MARKET UPDATES

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Evergrande to hire more debt advisers as creditor ire grows

China Evergrande Group said on Friday (Jan 21) that it was hiring more financial and legal advisers to help it with demands from creditors, after a key group of its international creditors threatened to take legal action if it did not show more urgency to resolve a default. Evergrande is the world's most indebted property company, with more than US$300 billion (S$404 billion) in total liabilities. These include nearly US$20 billion of international bonds all deemed to be in default after a run of missed payments late last year. Its rocky financial situation has roiled other Chinese property developers over the past year and exacerbated a funding squeeze in the sector. But in one positive sign, larger rival Country Garden surprised the market on Friday with a new issue of US$500.2 million convertible bonds, after a similar attempt failed last week. In a filing to the stock exchange, Evergrande said it was proposing to engage China International Capital Corp and BOCI Asia as financial advisers, and Zhong Lun Law Firm as legal adviser. The move came one day after an offshore creditor group, represented by law firm Kirkland & Ellis and investment bank Moelis, said it was ready to take "all necessary actions" to defend members' rights after a lack of engagement by the company at the heart of China's property crisis. The creditor group said in a statement on Thursday that Evergrande had disregarded its offshore creditors and the legal rights of its creditors, and that it had to "seriously consider" enforcement action. Shares of Evergrande fell more than 3 per cent in Asia on Friday. Its April 2023 dollar bond traded at 12.551 cents on the dollar, data by Duration Finance showed, bouncing after the news though still softer than overnight. Stocks and bonds of Chinese property developers have gained this week on hopes a slew of recent government measures would help ease the sector's funding squeeze and reverse a slump in construction, a key economic growth driver. Country Garden, China's top property developer by sales, said it would issue HK$3.9 billion (S$674 million) of convertible bonds for refinancing debt that will become due within one year. The bonds due in July 2026 carry 4.95 per cent interest and have the initial conversion price of HK$8.10 per share. At full conversion, the shares would represent 2 per cent of the enlarged capital. Shares of Country Garden dropped nearly 6 per cent to HK$6.55 in the morning session after the news, while its Jan 2023 international bond rose to 97.021, up from 92.787 overnight. The new issue follows a report that the developer failed to find appetite for a potential US$300 million convertible bond last Wednesday. Beijing unexpectedly cut borrowing costs on its medium-term loans on Monday for the first time since April 2020 to ease pressure on the cooling economy. On Thursday, it cut its benchmark lending rates for corporate and household loans for a second straight month, and also lowered its mortgage lending benchmark rate.

Source: Straits Times
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Former Caldecott Broadcast Centre site to be redeveloped into 15 leasehold good class bungalows

Real estate and healthcare company Perennial Holdings is planning to redevelop the former Caldecott Broadcast Centre site into 15 good class bungalows (GCBs), making it the first major 99-year leasehold GCB site to be launched. The GCB plots will range from 15,070 sq ft to 250,801 sq ft. However, the larger plots could also be subdivided in future to accommodate more GCBs, up to a maximum of 26 bungalows. The Urban Redevelopment Authority (URA) has stipulated that any redeveloped plots will have to be sold with houses. The plans were revealed in a November 2021 internal circular that the URA distributed to residents, property portal EdgeProp reported on Thursday (Jan 20). Perennial and DP Architects had invited residents to a sharing session on their development plans. The Caldecott site was sold with a balance lease of 73 years. The site was also zoned for "civic and community institution" use, so its developer would have to pay to upgrade the lease term and change the site's use. Located in prime District 11, the site is accessible from Andrew Road, John Road and Olive Road. However, owner-developer Perennial will work with the Land Transport Authority to widen vehicle carriageways as well as add new planting strips and pedestrian pathways. There will also be a new public park to connect the northern and southern parts of the estate. Perennial and its chairman Kuok Khoon Hong won the 752,000 sq ft site tender in December 2020 for $280.9 million. He is said to be taking the largest plot - large enough for 11 GCBs - for his extended family. Ranked as Singapore's 12th richest person in 2021 by Forbes, Mr Kuok is also the chairman and chief executive of palm oil producer Wilmar International. Mr Michael Tay, CBRE head of capital markets and joint head of advisory and transaction services, said that given the Caldecott Broadcast Centre's tenure, prices will have to be more attractive than those of new freehold GCBs in the area. He added that "relatively new" freehold GCBs in the neighbourhood have transacted at more than $2,000 per sq ft (psf). In September last year, a 10,529 sq ft freehold bungalow in Lornie Road sold for $26.8 million, or $2,545 psf. Some two months later, another spanning 5,964 sq ft along the same stretch was snapped up for $12 million, or $2,005 psf. The bungalows were completed in 2000 and 2017 respectively. Outside the Caldecott vicinity, GCBs are also seeing buyer demand. A GCB spanning 14,844 sq ft on a freehold site near Botanic Gardens sold for $63.7 million, or a record-breaking $4,291 psf, last year.

