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Chinese developers face default risks this year

By Zheng Lifei (chinadaily.com.cn)
Updated: 2009-03-03 15:40

Some of China's biggest real estate developers could be at risk of defaulting this year amid a continuing drop in sale prices, Standard & Poor's said on Tuesday.

Related readings:  Authorities work on low-income housing plan  Beijing further reins in real estate  Vanke dangles goodies to lure new home buyers  Plan to stimulate property sector submitted to State Council

Property developers are expected to post disappointing results for their 2008 business year and 2009 could be even worse, the rating agency said in a report.

The outlook for the China's real estate sector remains gloomy for the remainder of 2009 given the extremely challenging global economic conditions and a large buildup of inventory last year, it added.

As the real estate market remains volatile in 2009, it will likely see more defaults among developers as many players have tight liquidity, said Fu Bei, credit analyst at Standard & Poor's.

"After a cash-burning 2008, and a good amount of financing coming due in the next 12 months, many companies lack the resources to hold on and consolidation will undoubtedly accelerate," Fu said in the report.

The biggest players are likely to weather the storm because they will have greater access to funding, as the government has introduced a series of measures aimed at stabilizing the real estate market.

However, smaller peers may struggle for cash unless the operating environment significantly improves soon, the rating agency said.

It gave eight rated Chinese developers, among a total of 13, negative ratings, which included China Properties Group Ltd and Hopson Development Holdings Ltd.

In a report titled "Chinese Real Estate Outlook: Another Stormy Year For Residential Developers, But The Clouds May Break", Standard & Poor's said the longer term outlook for the Chinese property market is still positive, given the industry's strong fundamentals.