Sep 01, 2010 05:33 PM

Property Developers Face Mounting Capital Pressures

Barring sluggish property sales in September and October, property developers could still face a serious strain in finances when 40 percent of China's real estate loans come to term at the end of the year, according to a source from a large state-owned bank.

According to the state-owned bank source, in response to recent market adjustments, banks have increased the rate of property development loans to companies with better credit, and expanded loan services in western cities and smaller-sized cities. Financing costs for developers have generally increased 20 percent to 30 percent. At the same time, debt ratios of listing companies currently stand at 60 percent to 70 percent.

The combination of slowing sales, rising interest rates and tighter regulations on property development loans have all put more pressure on the fiscal situation of developers. The source said that up to 60 percent of property development financing still comes from bank loans. However, new loan issuance has started to decline in the second quarter, dropping to 43 percent from the fourth quarter last year.

Trust is growing in major financing channels for developers, now at an estimated value of 80 billion for the first of half this year.

Since the beginning of 2010, the Chinese government's real estate control measures have loosened to encourage a stable wind-down in the property market. The policies focus on curbing price growth, increasing housing supply and speeding up the construction of government-subsidized housing.

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