Sept 28 (Reuters) – Hong Kong-based investment holding company CK Asset Holdings (1113.HK) has agreed to divest property assets for HK$20.77 billion ($2.65 billion).
CK Asset said on Wednesday its subsidiary would sell what it said was “the one and only issued share” in Aim Clever Holdings Limited, which indirectly owns assets such as 152 residential units in Hong Kong.
The disposal, which is estimated to result in around a HK$6.3 billion ($802.57 million) gain for CK Asset, followed the company’s March announcement of a 729.17 million pound ($777.00 million) sale of stake in Bluebutton Holdco 5 Broadgate (Jersey), which holds property assets in London.
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ORIC-Borrett Ltd, owned by a sub-fund of LC Vision Capital VCC, which is managed by Singapore-based asset management group Sino Suisse Capital, will buy the Aim Clever stake, a company filing on the stock exchange of Hong Kong said.
The deal is expected to be completed on 28 March, 2025, the earliest, the filing said.
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Reporting by Roushni Nair in Bengaluru; editing by Uttaresh.V and Jane Merriman
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SHANGHAI, Sept 28 (Reuters) – Investors dumped shares and bonds of Chinese property developers on Wednesday, after a media report that CIFI Holdings (Group) Co had defaulted added to worries over the crisis-stricken real estate sector.
Hong Kong-listed shares of CIFI Holdings (0884.HK)plunged 32.3% to a record low as of the market close on Wednesday, after credit intelligence provider Reorg reported that the Chinese developer had missed payment on certain non-standard debt.
In response to questions about the report, CIFI said it is actively seeking solutions, without giving further details. The company’s website said it was China’s eighth-largest listed developer last year.
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The share slump, which came after CIFI’s chairman recently predicted “unprecedented” liquidity stress ahead, triggered savage sell-offs in the sector.
Stocks and bonds of other property developers also slumped.
An index tracking mainland developers listed in Hong Kong (.HSMPI) tumbled more than 6.4% to record lows.
In Shanghai, bonds issued by property firms including CIFI Holdings, Sunac Real Estate and Gemdale Corp were among the biggest losers. The Shanghai Stock Exchange brieflysuspended trading in a CIFI bond, citingabnormal fluctuations.
Investors are worried that the sector’s cash crisis is finally reaching CIFI, which had been considered one of the country’s few relatively resilient private developers, said Shujin Chen, head of China FIG Research at Jefferies.
“The overall fragile investment sentiment in the wake of the sterling drop and global monetary policy uncertainties certainly did not help,” she added.
Sharp stock market losses this weekalso show investors don’t expect fresh property stimulus measures to be announced during or immediately after the 20th Communist Party Congress to be held from Oct. 16.
CIFI Holdings missed payment of debt under a project company known as Tianjin Xingzhou Real Estate Development Co, Reorg reported, citing sources.
In a letter to employees dated Sept. 27, CIFI Chairman Lin Zhong said the company’s priority now is to survive, as property sales in China remain sluggish amid COVID-19 lockdowns, an economic slowdown, and a mortgage payment boycott.
“Hardship and ordeal will persist for quite a long period of time,” Lin said in the letter, which was widely distributed via social media and confirmed by the company.
Lin said mortgage boycotts have prompted many local authorities to tighten cash withdrawals from escrow accounts, further squeezing liquidity for property developers.
“Although we have more than 30 billion yuan ($4.14 billion)of cash sitting on the books, the overwhelming majority of it could not meet reasonable demand by companies,” CIFI’s letter said.
“In the coming months, CIFI’s cash flows will meet unprecedented challenges.”
A source with direct contact with Lin told Reuters that Lin is under immense pressure, as there’s no fresh, big policy support in sight, so “it’s unclear when the industry can see a gleam of hope.”
Last week, CIFI was downgraded by Fitch Ratings, which cited the developer’s declining liquidity buffer and higher leverage.