Source: Straits Times
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Chinese property bond rally fades as investors seek clarity

A record-breaking rally in Chinese property bonds petered out on Thursday (Jan 20) amid growing investor doubt over how much a reported plan to allow developers greater access to funds from pre-sold homes will benefit distressed firms. High-yield notes fell as much as 3 cents on the dollar after jumping on Wednesday following the reports. Bonds of Country Garden Holdings and Sunac China Holdings fell after rallying by a record. Gains extended in the stock market, with an index of developer shares rising more than 3 per cent as traders cited short covering. With a crisis of confidence and financial contagion spreading across the property market this week, investors are looking for regulatory easing to help a credit market that is saddled with billions of dollars in losses. Thursday's reversal in bonds shows that traders are wary of betting too strongly that the news marks a turning point for the beaten-down sector. "The market is still cynical about (the reported rule) being nationwide, " said Ms Monica Hsiao, founder and chief investment officer of Triada Capital. "In reality, we know a lot of implementations get done province by province, and also we do not know details of which types of company will be allowed more access." Even as China cut interest rates this week and pledged to use more monetary tools to support the economy, official rhetoric on housing remains the same. In a scheduled press briefing on Tuesday, officials at the People's Bank of China said mortgage loans would be kept "basically stable". Policymakers also reiterated the oft-repeated catchphrase that houses are for living in, not for speculation. Thursday's cut in the five-year loan prime rate, which underpins mortgages, was smaller than some economists had expected. A number of major cities in China and some smaller municipalities tightened supervision over the use of pre-sold property proceeds at the end of last year, local media reported at the time. Such cash generally accounts for almost half of developers' inflows, according to official data. Generating liquidity by other means has become increasingly difficult. Home sales and prices are dropping, according to recent economic data. Several of China's largest banks have become more selective about funding real estate projects by local government financing vehicles. Sunac China Holdings' 6.5 per cent note due 2023 dropped to 59 cents after peaking on Thursday morning at 69.6 cents, according to data compiled by Bloomberg. Country Garden Holdings' 6.5 per cent note due 2024 fell 2.1 cents to 90 cents after surging nearly 14 cents a day earlier. In the stock market, short-seller favorite Agile Group Holdings surged 13 per cent on Wednesday, the most since 2015. It gained another 4.3 per cent the following day. An event-driven fund was among those caught by the sudden rally in Chinese property stocks, according to a Singapore-based money manager who asked to not be named discussing internal trading strategies. The fund started closing some of its short positions on Wednesday afternoon. Another trader at a global bank said two clients were buying Chinese property shares to close out short bets on Thursday. "We are short China property shares and have been since 2020, " said Mr Daniel Yu, founder of Gotham City Research. "We were expecting some policy moves but you just adjust positions along the way. This doesn't change the long-term picture. We are sticking with our positions, hedging them by buying other China names." Market-oriented funding channels have been all but paralysed. Selling credit offshore is prohibitively expensive and the equity market can digest only so much - when Sunac tapped stock investors instead last week, its shares sank a record 23 per cent in Hong Kong. "The challenges will persist until there is clear evidence that most issuers have access to numerous sources of funding, including the offshore dollar bond market, " said Mr Charles Macgregor, head of Asia at Lucror Analytics. While access to funding is key, it is not the only challenge facing property developers, who have a wall of upcoming maturities to contend with. Offshore bondholders are unlikely to be the priority when Beijing's focus is ensuring that homes are delivered and wages are paid to migrant workers before the Lunar New Year holiday. Others are more optimistic. A relaxation of pre-sales restrictions "could be the biggest and arguably most important easing measure towards the property sector so far",  said CreditSights analyst Zerlina Zeng. "This is exactly what we were hoping for, " said Mr Jean-Louis Nakamura, chief investment officer of Lombard Odier Asia Pacific. "Bringing back some calm, discrimination and sustainable stability - or improvement of spreads at least of high-quality developers - would already be significant progress." Volatility is becoming a market norm. Agile shares are the wildest in at least a decade, according to 10-day historical data. Sunac stockholders are grappling with swings that are five times more brutal than those of Bitcoin. Country Garden's 2024 dollar bond - which rarely budged more than 1 cent daily for the better part of last year - fell 10 cents on Monday and surged 14 cents on Wednesday. Firms, including Allianz Global Investors, Axa Investment Managers and Oaktree Capital Group, have said in recent months that they are looking to increase their holdings of beaten-down real estate debt. Mr Jason Brown, a former Goldman Sachs Group Inc special situations group head, raised an initial US$245 million (S$330 million) last month for his Arkkan Capital to invest in Chinese distressed property loans and bonds. A top-performing Chinese money manager said earlier in January he was buying dollar bonds of the country's developers, betting that the authorities would soon unleash measures to support the industry. Still, the turbulence in China's financial markets is putting renewed pressure on President Xi Jinping's government to do more. China's securities watchdog recently pledged to "firmly" prevent market volatility. The Communist Party's top decision makers vowed last month to ensure stability in the economy in 2022.

