Trusts pile pressure on developers

Domestic developers face increasing pressure this year as huge amounts of maturing property trust products add to the problems caused by purchasing curbs and tight cash flows, analysts said.

China International Capital Corp Ltd (CICC) said in a report that 223.4 billion yuan (US$35.37 billion) in property trust products would mature in 2012.

According to CICC, property developers need to pay about 250 billion yuan this year for the maturing products and interest, and the amount for 2013 is estimated at 310 billion yuan.

To cope with a credit crunch in the past two years, developers turned to financial innovations. In 2010 and 2011, they raised about 500 billion yuan through issuing property trusts, accounting for 70 percent of the total volume in the trust market.

Most of the property trusts had maturities of 18 months to two years, so many will fall due from the third quarter of 2012 through 2013.

The report said that leading listed developers accounted for a relatively smaller portion of the trust market, while some small and less well-known developers would face mounting due debt, with their investors' portfolios at stake as well.

A report on the same subject from Guotai Junan Securities Co Ltd estimated that 175.8 billion yuan in property trusts would come due in 2012.

In July alone, Guotai Junan said, developers would have to repay up to 50.4 billion yuan.

"Property developers will face their most difficult time in the second quarter of 2012 as the property trusts and other loans will come due," said Chen Sheng, deputy director of the China Index Academy in Shanghai.

According to Yin Xingmin, a professor at Fudan University, the more than 200 billion yuan in property trusts coming due was "not that much" compared with China's property sales.

"The property trusts can be rolled over by issuing new trusts as long as developers can pay the interest," Yin said.

On a list of the top 50 developers by 2011 sales released by China Real Estate Information Corp ahead of the New Year holiday, China Vanke Co Ltd was first with 121 billion yuan.

The capital pressure exerted by the need to repay maturing property trust products will ease leading developers' efforts to acquire small and medium-sized heavyweights, and Vanke "is one of the opportunists", said Guotai Junan.

Major developers' capital pressure will be greatly eased by new loans from commercial banks in the first quarter. But Chen said smaller developers had limited choices: postponing the repayment dates, providing large discounts to generate cash or being taken over by larger developers.

"It is possible that in some cases, small developers will fail to solve the capital problem and go bankrupt. But the overall property market should not be affected," he said.

Nationally, average residential land prices were flat quarter-on-quarter in the fourth quarter of 2011, the China Urban Land Price Dynamic Monitor, the nation's land price information platform, said on Sunday.

Separately, a report by the Ministry of Land and Resources and the China Land Surveying and Planning Institute said that average land price increases for commercial, residential and industrial use continued to slow in the fourth quarter.

The average urban land price was 3,049 yuan a square meter in the fourth quarter, the report said.

The average price for commercial land was 5,654 yuan a sq m, while that for residential land was 4,518 yuan a sq m and that for industrial land was 652 yuan a sq m, according to the report.