Woes in China’s property market worsened in August, with official data showing home prices, sales and investment all falling, adding pressure on the sputtering economy. A number of leading developers have defaulted on bonds, and local governments are scrambling to devise financing fixes that will allow stalled construction on new homes to resume. read more
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Reporting by Shanghai newsroom and Xie Yu; Editing by Kim Coghill
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GUILIN, China, Sept 26 (Reuters) – For six months, home for Ms. Xu has been a room in a high-rise apartment in the southern Chinese city of Guilin that she bought three years ago, attracted by brochures touting its riverfront views and the city’s clean air.
Her living conditions, however, are far from those promised: unpainted walls, holes where electric sockets should be and no gas or running water. Every day she climbs up and down several flights of stairs carrying heavy water bottles filled with a hose outside.
“All the family’s savings were invested in this house,” Xu, 55, told Reuters from the Xiulan County Mansion complex, her room bare except for a mosquito net-covered bed, a few necessities and empty bottles on the floor. She declined to give her full name, citing the sensitivity of the matter.
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Xu and about 20 other buyers living in Xiulan County Mansion share a makeshift outdoor toilet and gather during the day at a table and benches in the central courtyard area.
They are part of a movement of home buyers around China who have moved into what they call “rotting” apartments, either to pressure developers and authorities to complete them or out of financial necessity, as numerous cash-strapped builders halt construction amid the country’s deep real estate slump.
Shanghai E-House Real Estate Research Institute estimated in July that stalled projects accounted for 3.85% of China’s housing market in the first half of 2022, equivalent to an area of 231 million square metres.
While some local governments have taken steps to prop up the property market by setting up bailout funds, buyers like Xu, who paid deposits in advance and are on the hook for mortgages, remain in limbo.
MORTGAGE STRIKES
The proliferation of unfinished apartments has sparked unprecedented collective disobedience, fuelled by social media: in late June, thousands of home buyers in at least 100 cities threatened to halt mortgage payments to protest stalled construction.
The overall property market is highly sensitive to cases of unfinished apartments because 90% of new houses bought in China are purchased “off plans” while still under construction, said Yan Yuejin, research director at Shanghai E-House.
“If this issue is not resolved, it will affect property transactions, the government’s credibility, and it could exacerbate the developers’ debt problems,” he said.
China’s deep property slump, along with disruptions caused by strict anti-COVID measures, are dragging on the world’s second largest economy just as the ruling Communist Party gears up for its once-in-five-years Congress next month.
‘CRASHING FROM PARADISE’
Xu bought her two-bedroom, 70 square metre flat in early 2019, about a year after its developer, Jiadengbao Real Estate, started construction and began marketing apartments for around 6,000 yuan ($851) per square metre, which they said would come with facilities such as floor heating and a shared swimming pool.
Work progressed quickly at first, with blocks in the planned 34 tower complex going up one after another.
But in June 2020, Jiadengbao Real Estate hit the headlines after a court accused its parent company of illegal fund-raising and seized 340 million yuan worth of its properties, including a number of flats in Xiulan County Mansion.
Construction stopped in mid-2020, which Xu found out months later, describing her feelings at the time as “crashing from paradise”.
Jiadengbao Real Estate did not respond to a request for comment from Reuters.
Since the debt crisis erupted in 2021, thousands more home buyers have been caught in similar predicaments as cash-strapped developers went into bankruptcy or abandoned struggling projects.
FENCING AND UNDERGROWTH
On a recent day, the main block of buildings at Xiulan County Mansion was surrounded by a tall blue fence while the clubhouse, touted in promotional materials, was covered in a dense undergrowth. Cement mixers, iron poles, and piles of debris lay strewn around.
Xu, who is unemployed, said she bought the apartment for her only son, with the hope that he would be able to raise a family there. She said her son and her husband, who live far away in the northern province of Hebei, blame her for their financial predicament, and no longer speak to her.
“We don’t know how long we will have to live here because the government has not said anything officially,” she said.
She hopes the Guilin government will step in to help.
The city government did not respond to a request for comment from Reuters.
Housing authorities in Baoding, the northern city where Xu is from and where Jiadengbao Real Estate’s parent company is registered, said last November the city government and Communist Party committee had set up a group to resolve the issue.
“If the government really wants to protect people’s livelihoods, and resume construction, we will go back home,” Xu said.
