This article is from the Australian Property Journal archive
ONE of China’s largest and posterchild property developers, Greenland warned that it will likely default on loan repayment, as the nation’s property market faces uncertainty.
The state-owned Shanghai-based entity said in a filing that it will not be able to repay its US$362 million-dollar bond due on November 13.
“Faced with the sudden and serious impact of the Covid-19 situation in Shanghai earlier this year and the impact of sporadic local outbreaks of Covid-19 across the PRC, coupled with the negative market conditions, the group has been experiencing significant declines in its sales and operations, which in turn affected the group’s financial condition, in particular its cash flow and liquidity,” it said in the statement.
Furthermore, Greenland is looking to extend the expiry of its June 2023 note by one year. It is also seeking consent from noteholders to amendments and waivers relating to nine outstanding dollar bonds guaranteed by the company.
Greenland said it has hired Bank of China International and CITIC Securities as its solicitation agents.
The company was the China’s posterchild property developer, being named number one on Forbes’ 2018 Global Growth Champions list after recording US$44.8 billion in sales and US$1.5 billion in profit. In Australia Greenland has six projects including Park Sydney; Greenland Centre Sydney; nbh at Lachlan’s Line; Omnia Potts Point; Lucent North Sydney and Leichhardt Green, all in New South Wales.
The company’s woes are not isolated.
Home loan owners have stopped payment on approximately 5% of all mortgages, worth some 1.8 trillion to two trillion Chinese yuan (US$270bn-US$300bn), worried that the properties they bought from distressed developers will not be completed.
What started as a protest in one project in late June has rapidly spread to over 300 projects in more than 90 cities by mid-July.
Unlike other real estate markets, homeowners in China must start making mortgage payments before they take possession and construction has started. This policy was a convenient funding arrangement for property developers.
Presales account for 90% of new home sales in China and one-third of developers’ source of funding, Oxford Economics lead economist Tommy Wu said the fall in housing sales will pose a very serious threat to developers’ financial position.
Recently the government announced measures to stabilise the market in the lead up to the 20th National Congress of the Chinese Communist Party.
These major policies include: CNY200bn policy lending to fund sold but unfinished projects; removing the floor of first mortgage rates by the end of the year in cities where the property price declined in both month and year between June and August; reducing the first home mortgage rates funded by provident by 15bps, effective from 1 October 2022; offering tax breaks for home buyers who purchase a new home within one year of selling their previous home; and local big six banks are asked by regulators to provide at least CNY600bn funding to property sector, pending official confirmation.
Despite the hopes that the new policies that have been coordinated, they still appear to be tied to a number of uncertain factors. It’s unseen yet whether developers and home buyers could improve their financial conditions with home buyers less sensitive to mortgage rate changes. There’s still a lack of clarity on the country’s zero-COVID policy which is influencing that of retail buyers and businesses.
The country’s COVID-zero policy has seen a renewed interest in overseas residences.
Residents are flocking to the country’s largest social media platform WeChat with searches for “immigration” tipping over 130 million whilst searches for “overseas homes” registered over 8.5 million.
According to Juwai, China’s residential real estate crisis is undermining demand for domestic property and pushing Chinese investors overseas, but it said this flight of capital will be more restrained than what took place from 2014 to 2018.
In 2017, at the peak of the Chinese outbound boom, Chinese buyers acquired US$119.7 billion of international residential and commercial property. That dropped to US$49.6 billion in the following year. Whilst the COVID-19 pandemic saw outbound investments decline further, if current trends continue, it may climb again.
