Slump in home sales is next hurdle for rebounding China developers

CHINESE developers’ shares and their dollar bonds are heading for a second weekly gain following this month’s property support measures, but sliding sales are still leaving investors wondering how long the rally will last.

A Bloomberg index of Chinese builders has risen 10 per cent this week, after jumping a record 27 per cent last week, even as gains were pared on Friday (Nov 18). A separate gauge tracking junk dollar bonds, mostly from property companies, has advanced 6.2 US cents this week on the dollar to 58.5 US cents.

The biggest gainers in offshore bonds this week have been Seazen Group, Country Garden Holdings and Gemdale Ever Prosperity Investment, according to a Bloomberg high-yield index.

All three have returned more than 100 per cent in the past week. Developers that are lagged behind include Zhongliang Holdings Group, which lost 1.6 per cent in the past week as it suspended all offshore payments.

The rebound in developer’s shares and bonds followed the introduction of a series of government support earlier this month, including a package aimed at easing liquidity strains, and an easing of rules surrounding the use of pre-sales proceeds. At the same time, government data this week showed home prices slid the most in seven years in October.

“Under the current policy, changes on the demand side remain to be seen, and thus the magnitude and sustainability of the improvement in credit conditions of real-estate companies also need to be continued to be observed,” said Yewei Yang, a chief bond analyst at Guosheng Securities.

Sliding sales

China’s contracted property sales will decline 10 per cent to 15 per cent by the end of next year, Moody’s Investors Service said in a report this week. Recent measures to help the industry will only “slowly take effect and lead to a gradual recovery”, it said.

This month’s property rescue package will mainly benefit private developers that have yet to default, according to analysts following the industry. The nation’s largest developer Country Garden was the first to take advantage by making a share placement following the weekend’s news.

“Policy guidance on extending loan terms and bond repayments should help larger and financially stronger developers,” Chang Wei Liang, a macro strategist at DBS Bank in Singapore, wrote in a research note.

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“Entities that have already defaulted, or are already teetering on the edge of default, are not likely to benefit.” BLOOMBERG