MNI: China Seen Easing Restrictions As Developers Delist

More Chinese real-estate developers are at risk from delisting as their share prices slide, driving calls for policymakers to lift property market restrictions and stimulate housing activity, policy advisors and industry officials told MNI.

Chen Sheng, head of China Real Estate Data Academy, said the sector faces a wave of consolidation and failure by the more heavily-indebted of the country’s over-90,000 developers over the next two years, with around 10 more companies likely to soon delist as their shares trade below the CNY1 limit.

According to real-estate website Zhuge.com, dozens of developers assigned the "Special Treatment" label signifying financial distress or risk of regulatory action are in danger of being delisted from the A-share market. Regulators class a company as expired if its stock closes below CNY1 a share or its capitalisation remains below CNY300 million for 20 consecutive trading days.

ST labels have spooked investors and buyers already worried about the outlook for the sector and their salaries, feeding concerns about whether houses already purchased will ever be constructed, Chen said. The weak property market is also sapping local government revenues from land sales, he added.

HEAVY DEBT BURDENS

Some developers have fallen from great heights as they struggle to refinance. Recently-delisted Sichuan Languang Development Co – the largest in the southwest Sichuan Province – recorded total sales of CNY102 billion in 2019, but by May 15 had defaulted on CNY42.6 billion of bank and trust loans and bonds.

With property sector performance key to economic recovery, and a major source of revenue for highly-indebted local governments, calls are rising for further stimulus.

Yan Yuejin, director at E-house China Research and Development Institution, warned that authorities should act with the housing market set to struggle for at least 12 months.

Financial data provider Wind’s property-sector index has slumped to 2,480 from its 4,282 July 2020 peak, with developers reporting defaults suffering 60% stock price declines.

President Xi Jinping’s 2016 “house is for living in, not for speculation” principal prompted controls aimed at curbing market excesses, particularly aimed at purchases of more than two homes.

Authorities are already considering measures including reductions in down-payment ratios and mortgage rates, facilitating mortgage applications, and making trade procedures optional, Chen said. Government-subsidised housing in China’s “dual-track house system” should also shore up demand while megacities should consider lower bars and mortgage support for large families and new employees, he said.

Although companies violating the “three red lines” guidelines introduced in August 2020 to restrict excessive borrowing will be allowed to collapse, particularly those without state backing, authorities will ensure building projects are delivered and contain systemic risk, Chen said. Authorities are also likely to postpone further regulation, such as the long-awaited property tax, amid increasing economic headwinds, he predicted. (See MNI: Slowing Economy, Credit Fears Weigh On China Bank Stocks).

Robin Xing, chief China economist at Morgan Stanley, agreed measures to support property are imminent, with more tier-one and tier-two cities easing strict restrictions on house buying. Zhu He, senior fellow at China Finance 40 Forum, said a clear signal from the central government flagging support for the sector will be the best way to stimulate a market rather than depending on local governments' relax the restriction.