(PS: Might be a good time to make use of this opportunity to increase cash holdings.....At this point of time, my guess is that maybe a few months down the road(hopefully it lasts that long), we will hit the lows again. The impact of the flooding in Thailand on the supply chain might further weaken the global economy.)
http://www.connect.facebook.com/photo.ph...e=1&ref=nf
From The Business Times
Published October 27, 2011
China developers struggling for cash: Hang Lung
Situation is so bad that some smaller companies may go bust, says its chief
(HONG KONG) Hang Lung Properties chairman Ronnie Chan said some big developers in China are struggling to get funds and smaller ones may go out of business, spurring opportunities for financially stronger companies.
'When the bear market comes and nobody has money to buy, then those with cash would prosper. That's why the longer and the more severe the bear market is, the better it is for us.'
- Ronnie Chan
Hang Lung, with HK$27 billion (S$4.4 billion) of cash, is investing as much as HK$50 billion in mall projects in Chinese cities and is 'warming up' to more developments, Mr Chan said on Tuesday at a Bloomberg conference in Hong Kong.
'Lots of companies are in far worse shape than people think,' Mr Chan said. 'Even the big guys may not have enough money because they have borrowed a lot. The situation is such that the smaller players will go out of business.'
Chinese developers are facing an 'increasingly severe' credit outlook that may force them to cut prices and borrow on higher interest rates, Standard & Poor's said in a Sept 27 report. The government increased down-payment requirements and mortgage rates on some homes this year and issued housing purchase restrictions in about 40 cities.
China's home prices gained in fewer than half of the 70 cities monitored by the government in September for a second month as sales eased with the curbs. Chongqing, one of the only two cities the government imposed property taxes in this year, posted the steepest decline in home prices last month as prices dropped 0.4 per cent from August.
Shares of Hang Lung, the city's third-biggest developer by market value, has declined 27 per cent this year compared with a 22 per cent decline in the Hang Seng Property Index, which tracks seven of the biggest developers in the city including Hang Lung.
Some of the smaller developers that can't raise funds to complete their projects are either selling their land or unfinished projects to larger property companies, according Jing Ulrich, Hong Kong-based chairman of global markets for China at JPMorgan Chase & Co.
'The situation in the property market now is lukewarm,' she said at the Bloomberg conference. 'We're seeing a lot of consolidation taking place. In two to three years' time, we'll see the sector being much more concentrated.'
Hang Lung is 'financially capable' of doubling its investment in China, Mr Chan said in August. It opened a 3.5 billion yuan (S$695 million) shopping mall that month in the eastern Chinese city of Jinan, its fourth outside of Hong Kong.
The developer last month bought two sites in Kunming in south-west China for 3.5 billion yuan, its first land purchases in the country since May 2009. Mr Chan said on Tuesday the properties attracted six developers in June, and had only two bidders by September.
'It's amazing the market in China has been going on for 20 years yet there's still not a major developer going into bankruptcy - this is unheard of anywhere in the world,' he said. 'When the bear market comes and nobody has money to buy, then those with cash would prosper. That's why the longer and the more severe the bear market is, the better it is for us.'
The developer is expanding in China as the number of millionaire households increases, jumping 31 per cent to 1.11 million in 2010 from a year earlier, according to a Boston Consulting Group survey. Demand for retail space helped drive a 42 per cent surge in commercial real estate investments in the country last year, according to Cushman & Wakefield Inc.
Chinese consumers will be the world's largest luxury spenders by next year, according to an HSBC Holdings report in August. The nation's retail sales climbed 18 per cent in September from a year earlier and rose 17 per cent in the first nine months, the statistic bureau said.
Hang Lung's rental income from China will 'almost certainly' overtake that of Hong Kong next year, Mr Chan said in August. The company is targeting Chinese cities with per capita income of about 40,000 yuan for future projects, he said.
Hang Lung hasn't bought any land in Hong Kong in at least 10 years. Home prices and transactions in the city have been falling as equities drop, mortgage rates rise and the government boosts land supply to quell a surge in apartment values.
The government has sold four sites since August for less than analysts estimated, and prices may decline 10 per cent over 12 months on higher mortgage rates, Colliers International executive director Simon Lo said this month.
The government has in the past year raised minimum down-payment requirements and increased land supply after home prices surged more than 70 per cent since early 2009.
Mr Chan said on Tuesday that Hong Kong is finally 'getting it right' with recent land sales, and he expects Chinese buyers to focus on the city's high-end properties.
'Mainland money coming to the Hong Kong property market is an irreversible trend,' he said. 'The only solution is to adopt an appropriate land supply policy.' - Bloomberg
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