Sales agents wait and wait for potential homebuyers in Tiantongyuan, one of Beijing's largest residential areas. Business is stagnant since the central government restricted home purchases and bank loans to slow price jumps. Wang Jing / China Daily

Industry shuffle

Finance difficulties produce the No 1 headache for property developers, whether public or private companies.

Statistics from Zhejiang Hexin Flush Network Services, developer of stock analysis software, show that the average debt-to-asset ratio for 133 property developers listed on the Shanghai and Shenzhen stock exchanges rose to 63 percent by the end of the third quarter.

The ratios for 80 of those companies were above the average. Seven were over 85 percent.

According to Stephen Ip, infrastructure and real estate industry lead partner for KPMG China, property developers have found refinancing increasingly difficult, but worse situations could develop.

"Although the debt-equity ratio of some listed property companies have exceeded 100 percent, they still have alternatives to maintain operations, such as issuing convertible bonds or preferred shares to international institutional investors, selling project stakes and cutting prices to stimulate sales," he said.

Some larger developers, with better cash flow, are working to sharpen their competitiveness to stand out in a fierce market.

Shenzhen-based China Merchants Properties Development, one of the country's top four listed real estate companies, will invest more in research and development to make its products more environment-friendly.

"Though building green products will add to our cost by some 5 percent, it will help us attract more customers and improve our competitiveness when expanding into other regions," said Hu Jianxin, the company's deputy general manager.

Hong Kong-listed Beijing Capital Land aims to improve its commercial facilities when building residential projects. President Tang Jun said the company plans to construct five large outlet malls within three years to make its residential developments more attractive. It is also preparing to launch a call center to improve its customer relationship management.

Meanwhile, some property developers are facing real risks of bankruptcy in the coming months, and more distress-caused mergers and acquisitions can be expected in 2012, Ip said.

"A number of institutional real estate funds, mainly from the US, Singapore and Japan, are actively seeking opportunities in the market, competing alongside domestic buyers," Ip said. "Commercial real estate, such as office, retail and mixed-use developments in good locations, instead of residential projects, are their primary target assets, considering the comparatively lower risks."

China Merchant Property's Hu held a similar viewpoint. "As long as the rigorous property measures continue, especially the financing channels remaining tight for both property developers and homebuyers, a large-scale industry reshuffle is expected in 2012.

"For property developers with a sound balance sheet and business structure, however, the shuffle also provides a good chance to expand market share," Hu said.

In equity-exchange venues at Beijing, Shanghai, Tianjin and Chongqing, more than 600 property companies or projects have been sold this year, more than double the number in 2010, according to the China Securities Journal.