Chinese land and development markets, the engine of Asia-Pacific regional growth since the financial crisis, continued to contract over the past 12 months, although signs of recovery began to filter through by the end of the second quarter of 2012. Real Capital Analytics data, which capture the development site and multi-family residential activity that makes up more than 70% of the Asia-Pacific marketplace, shows that investment activity in Asia Pacific reached $68.3 billion in the second quarter, up 10% on the previous quarter but down 21% on the same period in 2011. Overall, $128.6 billion of commercial properties sold in the first half, down 35% on the previous year – the most significant decline among global zones. The steepest decline was in the land sector, where first-half volume fell by about 50%, to $76.9 billion.
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New players keep old lenders on the sidelines Debt dries up in China property |
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The combined impact of monetary tightening, higher reserve requirements for large lenders and explicit bans on lending to property developers appears to have had the desired policy outcome, and after three quarters of sharp declines, Chinese real estate values are beginning to slowly rise again after the shift back to monetary accommodation in December 2011. According to a recent government survey of 105 Chinese cities published at the end of August, residential real estate prices per square metre increased 0.1% in the second quarter, up 1.8% on the same period in 2011, for example. “We have seen that government intervention to slow down markets that had become a little bit too hot has been effective in China, and lending restrictions have served to contain the rapid price appreciation we saw over the past few years, especially in the residential sector,” says Nick Crockett, head of corporate finance at Jones Lang Lasalle in Singapore.
Moreover, the international banks that had used the high-yield bond market to refinance increased lending to Chinese property developers, thereby allowing them to circumvent regulatory bans on real estate lending, substantially scaled back activity towards the end of 2011 and into 2012 as yields for developers rated BB- and above widened sharply, Crockett says. “Although monetary policy has allowed credit creation in China to expand again, debt is not as freely available as it was, and the international banks are less of a presence in the lending markets,” he says. “Debt is available, but not in the same volumes – we are seeing a capital gap in refinancing situations as well as new purchases and new developments.”
