China property: once-mighty developers strain for lifelines of state support after end of sector’s ‘golden age’
- State-owned companies will dominate as ‘the golden age of fast leverage and fast growth’ is over, analyst says
- Even the developers that avoid default will find the coming years brutal, another expert says
Zeng Baobao, founder of distressed Chinese developer Fantasia Holdings, made a special wish on the last day of 2023: that the company she started in 1996, now beset by debt problems, would find itself on a rumoured “white list” of developers that will be able to get financial support with the blessings of Chinese authorities.
While the list has yet to surface, its supposed existence gives companies such as Fantasia a glimmer of hope that they may be able to escape from a crushing liquidity crisis.
However, analysts warn that even the developers that make the list will find the coming years brutal. The landscape of the home-building business in China has been forever altered by the years-long liquidity crisis and a prolonged sales slump, analysts said. Now companies with partial or full state ownership are set to hold sway as Beijing exercises a firmer hand.
Chinese developers have muddled through the past three years under financial distress, triggering debt defaults of more than US$100 billion. The crisis kicked off after China’s “three red lines” measures cut access to bank and bond-market funding in August 2020, just as the Covid-19 pandemic cratered sales.
“Developers, especially private ones, will still face challenges of survival in the coming five to 10 years,” said Raymond Cheng, managing director at CGS-CIMB Securities, using the word “private” to refer to companies that are not state-owned, even though they are in most cases publicly traded. “The first concern for them is how to survive, rather than how to develop, under pressure of repaying debts and sluggish sales.”