Source: Straits Times
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China's property sector contraction worsens in blow to economy

China's property sector shrank at a faster pace in the final three months of last year as the country's housing slump continued to take its toll on the economy. Output in the real estate sector shrank 2.9 per cent in the fourth quarter after a 1.6 per cent contraction in the previous three months, the National Bureau of Statistics said Tuesday (Jan 18) in a supplemental report on gross domestic product (GDP). That was the first consecutive quarterly decline since 2008. The construction sector also saw its output decline by 2.1 per cent during the same period. Those two sectors combined were 13.8 per cent of national output in 2021, according to Bloomberg calculations, lower than the 14.5 per cent in 2020. Despite the authorities' efforts to ease some restrictions on real estate funding, China's property market slump persisted in December, with the downturn spanning developers' sales, investments, land purchasing and financing activities. Property investment in December shrank 14 per cent from a year earlier, according to Bloomberg calculations. For the full year, it grew 4.4 per cent. China's economy in the fourth quarter grew at the weakest pace in more than a year, weighed down by the housing slump and weak consumer spending, data released on Monday showed. GDP expanded 4 per cent from a year earlier, down from 4.9 per cent in the previous quarter. Growth of industrial production quickened slightly in December, but retail sales slowed sharply. The breakdown of the GDP data confirmed the weakness in consumption, which was hit by restrictions to control repeated coronavirus outbreaks throughout the year. Hotels and catering grew 4.7 per cent in the fourth quarter, slowing from a 5.7 per cent expansion previously. China will quickly roll out policy measures to boost domestic demand, Mr Yuan Da, an official with the country's top economic planner, said on Tuesday. China will also study targeted measures to bolster industrial production, Mr Yuan told a news conference. Growth in the manufacturing sector remained solid, rising 3.1 per cent in the quarter from a year ago, reflecting the limited impact of virus restrictions on industrial production as well as strong global demand for Chinese goods. Value-added of manufacturing industry accounted for 27.4 per cent of GDP last year, up 1.1 percentage point compared to a year ago, Monday's data showed.

