Hong Kong-listed Chinese developers post strong profits. So why aren’t investors on a buying binge?
Investors look ahead to see policy weights on property sector, as local governments adopt price caps that could limit future gains
China’s Hong Kong-listed developers have been reporting strong half-year profits. But investors are looking ahead to see heavy weights on what has been a booming sector.
The chief driver of Chinese developers’ earnings – cheap land and rising selling prices – may all but be disappearing, as expensive plots the developers acquired in 2016-2017 will face price caps.
Since 2016, 83 mainland cities have imposed property curb measures. In Beijing, Shanghai, Shenzhen and provincial capitals, residential projects are not allowed to be sold if authorities declare that the prices are too high. On Sunday, Sanya, China’s southern tropical resort city, introduced the toughest price caps yet – telling developers to cut prices and freeze them for six months.
Adding to that, the government’s deleveraging campaign is making borrowing more difficult.
The downbeat climate means companies are not as eager to buy new land to develop.
Last year, developers aggressively purchased land in hope of policy easing. But this year, a record portion of land auctions in 300 cities failed to find buyers, according to analysis by China Securities.
“Investors are primarily concerned about the future. From their perspective, looking at the sector down the road, they can only see downside risk, not much upside,” said David Hong, head of research at CRIC Hong Kong.
