Chinese property stocks sink after demolition order for Evergrande group

[SHANGHAI] Chinese developer shares dropped following local media reports that China Evergrande Group has been ordered to tear down apartment blocks in a development in Hainan province. Evergrande also halted trading in its shares.

An index of Chinese developer shares slumped as much as 2.8 per cent in Hong Kong before closing 1.7 per cent lower. A local government in Hainan told Evergrande to demolish 39 buildings in 10 days because the building permit was illegally obtained, Cailian reported on Saturday.

Evergrande gave no details on the trading suspension other than saying it would make an announcement containing inside information.

The Hainan news underscored investor concern that policy makers are unlikely to dramatically ease their crackdown on indebted property companies like Evergrande even as they take steps to ensure stronger developers retain access to funding.

"Even though the Hainan project isn't a significant one in its country-wide strategy, it will have a big impact on confidence," said Kenny Ng, strategist at Everbright Sun Hung Kai.

Property firms have mounting bills to pay in January and shrinking options to raise necessary funds. The industry will need to find at least US$197 billion to cover maturing bonds, coupons, trust products and deferred wages to millions of migrant workers, according to Bloomberg calculations and analyst estimates.

Contracted sales for 31 listed developers fell 26 per cent in December from a year earlier, according to Citigroup analysts. Evergrande's sales dropped 99 per cent and were 7 per cent lower than November, the analysts wrote in a note dated Sunday. Sales for Shimao slid 25 per cent from November.

The slump in developer shares wasn't matched by their bonds. Chinese high-yield dollar bonds rose as much as 1 cent on the dollar on Monday, according to credit traders.

BLOOMBERG