Source: Straits Times
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Shimao founder puts Hong Kong office floors up for sale

Shimao Group Holdings chairman Hui Wing Mau has put two office floors in Hong Kong up for sale, as the embattled Chinese developer contends with an industry-wide cash crunch. The space in The Center tower in Central is being marketed to potential buyers for about HK$1.5 billion (S$259 million), according to sales material seen by Bloomberg. The two floors are owned by companies that list Mr Hui and his daughter Hui Mei Mei as directors, land records show. Shimao did not immediately respond to requests for comment. Once considered among the safer Chinese developers, Shimao has seen its bond prices and credit ratings decline in recent weeks as concerns mount over its financial health. Shimao may be forced to sell some Hong Kong projects at a loss to ease its liquidity woes, Bloomberg Intelligence said earlier this month. Mr Hui pledged one of the floors in The Center to DBS Bank's Hong Kong branch in October, according to land records. As part of a consortium, Mr Hui purchased a total of nine floors in the office tower from CK Asset Holdings in 2018. Mr Hui's personal wealth has dropped to about US$4.3 billion from as much as US$13 billion in August 2020, according to the Bloomberg Billionaires Index. Shimao shares have tumbled about 79 per cent in the past year.

Source: Straits Times
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Chinese developer bond rout deepens on hidden debt concerns

Fresh turmoil rocked Chinese property bonds on Monday (Jan 17) as investors fretted over the true scale of the industry's hidden debts. A Logan Group Company note due in 2023 sank 11.5 US cents to 65.5 US cents after Debtwire reported that the developer could be on the hook for US$812 million (S$1.1 billion) of guarantees on outstanding obligations due till 2023. The firm, which has the equivalent of a BB rating at all three major credit risk assessors, denied both the report and market speculation that the company has privately sold debt. Mounting concerns about the transparency of China's better developers is forcing bond holders to question the liquidity of firms whose finances appear sound. More debt would mean more creditors, some of whom could demand early repayment. There is also the risk that hidden liabilities such as trust loans, private bonds or high-yield consumer products receive preferential treatment over money owed to offshore creditors. China Evergrande Group, Kaisa Group Holdings and Shimao Group Holdings have all faced such obligations. Already fragile investor confidence has taken a battering this year, effectively keeping the dollar bond market shut for developers. This has left the sector with limited refinancing options, increasing the risk of companies failing to pay debt on time. Even China's largest developer by sales - Country Garden Holdings - last week struggled to tap the market for fresh funds, reportedly pulling a US$300 million convertible bond issue due to weak demand. Sunac China Holdings' shares sank a record 23 per cent after it sold new equity. Real estate financing received by developers plunged about 19 per cent in December from a year earlier, the sharpest decline in more than seven years, according to Bloomberg calculations based on full-year government figures released on Monday. Home sales by value declined 19.6 per cent in December from a year earlier, a sixth consecutive monthly drop, while property investment shrank 14 per cent. At least seven developers have defaulted on dollar bonds since October. This includes Evergrande, whose crisis has ensnared lender China Minsheng Banking, the world's worst-performing bank stock. Guangzhou R&F Properties was downgraded to restricted default by Fitch Ratings last week due to what the ratings firm called a distressed debt exchange. Chinese property firms need to repay or refinance some US$99 billion of local and offshore bonds this year. Just under half of that is outstanding dollar debt, Bloomberg-compiled data shows. An index of property shares slumped 1.7 per cent on Monday as an interest rate cut by China's central bank did little to assuage investors. Country Garden tumbled more than 8 per cent to an almost five-year low, while Logan shares slid 5.6 per cent. The gauge fell 34 per cent last year, its worst since the global financial crisis in 2008.

