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Chinese property companies seek to reduce risks

Tuesday, October 31, 2017

HONG KONG - As the froth comes off China's home prices, there are increasing signs that some property developers, particularly those with a heavy debt load, are becoming less aggressive.

They are reducing balance sheet leverage, buying land through joint ventures with other property companies to reduce risk, or diversifying into other businesses.

Their concern is that they can no longer bank on paying ever richer prices for land if the value of the apartments they build on that land isn't also still surging.

The risk is that if apartment prices drop the developers will be left with expensive unsold properties and suffer losses at a time when their debt levels are already dangerously high.

A minority, such as Tianjin-based Sunac Holdings, are planning to reduce their land purchases and focus instead on selling more of the apartments they have already built.

The nation's sixth-largest real estate developer, based on sales, won't grow as fast as before but it may be in a position to cut its debt ratio.

"We have been developing too fast in the past," said Gao Xi, vice president at Sunac, which in July bought 91 per cent of 13 tourism projects from conglomerate Dalian Wanda Group for $US6.5 billion ($F133b).

"Our next step is to slow down the land bank and increase sales. We will unlock profitability and then the gearing will come down," Mr Gao said at an earnings conference.

The company aims to cut net gearing — total borrowings less cash divided by shareholders' equity — to 70 per cent by the end of 2019 from 260 per cent at the end of June.

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