China curbs property developers' funding to cool land prices

Chinese developers have raised a combined 345 billion yuan (US$50 billion) this year selling onshore bonds and asset-backed securities, data compiled by Bloomberg and China Securitisation Analytics show.
Chinese developers have raised a combined 345 billion yuan (US$50 billion) this year selling onshore bonds and asset-backed securities, data compiled by Bloomberg and China Securitisation Analytics show.PHOTO: AFP

SHANGHAI (BLOOMBERG) - Chinese authorities are taking fresh steps to cool the property market, curtailing onshore fundraising for developers found to have bid aggressively in land auctions.

The curbs have affected companies including Sunac China Holdings Ltd and Gemdale Corp, said people with knowledge of the matter, who asked not to be named.

In some cases, developers' underwriters were asked by regulators not to tap unused quotas for selling yuan bonds or asset-backed securities, according to the people.

Cifi Holdings Group Co, Risesun Real Estate Development Co and Country Garden Holdings Co are also among those impacted, the people said. Regulators' actions were primarily driven by the view that the developers had been aggressive in bidding for land plots in some cities, one person said.

By targeting developers' financing plans, authorities signal they're willing to use a wide range of levers for keeping the housing market in check, in addition to more blunt tools like outright price curbs.

The Ministry of Housing and Urban-Rural Development has issued warnings to local governments in cities with big fluctuations in home and land prices, and regulators have rejected several developers' applications for offshore bond sales since April.

Chinese developers have raised a combined 345 billion yuan (US$50 billion) this year selling onshore bonds and asset-backed securities, data compiled by Bloomberg and China Securitisation Analytics show.

 
 
 

A representative for Cifi said the company's capital markets business is operating as usual and that it "maintains a prudent investment strategy."

Gemdale said its operations are normal. A Sunac representative had no comment, while Country Garden didn't immediately respond to calls. Phone calls to Risesun's offices went unanswered.

Price gains have been especially pronounced in so-called tier 2 cities (generally defined as provincial capitals and regional economic hubs like Hangzhou on China's east coast and Wuhan in central Hubei province), where they rose in April at the fastest pace this year compared with the prior month.

ELEVATED RISKS

A recovery in sales and prices may tempt some developers to rebuild their land banks, which may stretch companies' liquidity and elevate refinancing risks amid snowballing maturities, S&P Global Ratings said in a report Wednesday (June 5).

The average land-auction premium - the percentage paid over the opening price - for a selected 100 cities in China rebounded to over 25 per cent in April 2019, up from a multi-year trough of under 10 per cent last year, S&P's report found.

Developers have increasingly been flocking to mid-tier cities because they're emerging as potential winners from China's urbanisation strategy. Price gains in bigger hubs are still being damped by buying curbs and limited land supply, while smaller markets have been dented by a reduction in funding for shanty-town redevelopment projects.

Land filings show that Country Garden purchased plots for more than double the initial asking price in some central and eastern Chinese cities in May. It bought a parcel in Yangzhou for 1.45 billion yuan (US$210 million) after 453 rounds of bidding, according to property data provider China Index Academy.

In April, Seazen Holdings Co and Sunac topped previous land-price records in Changzhou and a Wuhan urban district, respectively, according to local media.