Beijing: Chinese developers face “significant liquidity issues” and rising funding costs after regulators curbed borrowing through trust companies and property sales fell, according to KPMG LLP.
Although there are “indications” that restrictions on real estate trusts may ease soon, the impact is unclear with investor sentiment changing, according to a KPMG report entitled Mainland China Trust Survey 2012. The report, e-mailed yesterday, didn’t elaborate on what the indications are.
Growth in Chinese developers’ new funding slumped by almost 16 per centage points to 5.7 per cent in the first half from a year earlier, after the nation’s home sales dropped 6.5 per cent as the government maintained property curbs to stem speculation, the National Bureau of Statistics said on July 13.
New funds channelled through real estate trusts dropped more than 50 per cent to 84.6 billion yuan ($13 billion) in the six months ended June 30, according to Use Trust, a Chinese consulting and research firm for the country’s trust industry.
“Given the situation of certain real estate developers, many of whom have sourced financing from trust companies, there’s concern among both the trust companies and regulatory authorities around these products,” KPMG said in the report. Still, the risk is “very well managed and only an extreme scenario could result in losses to trust companies.”
‘Dramatic’ growth
Yielding typically 12 per cent to 15 per cent in average returns to investors, real estate trusts had “dramatic” growth in the past two years before the banking regulator took measures to curb the expansion, according to the KPMG report.
KPMG had assisted “major developers in distress” and advised on refinancing and corporate restructuring options, according to the report.
Trust companies have been “quite proactive” as they sought to exit the investments, typically by negotiating with the developer’s parent company on early repayments of the loans, imposing forced asset sales, or seizing and selling the underlying collateral to strategic investors, KPMG said.
China’s home sales rose 41 per cent in June from May to 531.3 billion yuan, the statistics bureau said last week, after some local governments relaxed restrictions and the central bank cut interest rates to bolster economic growth.