(This story corrects name of expert in paragraph 9 to Yuejin)
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Reporting by Eduardo Baptista and Xiaoyu Yin; Additional reporting by Beijing newsroom and Xihao Jiang; Editing by Lincoln Feast.
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The logo of Swiss bank Credit Suisse is seen at an office building in Zurich, Switzerland September 2, 2022. REUTERS/Arnd Wiegmann/File Photo
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Sept 22 (Reuters) – Credit Suisse Group AG (CSGN.S) has drawn up plans to split its investment bank in three, the Financial Times reported on Thursday, as the Swiss lender attempts to emerge from three years of relentless scandals.
Under proposals to the board, the bank is looking to sell profitable units such as its securitised products business to prevent a damaging capital raise, the report said, citing people familiar with the plans. https://on.ft.com/3BZHTUd
Credit Suisse declined to comment on the story when contacted by Reuters.
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The proposals could see the investment bank split into three parts: the group’s advisory business, which might be spun off at some later point; a “bad bank” to hold high-risk assets that will be wound down; and the rest of the business.
“We have said we will update on progress on our comprehensive strategy review when we announce our third-quarter earnings,” the newspaper report quoted Credit Suisse as saying. “It would be premature to comment on any potential outcomes before then.”
Chair Axel Lehmann had appointed Ulrich Körner as chief executive officer in the summer with a brief to carry out a radical shake-up of the bank, which has been hit by a corporate spying scandal, investment fund closures, a record trading loss and a litany of lawsuits in recent years, the report said.
Reuters reported earlier this month that Credit Suisse, Switzerland’s second-biggest bank, was also looking to cut around 5,000 jobs, about one position in 10, as part of a cost-reduction drive. read more
In May, Reuters said the bank was in the early stages of weighing options to bolster its capital after a string of losses had eroded its financial buffers. read more
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Reporting by Juby Babu in Bengaluru; Editing by Sherry Jacob-Phillips
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A woman points at the model of a residential compound by China Vanke as a sales agent introduces the property to the visitors at its showroom during the National Day “Golden Week” holiday, in Dongguan, Guangdong province, China October 2, 2018. REUTERS/Stringer
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HONG KONG, Sept 22 (Reuters Breakingviews) – Big names generate deal interest, but that comes with risks, too. China Vanke (000002.SZ), the biggest private developer by market value in the People’s Republic, is braving both rocky stock markets and the implosion of the mainland real estate sector to spin off its services unit at a valuation of almost $8 billion. That’s well below an earlier price tag, but it is still asking a premium to many peers.
At the top of the price range, residential and commercial property manager Onewo will raise about $790 million in what will be Hong Kong’s biggest initial public offering. A funding round last year valued the group at about $14 billion, per financial publication IFR. Two years ago, similar floats were commanding valuations of up to 27 times expected earnings. Those were better times: a Hong Kong index for the sector has dropped 72% since then.
Onewo will be valued at 17 times 2023 earnings according to IFR, roughly in line with the average of its peers. Look more closely though, and there’s a big split between state-backed firms trading on up to 30 times, and private rivals like Country Garden’s unit on 8 times.
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The pitch for property managers has been sticky revenue — someone has to keep emptying the bins — with titillating talk of fast-growing technology offerings. Onewo follows this pattern with its high-tech unit generating less than 10% of sales. Perhaps that’s why it dropped “Space-Tech” from its official name since its first filing.
More pertinent to its profit however, are the swings in profitability depending on Onewo’s customers. Last year it made a gross margin of 16% overseeing residential properties for its parent, but 4% working for others. For commercial properties, the margins were 20% and 12% respectively. It attributes the gap to $28 billion Vanke’s brand and quality, and the set-up costs for new third-party work. Unless Vanke goes on a building tear again, it’s hard to see Onewo maintaining anything like its recent 28% net profit growth.
Parent Vanke will take some comfort however from other recent listings in Hong Kong. Duty-free operator China Tourism Group (601888.SS), raised $2.1 billion last month, and its shares have risen 13% since, outpacing the wider market. Even so, Onewo doesn’t seem to be making much concession to the tough conditions it faces. In soft markets, that’s a risky ask.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
CONTEXT NEWS
China Vanke is spinning off its property management unit Onewo in a Hong Kong initial public offering that could raise up to $790 million and value the business at almost $8 billion.
