Amid a cluster of half-built brick townhouses surrounded by peach groves on the outskirts of Fenghua city, workers could be seen taking down metal scaffolding and hauling away steel plates last month. They had heard that Zhejiang Xingrun Real Estate, the company building the housing development called Peach Blossom Palace, was insolvent. “The developer owed us hundreds of thousands of yuan” for scaffolding and steel, said workers Xie and Wang, who would only give their surnames. “We are taking these materials back for now because there’s no work here.”
The collapse of Zhejiang Xingrun may signal the start of a shakeout among the nation’s almost 90,000 real estate companies. After China began allowing private homeownership in 1998, homebuilders binged on easy credit from banks and other lenders. Now many developers are struggling with debt as thousands of apartment buildings across the country sit empty and the government makes it harder to borrow. CBRE Global Investors says there are about 30,000 developers after small construction companies and those formed for only one project are eliminated. “That is far too many, even for a country as large as China,” says Richard van den Berg, country manager for China at CBRE. “Consolidation needs to take place.”
Home prices in China have climbed 60 percent since 2008, when the government began a 4 trillion yuan ($645 billion) stimulus program to counter the effects of the global financial crisis. Former Premier Wen Jiabao began trying to cool the property market in 2010, imposing higher down-payment requirements, raising interest rates on loans for second-home purchases, and increasing construction of low-cost housing. Li Keqiang, who succeeded Wen in March 2013, further tightened credit in June, in part by cracking down on nonbank lenders.
About 67 percent of housing under construction in China last year was in less affluent cities such as Fenghua, according to Nomura Holdings (NMR). About 120 miles south of Shanghai, with a population of 500,000, Fenghua is best known as the birthplace of former Chinese nationalist leader Chiang Kai-shek. The city is filled with pawn shops, textile and garment factories, and empty residential buildings.
via Housing Cools in China; Developers Face Loans They Can’t Repay – Businessweek.
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