Ratings agency S&P warns of risks from aggressive land banking by Chinese developers
- Mainland developers have been building up their land banks in line with the revival in the property market
- S&P warned of ‘elevating refinancing risks’ as bond repayments among developers come due
The rush by Chinese real estate developers to rebuild their land banks during the recent property revival could expose those with weaker capital positions to problems as bond repayments come due, S&P Global Ratings said in a research note on Wednesday.
The rating agency said it was most concerned about real estate companies with thin land reserves, as these groups have been active in building up reserves in step with the rising market since March.
“Given the strength of the market, developers will be tempted or even pushed to rebuild their land banks,” said S&P credit analyst Matthew Chow. “However, in a climate of snowballing maturities -amplified by prolific use of alternative financing – this could stretch groups’ liquidity, elevating refinancing risks.”
The upturn in the property market has been helped by relaxed price regulations and easing mortgage policies in second-tier cities.
April data showed that the average land-auction premium – the percentage paid over the opening price – rose to 28 per cent, up from 7 per cent in December, according to the China Index Academy, which monitors 300 mainland cities.
“We believe the situation may push developers to snap up land, eroding hard-won financial buffers built in the slower second half of 2018,” Chow said.
