Investors in China’s real estate market scrambled to figure out which investments might be safe today as a total of six real estate developers are now said to have had sales frozen by the government. The unexplained official crackdown now includes developments belonging to two major state-owned enterprises, including one of China’s ten biggest home builders.
According to a notice posted on a government website in Shenzhen, China Overseas Land and China Merchants Property Development, both major developers in China, with China Overseas ranking seventh in contracted sales last year, had sales blocked by the government in Shenzhen recently.
The move to shutdown transactions for the two publicly listed real estate firms follows soon after the government took similar measures against Shenzhen-based Kaisa Group, which have triggered a string of defaults by the once top-ranking developer, and led to a rout of Chinese developer securities on regional markets.
China Overseas Says Freeze of 2,800 Units is Normal
According to an account in Bloomberg today, China Overseas Land now has sales of more than 2,800 apartments in Shenzhen frozen by the government, and China Merchants Property Development has had sales blocked for more than 2,300 units.
The sales freeze was announced on the website of the Shenzhen land office. The government bureau gave no reason for freezing sales of the projects.
According to reports on local media, China Overseas’ blocked units are all located at the developer’s Yuejing Project, a subsidised-housing development in Shenzhen’s Longgang district. Longgang is the same district that is home to two of Kaisa’s four blocked projects.
In an announcement to the Hong Kong stock exchange, where it is listed, China Overseas Land said that all of the blocked units have already by been sold off. The developer also stated that, to the best of its knowledge, “the temporary suspension of sale of the Property was due to normal administrative measures and procedures adopted by the relevant land authority of the PRC government in Shenzhen to which such type of property is subject, and was not due to any non-compliance with the legal and procedural rules and requirements by the Group.”
Despite the reassurances from China Overseas, however, the sales freeze seems to be part of a broader move to halt transactions at property projects in Shenzhen.
UPDATE: According to a recent statement on the Shenzhen housing bureau’s Weibo microblog account, the shutdown of transactions at subsidised housing projects is a normal measure. China Overseas Land has made it clear that its project is a subdised development. Kaisa’s projects were not subsidised, and other developers have not commented.
Six Developers Now Have Sales Frozen in China
With today’s revelations about China Overseas, we are now aware of government-imposed sales freezes at five property developers in Shenzhen, with similar moves by the authorities now appearing in other major cities.
Following the freeze of sales at four Kaisa projects during December, which later triggered the developer’s default on overseas loans and bond payments, we have now learned of moves by the Shenzhen government to shut down sales at projects by four more developers in the southern Chinese city, including China Merchants, Rongchao Real Estate, and Fantasia Holdings.
In addition to the crisis in Shenzhen, media reports today indicated that Kaisa now has had its sales frozen in Hanghzou, and another Guangdong developer, Glorious Property Holdings, has had two projects frozen in Shanghai.
Investors Now Abandoning Chinese Developer Securities
As more developers appear to be caught in the China’s anti-corruption campaign, many investors are doing all that they can to exit gracefully from Chinese real estate bonds and equities, especially for developers based in southern China’s Guangdong province, which is home to Kaisa, China Overseas, and most of the other developers which have had projects frozen.
Shares in China Overseas Land tumbled as much seven percent on the Hong Kong Exchange today before recovering to finish at HK$24.65 per share, down 2.38 percent on the day. Fantasia Holdings closed down 1.22 percent, and Guangzhou R&F, apparently tarred with the brush of its Guangdong brethren, slid 2.96 percent.
Even State-Owned Companies Not Safe
By blocking sales at China Merchants and China Overseas, both of which are major state-owned enterprises, today’s revelations shattered the conception that only privately owned, local developers could fall under government scrutiny.
In knocking the halo off of the state-owned developers, the moves against China Merchants Property and China Overseas Land introduce a new degree of uncertainty to China’s real estate markets.
According to a report in the Wall Street Journal today, the troubles with China’s developers – which up until now has meant Kaisa – have already brought the region’s high-yield bond markets to a standstill. Now that five more developers appear to be joining Kaisa under the government microscope, finding financing for Chinese real estate developers should become even more challenging.