Source: Straits Times
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New private home sales catch chill from cooling measures with 58% drop in December

New private home sales in the final month of 2021 were hit by property cooling measures that kicked in in the second half of December on top of the usual year-end seasonal lull. Sales slumped 58 per cent to 650 units last month from 1,547 units in November, according to Urban Redevelopment Authority (URA) data on Monday (Jan 17). The figures exclude executive condominiums (ECs). Year on year, take-up was down 46.6 per cent, from 1,217 units in December 2020. Developers meanwhile launched for sale just 383 new units last month as they waited to see the impact of the latest property curbs. Launches were down 70 per cent from 1,283 units in November, and 71.6 per cent lower than the 1,349 units in December 2020. For the whole of last year, new private home sales totalled 13,118 units, the highest number since the 14,948 units sold in 2013. Ms Christine Sun, senior vice-president of research and analytics at OrangeTee & Tie, said the double whammy of cooling measures and the year-end holiday season weighed on December's sales, although the figures may not yet fully reflect the impact of the measures. Ms Sun said the pullback in sales is expected to be temporary, as, historically, demand starts recovering around six months after cooling measures, as they did after the previous round in July 2018 . Last month, the five best-selling projects were Normanton Park, Mori, Dairy Farm Residence,   The Florence Residences and Leedon Green. Including ECs, new home sales fell 55.4 per cent to 719 units in December, from 1,611 units in November. Compared with a year ago, new sales, including ECs, dropped 43 per cent, from 1,265 units in December 2020. Excluding ECs, the suburbs accounted for 44.9 per cent of total sales, followed by the city fringes at 34.5 per cent and central Singapore at 20.6 per cent. Mr Lam Chern Woon, head of research and consulting at Edmund Tie said the top seller last month was Normanton Park in the suburbs which sold 73 units at a median price of $1,831 psf. "Properties in the suburbs continue to remain attractive, with demand driven by a desire to stay closer to the city and sought-after locations, " said Mr Lam. Huttons Asia senior director of search Lee Sze Teck said developers' sales in December tend to be lower than in November, and only December figures in 2012 and 2020 have exceeded November's. On average, developers sold 594 units, excluding ECs, in the month of December from 2007 to 2020. "In comparison, December 2021's tally of 650 units is within expectations, " he said. Mr Lee noted that there is currently only one development set to launch this month, a freehold strata-landed project Belgravia Ace in Seletar, off Ang Mo Kio Avenue 5. "It's likely to be the largest freehold strata-landed project this year. A strong sell-out for the project will send a positive signal to the market, " said Mr Lee. In December,32 per cent of transactions were priced below $1.5 million,32.5 per cent between $1.5 million and $2 million, and the remaining 35.5 per cent at above $2 million. Singaporeans made up the bulk of buyers, with 83 per cent of units sold, while permanent residents accounted for 12.6 per cent and foreigners 4.2 per cent. According to Huttons, developers sold 69 EC units in December, with just 125 unsold EC units estimated to be left in the market. Knight Frank Singapore head of research Leonard Tay said the cooling measures have "clouded" the private residential market outlook for 2022 after a strong run from the end of the circuit breaker in 2020 right through 2021. He expects buyers to be more tentative with their purchases, thus affecting volumes and prices in the first quarter of this year, although demand may increase from the second quarter onwards. "A lack of inventory will continue to underpin demand, with 17,140 unsold units in the market as at the third quarter of 2021, down from about 24,300 at the end of 2020, " he said.

Source: Straits Times
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China's property crisis reaches biggest builder Country Garden

