Chinese luxury home prices continue to decline, reaching nearly 50%; Aoyuan project faces cash crunch?

多豪宅项目价格松动 楼市隐现新一轮打折降价潮 (Luxury home prices slacken, a glimpse at the next wave in price cuts)

Aoyuan is in talks to sell a 51% stake in its Chang An development in Beijing.
The board of directors (the “Directors”) of China Aoyuan Property Group Limited (the “Company”, together with its subsidiaries, the “Group”) wishes to state that the Company has been approached by and is in the process of negotiations with a third party independent of the Company and its connected persons (as defined under the Listing Rules) in relation to a possible disposal of the Company’s entire interest in a project company, representing 51% of the entire equity interest in a property development project of Chang’an Ave in Beijing, the PRC. The possible disposal would result in a notifiable transaction. However, such negotiations are still in progress and no formal agreements have been concluded in the meantime. Further announcement will be made in compliance with the Listing Rules as and when appropriate.
The linked Chinese article above speculates that the sale is due to Aoyuan's (3883.HK) debt levels and the firm's cash needs. The firm denies this is the reason, but the article states that Aoyuan's cash fell 60% from 2010 to 2011, while short-term debt increased 48%. Thus, at the end of 2011, Aoyuan had ¥877 million cash on hand and ¥2,616 million in short-term bank loans. Aoyuan's current ratio fell from 2.0 in 2010 to 1.5 at the end of last year.

Aoyuan's Chang An property only sold ¥1 billion of property since 2010 and no second round of sales has been announced. Against this sales total are bank loans, stock loans, unpaid salaries and unpaid suppliers amounting to ¥3 billion.

Luxury home prices are falling generally, with some declines reaching almost 50%. For example, in Shanghai's Lujiazui district, a new Sun Hung Kai (0016.HK) property hit the market at ¥160,000/sqm , well below expectations of ¥300,000/sqm and below neighboring properties that sell for ¥170,000/sqm. Other luxury properties in the city are down 20-30% in price.

Centaline says that the 37 listed property firms sported debt-to-equity ratios of 72.3% at the end of 2011. Previously, firms used the rising property market to bring down debt levels, but now they've hit a wall as the property market declines and transaction volume falls. WIND's 48 listed firm average shows that these firms had negative cash flow in 2011, to tune of ¥1.25 billion. The net cash position of these 48 firms also declined by ¥4.26 billion last year. These numbers are all headed in the wrong direction as year-on-year sales numbers show 2012 is shaping up worse than 2011.

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