The chief executive of Hong Kong-listed Powerlong Real Estate on Thursday predicted that a fifth of China’s developers would be out of business by year-end, as the country’s small and mid-sized real estate firms have come under more pressure from rising land costs and decelerating housing prices.
Following a nearly 14 percent drop in the share price of the Shanghai-based developer at the start of trading on Thursday, Powerlong CEO Hoi Wa-fong told the press that, “It’ll be quite normal if 20 per cent of property firms die this year.”
The mid-sized developer’s stock started last week at HK$1.34 per share and closed on Friday at HK$1.19 per share after reaching a low of HK$1.13 per share on Wednesday.
According to a report in the South China Morning Post, Hoi blamed the problems facing companies such as his on the current credit crisis.
“Domestic banks are scaling back mortgage lending. But there is evidence all resources are flowing to big and listed companies,” Hoi explained.
Powerlong had been forced to delay a late January bond issue due to week demand, and the inability of the company to shore up its balance sheet while land costs rise and borrowing becomes more difficult may have contributed to investor disinterest in the stock. The company has invested heavily in second and third tier cities in China such as Tianjin, Changchun and Yancheng, where many analysts are reporting oversupply.
Despite market pessimism regarding Powerlong, however, Hoi was optimistic about its potential in 2014, predicting contract sales of RMB 12 billion this year, up from RMB 9.4 billion last year.