September 27, 2011 10:29 AM EDT
China is moving to choke off funding avenues to developers across the country, tightening or eliminating credit options in a bid to slow the rampant property market and bring down prices without sending the broader economy into a crash.
The latest salvo in Beijing's battle to rein in the sector came last week, when the banking regulator ordered trust firms to detail their exposure to debt-laden Greentown (3900.HK).
The company, based in the popular Chinese tourist city of Hangzhou, specializes in luxury property development around the country.
China has already imposed home-purchase restrictions on about 40 cities as part of nearly two years of efforts to cool prices that have risen far beyond the reach of ordinary Chinese.
But regulator's move last week stoked concerns of a funding squeeze for the sector and sparked a selloff in shares and bonds in many other Hong Kong-listed Chinese developers.
Follow us
Many of these developers are highly geared and had relied on trust loans as a key source of financing in the absence of other channels of funding.
"The double whammy of slower sales since end-August and higher interest costs has likely sparked increasing concerns on liquidity of Chinese developers, which is likely to further deteriorate if sales slow further," Mirae Asset Research said in a report.
The average interest costs of Hong Kong-listed Chinese developers rose 64 percent year on year in the first half, Mirae said based on the companies it tracks.
TRUST FINANCING
Beijing wants to push developers to lower prices and sell down their inventories, so it is turning the screws on trust financing -- choking off what has been a lifeline for many of the country's smaller developers such as Greentown.
The form of financing, more expensive than ordinary loans, has been booming.
Chinese trusts poured over 210 billion yuan ($32 billion) into the sector in the first half. Total outstanding property trust loans exceeded 600 billion yuan.
The China Banking Regulatory Commission scrutiny of Greentown's lenders highlighted Beijing's determination to bring down housing prices that it views as a threat to social stability and economic growth.
It also raised the risks of investing in what used to be China's best growth story, analysts said.
Is Ron Paul 2012 Trying To Upstage Mitt Romney In Tampa? Paul Festival 2012 Would End Day Before Convention Starts
The Most Dangerous US States to Drive In 2012 [SLIDESHOW]
Etan Patz Murder Suspect Identified As Pedro Hernandez, Reveals Gruesome Details To Police
After Greece Exits The Euro, What's Next? An Illustrated Guide To 5 Possible Scenarios
Call My Bluff: Greece Dares EU As It Edges Closer To 'Drachmageddon'We value your privacy. Your email address will not be shared.
