2014-08-07

Developers Play Chicken

Developers are keeping properties off the market in the hopes that prices will rise, but well funded developers are going to cut prices in September and grab as much of the depressed market as possible. On the off chance many developers decide to hold even longer, the pain will show up in much slower than expected real estate investment.

China Home Glut May Worsen as Developers Avoid Price Drop
In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says. The number of homes added to the market in July in 21 major cities dropped 25 percent from June, according to Centaline Group, parent of China’s biggest real-estate brokerage.

“The completed apartments will be in the marketplace sooner or later, and potential buyers will continue to expect prices to fall,” said Hua Changchun, China economist at Nomura Holdings Inc. in Hong Kong. “The property-market weakness hasn’t changed, despite the policy adjustments.”

......The delays mean lower cash-flow for developers. Smaller ones face “massive” debt-repayment pressures, as cash and equivalents at 137 mainland China-listed real estate companies, excluding four of the largest, were sufficient to cover just 74 percent of their short-term liabilities in the first quarter, according to Shenzhen World Union. That’s less than half the average ratio of the other four, including China Vanke Co. (2202)

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