DECEMBER 2011 |
www.opp.org.uk
NEWS By Xxxxxxx
volume now. You want cash fl ow rather than margin,” says Stephanie Lau, China property analyst at Mirae Asset Financial Group. Margins are in decline and 50% of
the property companies listed in both mainland China and Hong Kong are now reporting turnover down according to data from Thomson Reuters’ StarMine. 115 of the 261 companies reported
Cash strapped | Developers in China are being forced to slash home prices
Leading Chinese property analysts are worried that a steep decline in home prices and sales volumes is starting to put pressure on the liquidity and profi t margins of the country’s residential property developers. Many of China’s smaller development
companies could be forced into administration as the marketplace forces them to slash prices by up to a third and
provide expensive sales incentives, as OPP has been reporting for several months now. The pressure is compounded by a far-
tighter credit market, with many banks being forced by the central Chinese government to rein back the amount they lend. This is hurting the cashfl ow of many developers. “The game plan is to secure
are seeing their profi ts in decline. ANZ’s credit-trading team said
recently that it is worried about one or two leading Chinese developers being forced to default on their bonds, which would spread panic into the rest of the market. And Greentown China Holdings has
the worst credit rating among Chinese developers, according to data from StarMine, with a score of just one out of 100. SRE Group scored fi ve, while Evergrande Real Estate and Coastal
Shanghai
FINANCE| 13 Cashfl ow crisis hits Chinese developers
Greenland both have a score of six, well below the sector’s average StarMine rating of 48. Greentown China, SRE and Industrial Urban
Development Group also have poor credit ratings from ratings agency Standard & Poor’s. The companies, however, have
been reported as saying that they do not face any immediate risk of failure despite difficult market conditions. The news comes as average home
price in China’s 100 key cities fell 0.23% in October versus September. According to the latest data from
Thomson Reuters’ Datastream, the average sales price index of the residential market in China has gradually fallen since February last year and today stands at 100, just 5 points shy of its all-time low of 95 hit in early 2009.
Italy taxed HK slump sees commission soar
Italy’s new Prime Minister Mario Monti, who was sworn into offi ce last month, is considering the re-introduction of the country’s main property tax - known as ICI - which ex-premier Silvio Berlusconi abolished in 2008. Berlusconi’s change was thought to have cost Italy as much as €3.5 billion per annum in lost revenue, former Economy Minister Giulio Tremonti told European Union authorities in a letter sent just before he left offi ce. And because the majority of Italian
wealth is invested “in homes, properties, offi ces, and other forms of real estate, it’s a little frozen”, Giovannini said. “How do you get this wealth to produce income and growth? The fi rst hypothesis is a property tax, not a one-off tax, but a permanent one.” While some of the parties supporting Monti’s government in parliament have backed re-introducing a property tax, Berlusconi’s People of Freedom bloc has opposed it. Italy’s economy will grow by only 0.1% next year says a new EU forecast, a rate of increase considerably below the previous government’s 0.6% forecast.
Commission rates and sales incentives have hit an “historic high” for overseas property deals in Hong Kong as developers struggle to cope with a slump in demand, tighter lending rules and an over-supply of new units. Local analysts have reported that
the commission rates being offered in Hong Kong are starting to reach “historic highs” with developers like Wing Tai Properties reported to be offering payments percentages of up to 4.5% for two-bedroom fl ats and 4% for one-bedroom fl ats at The Warren in Tai Hang. The project has 103 fl ats, ranging in
size from 550 to 830 square feet and so far Wing Tai has released 68 fl ats priced at HK$8.85 million. So far, 40 of the 68 units have been
sold at the project, which will complete in April 2014. And elsewhere in the city, Kowloon Development has also raised its commission payments for agents to 4% from 3.5% because, as Eddie Hui Chi-man, deputy director of the Research Centre for Construction and Real Estate Economics at Hong Kong Polytechnic University, said this month, developers
are struggling with “a sudden increase in the supply of new fl ats.” And because “agencies and agents are their main channel to sell fl ats, offering them higher commissions shows that, as developers, they are eager to sell more fl ats,” he added. “It would not be surprising to see higher commissions offered.” Normally, agencies in Hong Kong earn
about 2% commission. But things started to change in June when the Hong Kong Monetary Authority started to impose new guidelines for mortgage lenders, forcing them to reduce their loan-to- value ratios. This is when developers began offering 2.5% say local experts. Chinachem has even been reported in the Hong Kong press as offering a 5%
commission rate on units at Billionaire Royale in Kowloon City. The project has eight apartments ranging in size from 2,019 to 2,792 square feet at a price of HK$30,000 per square foot. Approximtely 3,400 new apartments have been launched on the Hong Kong market since September 1 2011 and another 2,852 new units are expected to go on sale before the end of the year. Agents in the city are also complaining that too many wealthy buyers from mainland China are starting to demand commission rate rebates, some asking for as much as 90% of the commission back. “Sometimes, when developers are
Cashing in | 5% rates are possible
desperate, they may have disclosed the commission percentage to buyers. But that is very rare, because the relationship between developers and agencies is often long-term and close,” one anonymous agent told the local press. “It is not something either side wants to ruin. If not the developers, it could be disclosed by some very aggressive agents, who’d rather give up the commission to secure a transaction.” On many occasions, a rebate means an agent may be left with only 50% of the commission.
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