S&P Raises More Concerns On Chinese Real Estate Developers

Readers here would be very familiar with the on-going real estate bubble and my concern that real estate developers would be running themselves into troubles as they bought lands at high prices in the boom time and found themselves having difficulties selling the finished apartments.

Rating agencies have raised their warning flags on Chinese real estate sector before, so it is not surprising that Standard & Poor’s warned about Chinese real estate developers once more(Bloomberg Businessweek):

A 30 percent decline in sales may leave many developers facing a liquidity squeeze, S&P said after conducting stress tests of the nation’s real estate companies. Most developers would be able to “absorb” a 10 percent sales drop next year, the credit rating company said.

“The worst isn’t over for China’s real estate developers,” S&P analysts led by Frank Lu wrote in a report today. “Developers are bracing themselves for slower sales and lower property prices ahead.”

Meanwhile, the bubble deflating has probably been started.  Lower primary market prices than secondary prices have become more common in various cities, as inventories of real estate developers increase and sales slowed, putting more pressure on developers.  While household leverage looks relatively low in China, real estate developers would be the first to get hurt.  In that event, as I have argued, developers will have to cut prices aggressively.

Certainly, the view here is that the worst isn’t over: things are just turning from not good to bad.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.