Looking back on last year, Chinese developers will be celebrating a dramatic change of fortune. Because of various homebuying curbs, many began the year struggling financially. Then policymakers started to stimulate the market, leading home prices in major cities to surge over 40%. The outcome: more than 130 property firms pocketed Rmb10 billion ($1.44 billion) or more in sales revenues (by comparison, only 104 firms were in the Rmb10 billion club in 2015).
The leading trio of real estate players each sold more than Rmb300 billion of residential properties over the year. And there was a new top dog – China Evergrande, which overtook Vanke for the first time to become the largest home provider. The Guangzhou-based company saw its contracted sales income nearly double to Rmb380 billion.
The pivotal moment for the sector actually arrived in November 2015, when Chinese President Xi Jinping chaired the Party’s Leading Group for Financial and Economic Affairs. “Destocking the property market” was enshrined as one of the key tasks for 2016, reported the state broadcaster CCTV after the policy-setting summit ended (see WiC304). “Destocking” – i.e. helping developers to offload their unsold inventories – became a buzzword. Homebuying restrictions were lifted and residential sales boomed.
So what were the signals emanating from the same meeting of the Leading Group for Financial and Economic Affairs at the end of 2016? As regular WiC readers will be aware, regulators have long used housing policy as a tool to guide the economy. And this time around, Xi and his colleagues seemed to be switching to tightening mode.
After the high-powered gathering (held last month), Xi said the government should deflate property bubbles in 2017 and encourage the market to provide rental housing that meets public demand.
“The country should accurately understand the residential feature of housing and form a housing mechanism that serves both purchase and rental purposes and meets housing demands of a new urban population,” he declared in a typically turgid post-meeting statement.
That looks likely to include an array of financial and fiscal measures, including land supply and sales taxes, Xinhua added.
Even before Xi spoke of cooling the market, local governments had been acting to contain runaway prices. For instance, major cities like Shenzhen have been demanding higher downpayments since October – just eight months after the central bank had loosened the rules.
“The property market is set to return to the old path of lending curbs and homebuying curbs in 2017,” Caixin Weekly reported, adding that prices will be hampered this year, especially in the second-tier cities which registered some of the most spectacular real estate gains (notably Xiamen, Nanjing and Hefei).
Sometimes a major IPO or merger signals a bull market’s big finale. Ergo, perhaps, the new strategy of China’s leading residential developer, Hong Kong-listed China Evergrande, which now wants to spin off its property unit in Shenzhen via a backdoor listing.
The plan moved a major step forward this week when Evergrande said it would sell 13% of the enlarged capital in the property unit to eight investors for Rmb30 billion. This pre-IPO investment values the vehicle at Rmb230 billion.
That compares with Vanke’s Rmb220 billion market valuation (as of Tuesday) and, more intriguingly, translates to nearly four times as much as China Evergrande’s current market value in Hong Kong.
Evergrande’s return to the A-share market promises to become the biggest real estate offering China has seen. Its chairman Xu Jiayin may also be hoping to raise as much cash as possible in preparation for what promises to be a tougher 2017.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.