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Wednesday 4 November 2009
China regulator to review developers’ debt levels
China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fuelling excessive gains in property prices, a person familiar with the matter said.
Move to cut firms’ leverage on fears borrowings fuel too rapid price surge
Bloomberg 04 November 2009
(BEIJING) China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fuelling excessive gains in property prices, a person familiar with the matter said.
The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market, the person said, declining to be identified because the plans haven’t been made public.
Some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse, the person said. China’s home prices rose at the fastest pace in a year in September as government stimulus spending drove a recovery in the world’s third-largest economy.
At the end of August, liabilities exceeded 90 per cent of assets at more than 160 developers that have borrowed at least 50 million yuan (S$10.3 million) each from banks, the person said. New loans for real-estate development surged 121 per cent from a year earlier in the first half to 403.9 billion yuan, according to the People’s Bank of China’s latest quarterly report.
New credits for home purchases more than doubled to 479.3 billion yuan in the period. A gauge tracking 24 real estate firms traded in Shanghai has climbed 120 per cent this year, the best-performing group on the benchmark Shanghai Composite Index. The property measure rose 0.2 per cent yesterday.
Some banks loosened mortgage down-payment requirements this year to boost market share, and some paid commissions to developers and real estate agents for referring borrowers, the person said. Almost 10,000 mortgages defaulted in the first eight months of 2009, taking the total to 140,000 at the end of August, the person said.
While the CBRC doesn’t have the power to force developers to cut borrowings, it can direct banks to reduce lending to the industry. The regulator will mainly target state-owned companies whose main businesses are outside of real estate, the person said. The CBRC didn’t respond to a faxed request for comment.
China Vanke Co, the nation’s largest developer by market value, raised average apartment prices 26 per cent in September from a year earlier to 10,168 yuan per square metre, the company said last month. Prices rose 4 per cent from August.
The price increase outpaced gains in urban disposable incomes, which rose 14.5 per cent to an average 15,781 yuan last year, according to the National Bureau of Statistics. Vanke’s third-quarter net income doubled from a year earlier to 433 million yuan.
Tomson Group Ltd, after selling just four flats since 2005 in what was dubbed China’s most expensive property project, sold more than 35 apartments in Shanghai’s Tomson Riviera since June, the 21st Century Business Herald reported on Oct 29, citing local government data.
‘Bubbles exist in some regions, mostly first-tier cities and some second-tier cities, and the bubble in high-end property market is more obvious,’ said Bai Hongwei, an analyst at China International Capital Corp.
Rising property prices have pushed up land costs, as developers rushed to secure inventories in anticipation that housing demand would continue to strengthen.
The CBRC’s Shanghai branch in July ordered lenders to obey rules on mortgages for second homes and step up scrutiny of approvals. On Oct 28, the regulator said it plans to tighten rules on personal loans to prevent them from being used for speculation.
China has clamped down on the property market before. The government raised down-payments on second mortgages to 40 per cent and interest rates to 110 per cent of the benchmark on Sept 29, 2007, causing price declines in some cities in 2008.
Banks must ‘steadfastly’ follow policies on second mortgages and make ‘reasonable’ lending plans for the fourth quarter, CBRC chairman Liu Mingkang said in an Oct 21 statement on the regulator’s website.
2 comments:
China regulator to review developers’ debt levels
Move to cut firms’ leverage on fears borrowings fuel too rapid price surge
Bloomberg
04 November 2009
(BEIJING) China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fuelling excessive gains in property prices, a person familiar with the matter said.
The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market, the person said, declining to be identified because the plans haven’t been made public.
Some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse, the person said. China’s home prices rose at the fastest pace in a year in September as government stimulus spending drove a recovery in the world’s third-largest economy.
At the end of August, liabilities exceeded 90 per cent of assets at more than 160 developers that have borrowed at least 50 million yuan (S$10.3 million) each from banks, the person said. New loans for real-estate development surged 121 per cent from a year earlier in the first half to 403.9 billion yuan, according to the People’s Bank of China’s latest quarterly report.
New credits for home purchases more than doubled to 479.3 billion yuan in the period. A gauge tracking 24 real estate firms traded in Shanghai has climbed 120 per cent this year, the best-performing group on the benchmark Shanghai Composite Index. The property measure rose 0.2 per cent yesterday.
Some banks loosened mortgage down-payment requirements this year to boost market share, and some paid commissions to developers and real estate agents for referring borrowers, the person said. Almost 10,000 mortgages defaulted in the first eight months of 2009, taking the total to 140,000 at the end of August, the person said.
While the CBRC doesn’t have the power to force developers to cut borrowings, it can direct banks to reduce lending to the industry. The regulator will mainly target state-owned companies whose main businesses are outside of real estate, the person said. The CBRC didn’t respond to a faxed request for comment.
China Vanke Co, the nation’s largest developer by market value, raised average apartment prices 26 per cent in September from a year earlier to 10,168 yuan per square metre, the company said last month. Prices rose 4 per cent from August.
The price increase outpaced gains in urban disposable incomes, which rose 14.5 per cent to an average 15,781 yuan last year, according to the National Bureau of Statistics. Vanke’s third-quarter net income doubled from a year earlier to 433 million yuan.
Tomson Group Ltd, after selling just four flats since 2005 in what was dubbed China’s most expensive property project, sold more than 35 apartments in Shanghai’s Tomson Riviera since June, the 21st Century Business Herald reported on Oct 29, citing local government data.
‘Bubbles exist in some regions, mostly first-tier cities and some second-tier cities, and the bubble in high-end property market is more obvious,’ said Bai Hongwei, an analyst at China International Capital Corp.
Rising property prices have pushed up land costs, as developers rushed to secure inventories in anticipation that housing demand would continue to strengthen.
The CBRC’s Shanghai branch in July ordered lenders to obey rules on mortgages for second homes and step up scrutiny of approvals. On Oct 28, the regulator said it plans to tighten rules on personal loans to prevent them from being used for speculation.
China has clamped down on the property market before. The government raised down-payments on second mortgages to 40 per cent and interest rates to 110 per cent of the benchmark on Sept 29, 2007, causing price declines in some cities in 2008.
Banks must ‘steadfastly’ follow policies on second mortgages and make ‘reasonable’ lending plans for the fourth quarter, CBRC chairman Liu Mingkang said in an Oct 21 statement on the regulator’s website.
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