizon, our preferred sector ‘Buy’ picks are Country Garden Services (6098 HK), Longfor Group (960 HK), China Resources Land (CR Land) (1109 HK) and China Overseas Land & Investment (COLI) (688 HK).

We would continue to avoid China Evergrande (3333 HK) given growing concerns over its liquidity position and thus uncertainties over its ability to fulfil its financial obligations.

Source: OCBC

[behappyalways]

And Another: Shanghai-Based Property Developer Crashes 87% In Minutes Before It Is Halted
https://www.zerohedge.com/markets/and-a ... -it-halted

[behappyalways]

中國整頓房市泡沫 必要但卻危險的懸崖時刻 TVBS文茜的世界周報-亞洲版 20211009 X 富蘭克林‧國民的基金
https://www.youtube.com/watch?v=_D2AG8gHKwo

[winston]

Half of China’s top developers crossed Beijing’s ‘red lines’

Almost half of China’s 30 biggest developers were in breach of at least one of Beijing’s recently introduced rules on property sector leverage, according to a Financial Times analysis of the latest available data.

In August last year, the Chinese government unveiled the “three red lines”, which aim to constrain property developers’ debt according to three balance sheet metrics:
1. the ratio of liabilities to assets;
2. net debt to equity; and
3. cash to short-term borrowings.

The FT analysis, based on data from Beike Research, part of Chinese property group KE Holdings, showed that among the 30 developers, 14 had breached at least one red line as of June 14.

These companies accounted for the majority of the 30 developers’ sales last year.

The findings come as Chinese group Evergrande, the world’s most indebted developer, teeters on the edge of default after missing an interest payment last month.

Source: OCBC

[winston]

Inside China’s ‘ghost cities’, the debt-fuelled metropolises trying to build living, breathing communities – with varying success

They were built to grease the wheels of urbanisation, but while some succeed in attracting sufficient populations, others remain haunted by overambition

Source: Bloomberg

https://www.scmp.com/magazines/post-mag ... e=homepage

[winston]

HK/ China Economy Update:
Property – Marginal easing from policy fine-tuning; headwinds persist.

Sep 21 property FAI further slowed to 8.8% yoy.

Property sales remained subdued during traditional peak season, Sep 21 sales value/area were 16%/13% lower yoy.

More marginal easing from lower tier cities are expected while relaxation of loan restrictions could help in containing the sector’s default risk.

Potential introduction of property tax could again derail the market sentiment.

We prefer property management companies over developers. Maintain UNDERWEIGH.

Source: UOBKH