China's top developers poised for strong sales as debt woes linger
China’s major developers are tightening their hold on the country’s real estate market, capturing an ever-larger share, even as sales growth is expected to slow and worries about debt persist.
According to the US investment bank Citi, the top 10 Chinese developers are forecast to achieve close to 35 percent market share this year, up from around 27 percent now. They held just 14.2 percent of the market in 2012.
Reuters Photo.

Reuters Photo.

The number of developers posting more than 50 billion yuan in sales increased to 40 in 2017 from 25 in 2016, with sales growth of 53 percent to 84 percent.
The number of smaller developers, with sales between 10 billion and 50 billion yuan, fell to 104 from 106.
And although the total number of home transactions is expected to drop about 5 percent, securities firms and rating agency analysts said Hong Kong-listed developers could see 30 percent sales growth on average this year, compared with an average of 40 percent growth in 2017.
But the growth will not be without risk. Ramped-up land purchases mean the developers will add debt, throwing uncertainty into the stated plans of some to deleverage.
China Evergrande and Sunac China had the highest gearing ratios at more than 200 percent in the first half of last year. Both said in October they intended to reduce their debt ratio, but neither halted their buying sprees.
Reuters Photo.‍

Reuters Photo.‍

If there is a market correction, developers’ liquidity will be tested. But Standard & Poor director Christopher Yip said even in that scenario, he didn’t see a large impact.
“We don’t think there’ll be a big probability for rated developers to be unable to repay their debt other than very weak ones with poor liquidity and refinancing prospects; others should have secured the financing before they buy land,” Yip said.
A softening but still resilient property market, underpinned by steady prices, would be welcome news for both China’s policymakers and developers. Beijing is eager to keep the market stable as the government tackles an alarming build-up in debt.
China property stocks were among the best performers in Hong Kong in 2017, propelled by robust sales, with Evergrande up 480 percent, Sunac jumping 460 percent, and Country Garden climbing 270 percent. Nine other developers saw shares surge more than two-fold.
Some analysts questioned whether the expansion rate of China’s largest developers could be sustained.
“China’s property shares rallied in 2017 thanks to top-line growth, but this momentum will slow in 2018. The growth story this year will be weaker,” said CLSA analyst Nicole Wong. “Last year, many sales were from smaller cities, but as liquidity tightens, sales to these cities will be more difficult.” 
The price to earnings ratio of the China property sector rebounded last year after the share rally, but it was still at relatively low levels.
Source(s): Reuters