Lean times ahead for developers
(China Daily)
Updated: 2006-07-26 08:26
Editor's note: This is the second installment of a four-part series on the
latest developments in China's property market. The story was written by Li
Jian, based on his reports from Shanghai, as well as reports from Hu Yuanyuan in
Beijing, Li Wenfang in Guangzhou and Chen Hong in Shenzhen.
After years
of riding the real estate tidal wave, property developers are being forced to
adjust their stance.
Government policies designed to cool the market have
started to bite and nowhere is the pain more keenly felt than Shanghai, the
heart of the property whirlpool that has sucked in hundreds of billions of yuan
in investment.
In June, sales of new apartments and houses tumbled 31 per
cent from the previous month, nearly 40 per cent of new properties coming onto
the market failed to find buyers and Centaline, one of Shanghai's largest real
estate agents, reported a 40 per cent drop in business.
The previously
common sight of people queuing up to buy new apartments on the first day of sale
is now nothing but an increasingly distant memory.
Unsurprisingly,
Shanghai's property prices, especially those at the top-end of the market, have
dropped significantly over the past few months.
Elsewhere, although
prices in other cities, including Beijing, Guangzhou and Shenzhen, are said to
be holding up, the word among agents is that sales are already on the slide as
potential buyers wait for prices to fall.
One knock-on effect of the slow
down is that highly leveraged property developers, those most dependent on a
rapid turnover to meet debt repayments and generate profit, are feeling the
squeeze. The average debt-to-equity ratio of property developers listed on the
Shanghai stock exchange is more than 65 per cent, and any safety margin
companies do have in their debt repayment capability could be quickly eroded by
a prolonged slowdown in sales and the accompanying drop in prices.
But
the hardest blow to property developers is likely to be banks' dampened interest
in financing new projects, a result of the government's call for credit
restraint in the property market.
(For more biz stories, please visit Industry Updates)
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