Government think tank met property developers amid cash crunch, research warns possible hard landing in real estate sector

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The Development Research Center, a think tank under the State Council, China’s cabinet, held a meeting with mainland property developers and financial institutions in Shenzhen amid market concerns over a deepening cash crunch in the real estate sector.

Representatives from leading developers such as China Vanke and Kaisa Group, real estate industry associations, as well as financial institutions including Ping An Bank, China Citic Bank, China Construction Bank and CR Trust attended the meeting on Monday, reported Chinese news outlet The Paper and Reuters.

At the meeting, embattled Kaisa Group urged state companies to help private firms improve their liquidity through project acquisitions and strategic buyouts, The Paper added. Other issues about the state of the real estate sector, the risks and views on the upcoming property tax were also discussed, it reported.

Kaisa admitted that its home sales in the past two months tumbled and that, combined with credit rating downgrading by several rating agencies and banks suspending or withdrawing loans, has brought huge difficulties, it said.

Kaisa has been selling assets to raise capital for liabilities including a missed payment on a wealth product and $11 billion of bonds. Trading of its shares were halted in Hong Kong on Friday.

Fitch Ratings cut Kaisa’s rating further to CCC- from CCC+ on Tuesday, two weeks after it was downgraded by two notches from B+. “It reflects our view that Kaisa’s liquidity has further deteriorated. We believe Kaisa’s credit risk is high due to tight liquidity, undisclosed debt from wealth-management products, potential pressure to address non-capital market debt, declining contracted sales and limited progress on asset disposals,” Fitch said in a statement.

The developer has put 18 property projects with 1.45 million square metres (15.6 million square feet) in Shenzhen on the auction block, with a combined value estimated at 81.82 billion yuan ($12.8 billion), according to a catalogue seen by Yuan Talks.

In a statement on Monday, Kaisa said it was taking measures to resolve its issues, and was consulting with investors in its wealth management products about feasible payment solutions. Kaisa also cancelled an investor representative meeting originally scheduled for Wednesday because of public safety concerns surrounding the coronavirus outbreak situation.

China’s highly leveraged real estate industry is facing a sector-wide liquidity crunch, after the authority introduced restrictions on developers’ borrowing and banks’ lending to the sector.

China’s real estate sector has faced unprecedented pressure since the second half of the year and signs of a hard landing are emerging, according to a research from China Finance 40 forum (CF40), a economic and finance think tank with members from regulators, academia and financial institutions.

To prevent a real estate hard landing, the most important is to prevent liquidity crisis at property developers, it said.

The authority should relax restrictions on banks’ quota of home mortgage loans, provide credit support to developers for them to renew maturing debt, providing rescue loans to developers with sound fundamentals but facing temporary liquidity difficulties, it said.

Meanwhile, the authority needs to accelerate the growth of total social financing, prevent the spillover effects of the liquidity issue in the real estate sector on other sectors and postpone other policies that could have major negative impact on the sector, it said.

On Tuesday, the National Association of Financial Market Institutional Investors held a meeting with representatives of some property developers, according to Chinese news outlet Cailianshe.

Several developers including Country Garden have plans to issue debt instruments in the interbank market recently to ease the ongoing cash crunch, said the report, citing people who attended the meeting.