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China's big developers shrug off short-term virus impact to splurge on land

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Hui Ka Yan, chairman of China Evergrande, says Beijing's economic measures and increased liquidity will boost property sales.

Hong Kong

CHINA'S top developers are prising open their war chests to snap up land this year as local governments sell more prime real estate to boost revenues and smaller, distressed property firms look to offload assets as the coronavirus takes a toll.

Many of the country's major property companies said at recent earnings conferences that they planned to ramp up spending, thanks to a faster-than-expected sales recovery in the first quarter and more abundant liquidity.

Others said they would maintain purchasing levels on par with last year as they were confident demand for housing will remain intact in the long run.

China's property market ground to a halt earlier this year as the virus outbreak escalated and the authorities imposed tough curbs on travel and movement, shutting down crowded places such as property showrooms.

But restrictions have been eased in many parts of the country in recent weeks. The latest data from researcher CRIC shows sales of the top 100 developers in March surged 136 per cent from February, narrowing the first-quarter decline to 21 per cent compared with a year earlier.

Developers said they expected sales to normalise in April, following an 80 to 90 per cent recovery in March.

A spate of government economic support measures and increased liquidity will provide some boost to property sales, Hui Ka Yan, chairman of China Evergrande, the third- largest developer by sales, said last week.

The optimism underscores the increasing polarisation in China's real estate market, where analyst forecasts of a single-digit drop in national home sales this year is expected to coincide with the collapse of many smaller developers.

In a note of caution, analysts said that given the land market lags the home market, developers would need to slow their investment if home sales decline at a faster pace.

"The industry downtrend is unchanged," said Larry Hu, head of China Economics at Macquarie. "Despite the strong rebound in March sales, Q1 was still a big drop, so I think the full-year sales will be weak, and that may lead to a drop in home prices. I'm more prudent on the property industry."

Bigger property companies usually focus their developments in major cities, where housing demand is stronger.

Many developers still posted double-digit sales and profit growth last year, despite a sputtering economy.

Evergrande's Mr Hui forecasts stable transaction volumes for this year, a more optimistic view than analysts.

Despite concerns over the shock from the coronavirus to consumers, some of the larger developers said it would only have a short-term effect and would not derail long-term housing demand.

Undeterred, they have set more or less the same sales targets as last year, in some cases even higher.

Evergrande aims to sell 30 per cent more homes totalling 800 billion yuan (S$106.2 billion), while Shimao Property targets 15 per cent more at 300 billion yuan.

Country Garden, the country's largest developer by sales, purchased more land in the first quarter than a year ago.

"We saw more good-quality land opportunities and M&A opportunities," the company's executive vice-president Cheng Guangyu said at an earnings conference.

Both Country Garden and Shimao said they would spend at least the same amount on land as last year, as they have adequate cash.

Loosening of policies, including cutting interest and tax rates, have enabled developers to pay less of a deposit over a longer instalment period and helped to boost the land market.

More stimulus is expected in the second quarter, say analysts.

The outlook for more ample liquidity has already driven up land prices in major cities.

CRIC said that while 20 per cent of the top 100 developers bought no land in the first three months because of their cautious sentiment, land transaction volumes have gradually recovered; some sales in the first- and second-tier cities have recorded premiums of more than 40 per cent.

Another major real estate researcher, CREIS, said the average land floor price sold during the period was up 33 per cent in Tier 1 cities, flat in Tier 2 cities and up 7 per cent in Tier 3 ones.

Because of the high land prices, some developers said they would be more prudent in public auctions and opt instead to build their land bank through acquiring smaller companies. REUTERS

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