Improving credit landscape driving Chinese developers: CBRE

Improving credit landscape driving Chinese developers: CBRE
Improving credit landscape driving Chinese developers: CBRE

Chinese developers are now in a better place to repay existing debt due to improved access to credit, robust housing sales in upper tier cities and increased 'destocking' in lower tier cities, according to a new report from CBRE.

The report, China Real Estate Debt: An Assessment of Credit Risk in the Chinese Property Market also stated smaller developers remain challenged.

Dr Henry Chin, head of research for CBRE Asia Pacific said developers are positive on the longer-term prospects of China’s real estate sector in upper tier cities despite the cloud of rising debt levels.

"Supported by the introduction of more transparent financing channels, improving bank lending underwriting critieria and a revival of the national housing market in upper tier cities, much of the systematic risk in the real estate sector has been mitgated,” said 

Canon Yau, senior director, Capital Advisors, CBRE Asia Pacific said despite the availability of alternative domestic financing channels in China, developers should be prepared for the possibility of future policy changes as well as an interest rate reversion that may subsequently impact their cost of capital and debt maturity exposure.

“For small and medium-sized developers, we advise a longer-term view on refinancing plans by exploring strategic partnerships or forming joint ventures with investors to reduce concentration risk.

"As the government seeks to create more transparent financing channels, the introduction of asset backed securitization markets will provide opportunities for property companies to expedite the repatriation of funds," he said.

“For small and medium-sized developers, we advise a longer-term view on refinancing plans by exploring strategic partnerships or forming joint ventures with investors to reduce concentration risk.

"As the government seeks to create more transparent financing channels, the introduction of asset backed securitisation markets will provide opportunities for property companies to expedite the repatriation of funds."

CBRE’s report reveals that, despite favorable funding conditions, potential risk factors still remain in China’s real estate debt market which include the developers’ ability to repay debt, sustainability of residential sales, postponing rather than resolving debt and over-leveraging among regional developers.

Tags: 
Finance China

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