New Reporter
03-11-21, 11:42
Evergrande crisis, China property curbs pose near-term challenges for Singapore developers
Nov 03, 2021
AS debt-laden property developer Evergrande buckles under the weight of over US$300 billion in liabilities, cracks are showing in China's property sector with a number of other mainland developers - such as Fantasia Holdings Group and Sinic Holdings Group - defaulting on bond payments recently.
Ratings agencies such as S&P and Fitch in turn have issued downgrades to several firms, flagging concerns over leverage and diminished access to funding.
The shake-up in the property sector comes as the Chinese authorities attempt to reign in debt build-up among developers. Dubbed the "three red lines", more stringent financing rules were introduced back in August last year, ensuring - among other things - that short-term borrowings do not outpace cash reserves.
According to a Bloomberg report, two-thirds of the biggest 30 property groups (by sales) in China are in breach of at least one of the three metrics, while new home sales by China's leading developers plunged by 32 per cent in October as the crisis kept nervous home-buyers firmly on the sidelines.
Jittery investors have responded by dumping stock, leaving some of China's largest developers trading at multi-year lows.
At this point, analysts generally don't expect a sell-off in Singapore Exchange-listed property counters with exposure to China as they aren't perceived to be overly leveraged (though a hit to sentiment in the near-term hasn't been entirely ruled out).
However, the slowdown in China's property market bears watching. This could weigh on groups with a sizeable landbank such as Yanlord Land and Keppel Corp, pointed out DBS property analyst Derek Tan.
Tepid sales
In a report, Moody's warned of tepid property sales for the next 6 to 12 months against the backdrop of tight funding conditions and heightened refinancing risks stemming from headwinds in the bond market.
Yanlord - which has been in China since the early 1990s - has a landbank in China that includes 6.3 million square metres (sq m) of gross floor area (GFA) under development as well as a further 2.93 million sq m of GFA marked for future development (as at June 30, 2021).
Yanlord also has a joint venture partner in China in the form of Ho Bee Land, with the duo announcing in June plans to develop a newly acquired 53,200 sq m site in Hongqiao district, Tianjin into a high-end residential project.
Ho Bee Land has other projects in China too. Still, its "current residential projects in China are fairly well sold as they have been progressively developed and handed over to buyers over the last few years", noted CGS-CIMB analyst Lock Mun Yee, adding that the bulk of Ho Bee's earnings is generated by stable rental income from its Singapore and UK investment properties.
In the case of Keppel Land, 43 per cent of its residential portfolio and 34 per cent of its commercial portfolio sit in China, making it a core market for the group. For now, demand for homes appears to be holding up. In the first nine months of 2021, Keppel Land sold 2,280 homes in China - up 44 per cent year on year - while 730 units were sold in the third quarter of this year, or nearly 38 per cent more year on year.
But as Keppel's management highlighted during its latest earnings briefing, while the debt crisis is creating uncertainty in the near-term, deleveraging ultimately may not be all that bad for the market when taking a longer-term view.
As the dust settles, it could deliver a more level playing field for Singapore developers with the opportunity to buy assets from cash-strapped developers or even acquire land more cheaply as their Chinese counterparts adopt a more prudent approach.
Nov 03, 2021
AS debt-laden property developer Evergrande buckles under the weight of over US$300 billion in liabilities, cracks are showing in China's property sector with a number of other mainland developers - such as Fantasia Holdings Group and Sinic Holdings Group - defaulting on bond payments recently.
Ratings agencies such as S&P and Fitch in turn have issued downgrades to several firms, flagging concerns over leverage and diminished access to funding.
The shake-up in the property sector comes as the Chinese authorities attempt to reign in debt build-up among developers. Dubbed the "three red lines", more stringent financing rules were introduced back in August last year, ensuring - among other things - that short-term borrowings do not outpace cash reserves.
According to a Bloomberg report, two-thirds of the biggest 30 property groups (by sales) in China are in breach of at least one of the three metrics, while new home sales by China's leading developers plunged by 32 per cent in October as the crisis kept nervous home-buyers firmly on the sidelines.
Jittery investors have responded by dumping stock, leaving some of China's largest developers trading at multi-year lows.
At this point, analysts generally don't expect a sell-off in Singapore Exchange-listed property counters with exposure to China as they aren't perceived to be overly leveraged (though a hit to sentiment in the near-term hasn't been entirely ruled out).
However, the slowdown in China's property market bears watching. This could weigh on groups with a sizeable landbank such as Yanlord Land and Keppel Corp, pointed out DBS property analyst Derek Tan.
Tepid sales
In a report, Moody's warned of tepid property sales for the next 6 to 12 months against the backdrop of tight funding conditions and heightened refinancing risks stemming from headwinds in the bond market.
Yanlord - which has been in China since the early 1990s - has a landbank in China that includes 6.3 million square metres (sq m) of gross floor area (GFA) under development as well as a further 2.93 million sq m of GFA marked for future development (as at June 30, 2021).
Yanlord also has a joint venture partner in China in the form of Ho Bee Land, with the duo announcing in June plans to develop a newly acquired 53,200 sq m site in Hongqiao district, Tianjin into a high-end residential project.
Ho Bee Land has other projects in China too. Still, its "current residential projects in China are fairly well sold as they have been progressively developed and handed over to buyers over the last few years", noted CGS-CIMB analyst Lock Mun Yee, adding that the bulk of Ho Bee's earnings is generated by stable rental income from its Singapore and UK investment properties.
In the case of Keppel Land, 43 per cent of its residential portfolio and 34 per cent of its commercial portfolio sit in China, making it a core market for the group. For now, demand for homes appears to be holding up. In the first nine months of 2021, Keppel Land sold 2,280 homes in China - up 44 per cent year on year - while 730 units were sold in the third quarter of this year, or nearly 38 per cent more year on year.
But as Keppel's management highlighted during its latest earnings briefing, while the debt crisis is creating uncertainty in the near-term, deleveraging ultimately may not be all that bad for the market when taking a longer-term view.
As the dust settles, it could deliver a more level playing field for Singapore developers with the opportunity to buy assets from cash-strapped developers or even acquire land more cheaply as their Chinese counterparts adopt a more prudent approach.