At the top end of its price range, at HK$52.7 per share, the deal would value Onewo at 24 times 2022 expected net profits, and 17 times its forecast 2023 numbers, according to financial publication IFR.
The float comes as the mainland property sector is dealing with a cash crunch and a loss of confidence that has led several developers to default with more expected to do so.
Vanke is the latest in a long line of its peers to raise funds from its services business, which looks after residential and commercial properties.
Onewo is expected to start trading on Sept. 29.
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Editing by Robyn Mak and Thomas Shum
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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HONG KONG, Sept 22 (Reuters) – Hong Kong’s finance chief said on Thursday he does not see a sharp risk to the city’s real estate market nor a need to adjust property control measures, as the financial hub braces for more interest rate hikes.
Finance Secretary Paul Chan was speaking after the Hong Kong Monetary Authority raised its base rate charged through the overnight discount window by 75 basis points to 3.5%, its highest since October 2008, following the same move by the U.S. Federal Reserve. read more
Chan said that while home prices in Hong Kong have dropped close to over 6% in the first eight months as rising rates hurt sentiment, the property market depends on many factors including employment and the repayment capability of homeowners.
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“I don’t think there’s a risk of a sharp adjustment,” he said. “The market transactions are low, but there’s no need to adjust control measures.”
Current measures include stamp duties on non-Hong Kong citizens and second homebuyers.
Hong Kong banks, which have lagged their U.S. equivalents in raising rates in recent months, are expected to increase their best lending rate as soon as Thursday, the first increase since 2018.
Official data showed Hong Kong private home prices in July dropped to the lowest since February 2020, as homebuyers turned more bearish due to rising interest rates and an uncertain outlook.
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Reporting By Clare Jim and Donny Kwok; Editing by Anne Marie Roantree, Christian Schmollinger and Kim Coghill
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WASHINGTON, Sept 21 (Reuters) – U.S. existing home sales dropped for the seventh straight month in August as affordability deteriorated further amid surging mortgage rates and stubbornly high house prices, though the pace of decline moderated from prior months.
The Federal Reserve’s aggressive monetary policy tightening, marked by oversized interest rate increases, has significantly weakened the housing market. In contrast, other sectors of the economy, like the labor market, have shown incredible resilience despite the Fed’s attempts to cool demand.
“High prices and Fed rate hikes will likely remain constraints for sales going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
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Existing home sales slipped 0.4% to a seasonally adjusted annual rate of 4.80 million units last month, the National Association of Realtors said on Wednesday. Discounting the plunge during the spring of 2020 when the economy was reeling from the first wave of COVID-19, this was the lowest sales level since November 2015.
Sales rose in the Northeast and West, but were unchanged in the densely populated South. They fell in the Midwest, which is generally considered a more affordable housing region.
Economists polled by Reuters had forecast sales decreasing to a rate of 4.70 million units. The smaller-than-expected decline was likely the result of contracts signed in July, when mortgage rates retreated after sharp increases. While the NAR hoped that sales would stabilize around current levels, that is unlikely as mortgage rates are likely to push higher.
The Fed is expected to raise its policy rate by 75 basis points later on Wednesday for the third time in as many policy meetings. Since March, the U.S. central bank has lifted that rate from near zero to its current range of 2.25% to 2.50%.
The 30-year fixed mortgage rate averaged 6.02% last week, from 5.89% in the prior week, breaking above 6% for the first time since November 2008, according to data from mortgage finance agency Freddie Mac.
Though house price growth has slowed as demand weakened, tight supply is keeping prices elevated. The median existing house price increased 7.7% from a year earlier to $389,500 in August. House prices typically slow in July and August. They surged to a record high of $413,800 in June.
There were 1.28 million previously owned homes on the market, unchanged from a year ago.
At August’s sales pace, it would take 3.2 months to exhaust the current inventory of existing homes, up from 2.6 months a year ago. A five-to-seven-month supply is viewed as a healthy balance between supply and demand. The improvement is mostly because sales are weakening.
Properties typically remained on the market for 16 days, up from 14 days in July, but down from 17 days last August. Before the pandemic 30 days on the market was the norm. Eighty-one percent of homes sold were on the market for less than a month.
