Business & Investment

In small cities in China, homebuyers are suffering because debt-stricken developers can’t complete their projects By Reuters

© Reuters.People walk in the apartment complex Taoyuan Xindu Kongquecheng, developed by China Fortuneland Development in Tak.


By Lusha Zhang and Ryan Woo

Zhuozhou, China (Reuters)-In Zhuozhou, a small city in northern China, Zhu pays a mortgage in an apartment because developers haven’t built a promised railroad line that allows residents to commute to Beijing for work. Stopped.

The accountant is one of about 1,000 homeowners in a housing project that stopped paying in anger last year, as Zhu and two other buyers who spoke to Reuters campaigned for compensation.

“Why do I have to endure all the consequences when I didn’t do anything wrong?” Zhu said.

In the picturesque Dali city of the southwest, Lee, the owner of a small business, is still waiting to move to an apartment that was scheduled to be handed over more than two years ago.

“Developers have postponed delivery four times since the end of 2018. We have completely lost trust in them,” said Lee, who is currently pushing his family into a small rental apartment with his parents.

Lee and another purchaser of the project said the developers said they couldn’t hand over the keys to the apartment because they didn’t have the money to pay the contractor.

The Dali Project developer, Dali Kaito Development Investment Group, did not respond to requests for comment. China Fortune Land Development, the developer of a Shanghai-listed Tak project and headlined for about $ 5.7 billion in default, also declined to comment.

The plight of Zhu and Lee, who were afraid of harassment and asked them to use only their names, underscores the growing debt problems of developers operating in small cities. Many of them were obsessed with unlimited borrowing in the glowing markets of 2016-2018, but now they are working on too much debt, sharp demand weaknesses and tighter regulation. I’m out.

Analysts say the problem is primarily confined to small cities, and constant demand in large cities will keep large listed developers doing business, but increased sector defaults and fallout. I am concerned that things may affect lenders and local governments.

Song Hong Wei, senior analyst at Shanghai-based real estate consultancy Tosper, said, “This year we are marketing developers with high debt ratios and businesses concentrated in small cities. Needs to be closely monitored. “

So much debt

Bond defaults by real estate developers quadrupled last year to 26.6 billion yuan ($ 4.1 billion), according to national agency data, and as of mid-March this year, China Fortuneland-led developers were already 8.7 billion yuan. Was defaulting on the bonds. Of Finance & Development.

Data show that developer onshore and offshore bonds due this year surged 42% to a record high of 900 billion yuan ($ 138 billion).

Chinese developers are bigger this year by setting new caps on debt-to-cash, debt-to-asset, and debt-to-capital ratios set by regulators enthusiastic about limiting lending to the sector. Under pressure. Trust funds and other parts of the country’s shadow banking industry.

Analysts are concerned about the potential systemic risk that defaults can pose, but add that it is difficult to assess the magnitude of that risk.

“Some real estate companies with high leverage and low turnover are putting relatively much pressure on short-term debt repayments,” said an economist at the Beijing-based Zhixin Investment Research Institute.

“A tight financial environment can lead to a cash crisis, and defaults can cross between the wealthy of developers, trusts and third parties,” they added.

According to other analysts, local governments often rely on the sale of land to raise money, and developers are curbing spending, so long-term downtrends in new projects also pay debt. It will affect your ability.

At the national level, home prices are still on the rise, with 70 metropolitan figures rising 4.9% on average last year, according to Reuters calculations from government data.

However, according to data from the Chinese Academy of Social Sciences, prices in 19 cities, mostly small cities, plummeted by double digits from their peaks in 2017 and 2018. About 7.8% of China’s population lives in 19 cities.

According to Chinese real estate research firm CRIC, in many small cities with persistent population outflows and weak economic outlooks, housing inventory levels represent sales of more than 40 months.

Due to issues with unfinished projects, at least three local governments (Yantai City, Shandong Province, Honghe Autonomous Prefecture, and Qujing City, Yunnan Province) are now scheduling project completions and strengthening oversight of new projects. It was.

However, some buyers find that official means are almost unreliable.

Zhu, who still lives and works in Beijing, wants China Fortuneland to come to the negotiating table after she and other buyers engage in futile petition and protest rounds due to the lack of mortgage payments. I’m out.

“I came from the countryside and worked hard to get my house in the city, but now I’m back in the countryside and there’s no apartment anywhere,” she said.

($ 1 = 6.5070)

In small cities in China, homebuyers are suffering because debt-stricken developers can’t complete their projects By Reuters In small cities in China, homebuyers are suffering because debt-stricken developers can’t complete their projects By Reuters

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