Decreasing land prices may force Chinese developers to write down asset values, says Credit Suisse; 'exodus of small developers' could cause 'surge in land supply,' drive down land prices
May 31, 2011
– Decreasing prices of land could prompt property developers in China to write down and re-evaluate the value of their assets, according to a Credit Suisse survey, MarketWatch reported May 31.
Mainland Chinese and Hong Kong developers appear to be most at risk, due to aggressive additions made to their land banks in 2009 and 2010. Small developers are also a concern, as many don’t have the financial means to tough out an economic crisis.
Credit Suisse’s Hong Kong-based analysts said, “The potential exodus of small developers could be overwhelming, and result in a surge in land supply that may bring down land prices further,” MarketWatch reported.
So far this year, land sales have been down 20%, according to one industry export, according to the Credit Suisse report, which also indicated up to 50% in price declines for the year, most likely due to weak transaction volumes in cities, such as Beijing.
According to the report, construction companies’ confidence levels are down, as they see the situation worsening within the next few months.
As such, more construction companies are putting more resources toward going after accounts that are past due, filing lawsuits and even considering stopping work on projects because they are pessimistic about whether the contracts will be fulfilled, MarketWatch reported, citing Credit Suisse.
The primary source of this article is MarketWatch, Hong Kong, China, on May 31, 2011.