First-time buyers accounted for 29% of purchases, unchanged from July and a year ago. All-cash sales made up 24% of transactions, up from 22% from a year ago. Prior to 2020, cash sales accounted for only 20% of transactions.
The NAR attributed the higher cash sales share to people needing loans to buy a home dropping out of the market.
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Reporting by Lucia Mutikani; Editing by Andrea Ricci
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Property estate agent sales and letting signs are seen outside an apartment building in Lichfield, Britain, May 3, 2022. REUTERS/Andrew Boyers
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Sept 21 (Reuters) – Shares in British homebuilders rose sharply on Wednesday morning after a media report said the government would cut stamp duty – a tax on property purchases – in a mini-budget on Friday.
Such a move would be a major fillip for the housing sector, which has shown signs of cooling this year amid rising inflation and interest rates.
The UK housebuilders’ index (.FTNMX402020), which has lost more than 43% so far this year, rose 4.1%.
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FTSE 100 stocks Barratt (BDEV.L), Persimmon (PSN.L), Taylor Wimpey (TW.L) and Berkeley (BKGH.L) climbed between 3.2% and 6%, among the top percentage gains on the blue-chip index.
CMC Markets analyst Michael Hewson said housing stocks were getting a boost from the report in the Times newspaper, but added rising interest rates and the worsening cost of living were offsetting factors.
“It can’t hurt but the devil will be in the detail,” Hewson added.
Peel Hunt analyst Sam Cullen said any stamp duty cut could help housebuilders better offset inflation in building costs, which has been largely cushioned by higher house prices.
The Times said the plan to cut stamp duty would be part of new Prime Minister Liz Truss’s drive to boost economic growth. https://bit.ly/3xFQCbn
The report did not specify the size of the cut and Reuters could not immediately verify the news.
A temporary stamp duty cut was used to support the market by previous finance minister Rishi Sunak during the COVID-19 pandemic.
Currently, no stamp duty is paid on the first 125,000 pounds ($141,650) of any property purchase.
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Reporting by Aby Jose Koilparambil and Yadarisa Shabong in Bengaluru; Editing by Savio D’Souza and Mark Potter
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Men work at the construction site of the Beijing Xishan Palace apartment complex developed by Kaisa Group Holdings Ltd in Beijing, China, November 5, 2021. REUTERS/Thomas Peter
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HONG KONG, Sept 21 (Reuters Breakingviews) – Foreign bondholders in Chinese property developer Kaisa (1638.HK), which is starting to default on $12 billion of offshore credit, are offering up to $2 billion to take over stalled housing projects plus restructure debt. A similar proposal failed last year, but as its woes worsen, Kaisa may reconsider. Pricing is the trick.
As with most holders of dollar bonds issued by Chinese developers, Kaisa’s investors are in a tough position. The Shenzhen-based company has not published its 2021 annual report, so there’s little insight on its current financial condition. Its shares have been halted since April, and its bonds are trading at as low as 10 cents per dollar. Their backs against the wall, the group is proposing to take a 20% haircut on the dollar notes plus inject equity capital. In addition, they want to buy bad loans tied to its unfinished housing developments at a discount between 20% and 25%, per Reuters read more , then take over the collateral and complete the projects.
This is the second such attempt. After Kaisa defaulted on a $400 million note in December, bondholders offered read more to buy up to $1 billion of its bad loans, but Kaisa’s banks shrugged the offer off. After all, Kaisa was the first Chinese real estate company to default on dollar debt during a mini real estate crash in 2015, yet Chairman Kwok Ying-shing managed to turn the company around while clinging onto control.
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But this crisis looks more serious than 2015. Credit ratings agency Moody’s estimates property sales could contract another 20% by next June. Kaisa’s sales slumped 80% in the first eight months this year, per Chinese consultancy CRIC.
Local governments are under increasing pressure from Beijing to ensure private developers’ stalled housing projects pre-sold to buyers are delivered to avoid social unrest. read more But their budgets are constrained by dwindling revenue from land sales, which fell 32% year-on-year during the first seven months of 2022. State-owned asset managers and lenders are constrained by capital adequacy and leverage requirements. That should make all of them more open to the group’s pitch this time around.