The crisis engulfing China's property sector is impacting its biggest developer, with Country Garden Holdings' shares and bonds hammered amid fears that a reportedly failed fund-raising effort may be a harbinger of waning confidence. Country Garden is one of the few remaining large, better-quality private developers that had been largely unscathed by the liquidity crunch, even as peers such as Shimao Group Holdings saw dramatic reversals in their credit ratings. The firm is viewed as a bellwether for contagion risk, as unprecedented levels of stress in the offshore credit market threaten to drag good credits down with bad. Since taking the top spot from China Evergrande Group in 2017, Country Garden has remained the nation's largest developer in China by contracted sales. It employs more than 200,000 people. Headquartered in the southern city of Foshan in Guangdong province, the firm - like China Evergrande Group - has focused in recent years on building housing developments in lower-tier cities. It has relied heavily on access to funding in the offshore credit market, like many peers that binged on debt to fuel growth. It has the largest pool of outstanding dollar bonds among China's biggest property firms, excluding defaulters, with some US$11.7 billion (S$15.8 billion) outstanding, Bloomberg-compiled data shows. Founding chairman Yeung Kwok Keung transferred his controlling stake to his daughter Yang Huiyan in 2005. She is now the firm's vice-chairman and is the richest woman in China, according to a Bloomberg Billionaire Index. Some of Country Garden's dollar notes plunged to record lows in the wake of a report that the firm failed to win sufficient investor support for a possible convertible bond deal. Longer-dated bonds were trading as low as 69 US cents on the dollar as at late on Friday. The developer has been relatively resilient in the face of the liquidity crisis sparked by a government crackdown on excessive borrowing by builders and housing market speculation, and was unscathed by the crisis at industry giant Evergrande. While Country Garden is not expected to face imminent repayment pressure - it has $1.1 billion of dollar bonds due this year and had 186 billion yuan of available cash as at June last year - risks may emerge if it is seen to have limited access to funding. Country Garden did not immediately respond to a Bloomberg request for comment on Friday afternoon. Any sign of doubt in the firm's capacity to weather liquidity stress risks may prompt a widespread repricing of other higher-quality developers. With more than 3,000 housing projects located in almost every province in China, Country Garden's financial health has immense economic and social consequences. If the firm starts showing signs of stress, it will severely damage already fragile investor and home buyer confidence, posing threats to China's economy and even social stability. More than 60 per cent of Country Garden's contracted sales in mainland China came from the third- and fourth-tier cities, according to its 2021 interim report. Demand in lower-tier areas may significantly weaken in 2022, according to a forecast by Fitch analysts. Being a "pure developer", it is less flexible when it comes to raising cash by selling assets, according to Bloomberg Intelligence analyst Andrew Chan. Country Garden's strategy is to manage its current assets effectively, in addition to expanding its business, the company said in response to inquiries from Bloomberg News. The firm is "experiencing less volatility than the overall market" amid a broader market downturn, it said. The developer sold bonds and asset-backed securities in the local market in December, reflecting support from both investors and regulators, and maintained its ratings at all three major ratings firms last year, according to the comments. Country Garden holds both investment-grade and high-yield credit ratings from the three major risk assessors, making it a so-called crossover name that could be vulnerable to becoming a "fallen angel". That could, in turn, raise its borrowing costs and eliminate yet another builder from the dwindling pool of higher-rated developers that investors can turn to during the credit squeeze. It has the equivalent of an investment-grade triple B rating at both Moody's Investor Services and Fitch Ratings, and the highest possible speculative-grade rating at S&P Global Ratings. Still, the borrower is likely to "strengthen its financial resilience by controlling debt growth and maintaining disciplined land acquisitions",  S&P analysts wrote in a September report that reaffirmed its rating. The builder may find it difficult to revive sales in 2022 with weakening market sentiment in lower-tier cities, where 77 per cent of its land bank is located, according to Bloomberg Intelligence analyst Kristy Hung.

Source: Straits Times
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HDB resale market likely to remain robust this year

The new year has begun much as the old one ended with Housing Board flats changing hands at sky-high prices. In 2021, a record 259 HDB resale units sold for over $1 million, more than three times the 82 units in 2020, but the blistering pace of big-buck sales has hardly slackened so far this year.

Source: Straits Times
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Xi Jinping reshapes China property market paving way for state dominance

