Chinese Property Developers Target Slower Sales Growth for 2021
China’s property developers face much slower sales growth amid stricter borrowing limits. Many real estate companies set goals of 10%–20% for sales growth goal this year, compared with an average goal of 41% three years ago.
Country Garden Holding Co. Ltd., one of China’s largest developers, said it aims to keep a 10% annual sales growth target for the next three years, compared 25% the past five years. China Evergrande Group set its 2021 sales target at 750 billion yuan ($114 billion), just 3.7% higher than last year’s sales.
Most of the top 20 developers project sales growth of less than 20% in 2021. Seazen Holdings Co. (601155.SH) set the lowest goal at 3.6%. China Resources Land Ltd. is targeting 10.5%, and Sunac China Holdings Ltd., 11.3%.
China’s real estate sector has peaked and is expected to experience small declines in the future, industry insiders estimated. China Evergrande President and CEO Xia Haijun says he expects total annual sales of the industry to be about 15 trillion yuan over the next few years, down from 17.36 trillion yuan in 2020.
Tightened credit has restricted developers’ growth as the highly leveraged industry normally relies on debt to buy land and start new projects before they sell houses.
A government “three red lines” policy sets caps on the amounts developers can borrow in relation to their cash on hand, the value of their assets and as a proportion of equity in their businesses. In August, the 12 top developers were selected to test the “three red lines” directive before a potential rollout to all builders.
The ability of these developers to borrow more money will be subject to a liabilities-to-assets ratio (excluding presales) of no more than 70%, a net debt-to-equity ratio of less than 100%, and cash holdings at least equal to short-term debt. Companies that cross all three red lines will be banned from taking on more debt.
In December, China’s central bank and top banking regulator issued a new bank loan management mechanism to cap banks’ lending to the real estate sector as part of efforts to prevent systemic risks.
For China’s big four state-owned banks, along with China Development Bank, Bank of Communications and Postal Savings Bank of China, the ratio of outstanding property loans to total loans is capped at 40%, and outstanding mortgages as a proportion of total loans are limited to 32.5%. Smaller banks face stricter limits.
Meanwhile, cities have also tightened land sales for real estate development. Since March, 22 major cities have implemented new policies to limit housing land sales to three times a year.
China Vanke, the country’s second-largest developer by sales, said survival is a real issue now for the company and the industry as a whole. Vanke Chairman Yu Liang said the property industry is becoming more and more like the manufacturing sector, meaning it can no longer make money through leverage.
Contact reporter Denise Jia (email@example.com) and editor Bob Simison (firstname.lastname@example.org)
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