The debate will be over the discount. Many of the distressed projects appear to be in attractive locations, making them easier to sell once completed, but such projects are often secretly pledged as collateral multiple times and loaded with hidden debts. This deal may get further than the last one, but that doesn’t mean it will close.
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CONTEXT NEWS
An offshore bondholders’ group of Shenzhen-based Chinese property developer Kaisa is offering up to $2 billion to buy some non-performing loans from Kaisa’s lenders, tied to unfinished housing projects, at a 20%-25% discount, plus provide the financing needed to complete the projects, Reuters reported on Sept. 19 citing unnamed sources.
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Editing by Pete Sweeney and Thomas Shum
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WASHINGTON, Sept 20 (Reuters) – U.S. homebuilding unexpectedly increased in August as rising rents boosted the construction of multi-family housing to the highest level in more than 36 years, but soaring mortgage rates and high prices are undercutting the overall housing market.
The report from the Commerce Department on Tuesday showed permits for future homebuilding plunged to levels last seen during the first wave of the COVID-19 pandemic in the spring of 2020. Homebuilding is also being hobbled by supply chain bottlenecks, which are raising prices for materials.
The Federal Reserve’s aggressive monetary policy tightening has significantly weakened the housing market. In contrast, other sectors of the economy, like the labor market, have shown incredible resilience despite the Fed’s attempts to cool demand.
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“Housing construction activity is caught in the crossfire of two opposing forces,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “However, construction activity is likely to remain solid for a while as builders work through the backlog even as optimism about new sales plummets.”
Housing starts rebounded 12.2% to a seasonally adjusted annual rate of 1.575 million units last month. Data for July was revised down to a rate of 1.404 million units from the previously reported 1.446 million units.
Economists polled by Reuters had forecast starts would come in at a rate of 1.445 million units. Housing starts dipped 0.1% on a year-on-year basis in August.
Starts for housing projects with five units or more soared 28.6% to a rate 621,000 units, the highest since April 1986.
Multi-family housing construction is being supported by strong demand for rental apartments, with rising borrowing costs pushing homeownership out of the reach of many Americans.
Single-family housing starts, which account for the biggest share of homebuilding, increased 3.4% to a rate of 935,000 units. Single-family homebuilding rose in the Midwest, the densely populated South and the West, but plunged in the Northeast.
MORTGAGE RATES SOARING
The U.S. central bank is expected to raise its policy rate by 75 basis points on Wednesday for the third time in as many policy meetings. Since March, the Fed has lifted that rate from near zero to its current range of 2.25% to 2.50%.
Mortgage rates have risen even higher. The 30-year fixed mortgage rate averaged 6.02% last week, from 5.89% in the prior week, breaking above 6% for the first time since November 2008, according to data from mortgage finance agency Freddie Mac.
Permits for future homebuilding tumbled 10.0% to a rate of 1.517 million units, the lowest level since June 2020. Single-family building permits dropped 3.5% to a rate of 899,000 units, the lowest level since June 2020. Permits for multi-family housing projects declined 18.5% to a rate of 571,000 units.
Residential fixed investment declined at its steepest pace in two years in the second quarter, contributing to the second straight quarterly drop in gross domestic product during that period.
Homebuilding is likely to remain on the back foot for the rest of the year. A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index fell for the ninth straight month in September.
The survey found almost a quarter of builders reported reducing home prices and more than half were offering incentives to bolster sales, including mortgage rate buydowns and free amenities. read more
An outright housing market collapse is, however, unlikely because of an acute shortage of single-family homes for sale.
Though house price inflation has started slowing, there are fewer homes being built because of financial constraints, suggesting the pace could be moderate. That could pose a conundrum for the Fed, which is seeking to bring down house prices by slowing demand for houses.
The number of houses approved for construction that are yet to be started fell 2.7% to 290,000 units. The single-family housing backlog decreased 3.4% to 143,000 units, but the completions rate for this segment increased 0.4%.
The inventory of single-family housing under construction fell 0.4% to a rate of 812,000 million units.
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Reporting by Lucia Mutikani; Editing by Paul Simao
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