China Real Estate Developers’ Inventories Continue To Creep Higher28 October, 2011, 15:58. Posted by Zarathustra
Tags: Real Estate
Among 75 of listed real estate developers listed in A share market, total inventories have reached CNY725.88 billion, an increase of 41.38% from the 3rd quarter of last year. Debt-to-asset ratio is also hitting new high. Among the same 75 of the real estate developers, the debt-to-asset ratio increased by 2.75 percentage point from 62.83% in the 3rd quarter of 2010 to 65.58%. Even the bigger players like Vanke is having a debt-to-asset ratio of 78.97%.
Not surprisingly then, with slowing sales, higher inventories and debt levels, operating cash flows deteriorate for real estate developers. The outflow from operating activities for the 75 real estate developers as a whole has deteriorated from CNY(36.086 billion) to CNY(45.23 billion), and the cash balance of these real estate developers has fell from CNY140.779 billion to CNY132.771 billion. This is completely consistent with the long-held view here that as the property market slow, property developers will be under pressure with their cash flow.
The view here is that the property market slowdown in China has begun, as we have seen more aggressive price cutting by property developers (while homeowners are seriously angry about that). The fundamental has just started to deteriorate, just as Jim Chanos said earlier today. Despite all the optimistic the market has about relaxing purchase restrictions and possibly monetary easing, I am not going to turn upbeat because of these silly things, because when the trend is firmly established, there is nothing to stop it.