For any government, overhauling a nationwide residential real estate market would be risky under the best of circumstances. Chinese President Xi Jinping is attempting it at a time when the economy is slowing, Omicron is threatening his zero-Covid-19 policy and relations with the outside world are increasingly fraught. As that perilous combination takes a growing toll on Chinese financial markets, one question keeps popping up: What is Mr Xi's endgame? Given the Communist Party's opacity and its history of backtracking on property reforms, the answer is impossible to know for sure. But China watchers have begun sketching out a likely future for the real estate market that looks far different from its more than two-decade run of supercharging economic growth, household wealth and government revenue. In short, the days of blistering home price gains and debt-fuelled building sprees by billionaire property tycoons are set to fade. They will be replaced by a much more staid market where the authorities are quick to clamp down on speculative frenzies and development is dominated by state-run companies earning utility-like returns. "If we call the past decade a golden age for the real estate industry, it is now trapped in the age of rust, " said Beijing-based founding partner Li Kai of bond fund Shengao Investment, which specialises in distressed debt. That transition promises to be especially painful for privately owned developers like China Evergrande Group that have already saddled international stock and credit investors with billions of dollars in losses. At the same time, it could go a long way towards achieving two of Mr Xi's most prized goals: a more stable Chinese financial system and a narrower gap between the country's rich and poor. Mr Xi's challenge is to pull off the transformation without sparking a crisis on the eve of a leadership confab widely expected to cement his rule for life. While few analysts are predicting an imminent financial meltdown, risks from the real estate market are growing. Weaker property companies are under immense stress, hit by a double whammy of punishingly high borrowing costs and slumping sales. Lower-rated developers including Evergrande are already defaulting on dollar debt at record rates and contagion is spreading to stronger companies. Shares and bonds of Country Garden Holdings, China's largest developer by sales, sank on Thursday (Jan 13) following a report it struggled to find demand for a new convertible bond. There are plenty of reasons why China needs to remould its property market. The sector is riddled with speculative buying and is over-leveraged, posing a risk to the financial system in a downturn. The price of housing is a burden on China's already-shrinking families. The average cost of buying an apartment in Shenzhen was about 44 times the average annual salary for local residents in 2020. It worsens inequality as wealthy landlords hoard properties. Millions of homes sit empty and some construction projects damage the environment. The industry has an oversized impact on the economy. When related sectors like construction and property services are included, real estate accounts for more than a quarter of Chinese economic output, by some estimates. More than 70 per cent of urban China's wealth is stored in housing. "The property market is a symptom of the underlying problems in China's economy, " said Mr Craig Botham, chief China economist at Pantheon Macroeconomics. "For decades, it has been the go-to, easy solution to generate local government revenue, boost economic growth, and provide households with a place to put their money and see it grow." The solution, as is increasingly the case in Mr Xi's China, is tighter control by the state. "The government wants to encourage consolidation in the housing sector - larger and often state-owned developers will likely take over the weaker players, " said Mr Gabriel Wildau, a senior vice-president at global business advisory firm Teneo. "They want to break the economy's addiction to property." The Chinese authorities have targeted excess in the property market before, but the importance of the sector to the economy meant such drives petered out when growth targets were threatened. Beijing is seeking to reduce the reliance on property by boosting investment in high-tech and clean energy industries - part of Mr Xi's plans to make growth more sustainable and higher quality. Yet such a process will take time and patience. Officials' determination is being tested. China's property downturn is accelerating, even prompting a warning from the Federal Reserve. In cities nationwide, the decline in new home prices has deepened every month since September, when prices fell for the first time in six years. Home sales continue to sink. Data next week may show that property investment grew just 5.2 per cent last year, economists predict, the slowest since 2015. Chinese developers are resorting to bond swaps, payment delays, equity sales and other desperate measures to repay debt. At least eight of the firms have defaulted on dollar bonds since October. That includes Evergrande, whose crisis has ensnared lender China Minsheng Banking, the world's worst-performing bank stock. An index of property shares fell 34 per cent last year, its worst since the global financial crisis in 2008. The rout in China's high-yield dollar bond market is accelerating, triggered by firms previously considered financially more sound than Evergrande - like Shimao Group Holdings and Sunac China Holdings. More worryingly, it is spreading to higher-grade issuers such as Country Garden. Shares of the developer plunged almost 8 per cent on Thursday, while its dollar bond due in 2025 fell 4.8 cents to 74.4 cents, poised for its largest drop since Nov 1. Whatever form Beijing's campaign to deleverage the property market takes, it is clear that the era which enriched real estate moguls and home owners alike has ended. A duller, more stable future awaits, if the Communist Party can stay the course and dodge a financial crisis. "The golden age of booming property prices and soaring revenue for developers is probably gone, " said Mr Gary Ng, senior economist at Natixis. "Home prices will only grow at a tightly managed zone in the future, meaning housing will look increasingly like utilities."

Source: Straits Times
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