A person walks past the headquarters of Dalian Wanda Group, in Beijing’s Central Business District (CBD), China August 8, 2023. REUTERS/Tingshu Wang Acquire Licensing Rights
Sept 28 (Reuters) – China’s Dalian Wanda Group has started negotiations on a proposal to avoid repaying about 30 billion yuan ($4.11 billion) to investors in its commercial property management business if it fails to complete its initial public offering (IPO) this year, Bloomberg News reported on Thursday.
The Chinese conglomerate recently told investors that an IPO of the unit, Zhuhai Wanda Commercial Management Group Co, will likely take place next year, Bloomberg reported, citing people familiar with the matter.
Dalian Wanda, China’s largest commercial property developer, did not immediately respond to a Reuters request for comment.
Wanda raised nearly $6 billion for the commercial property business in 2021 from investors including Hong Kong-based private equity firm PAG, developer Country Garden, private equity firm CITIC Capital and tech giants Tencent Holdings and billionaire Jack Ma’s Ant Group, Reuters reported.
In June, China’s securities watchdog asked Zhuhai Wanda Commercial Management Group for more details on its corporate governance as part of its application for an IPO in Hong Kong.
Uncertainty over the timing of Zhuhai Wanda’s IPO has led to investor concerns over the liquidity of parent Wanda Commercial, a unit of Dalian Wanda Group.
In July, Fitch Ratings downgraded the long-term foreign-currency issuer default rating (IDR) of Dalian Wanda Commercial Management Group to “B” from “BB-“.
Fitch cut the ratings after a further weakening in the consolidated profile of Wanda Group, which holds 44% of Wanda Commercial, because of heightened liquidity risk at Wanda Commercial’s sister company, Wanda Properties Group, as disputes with stakeholders arose.($1 = 7.3067 yuan)
Reporting by Urvi Dugar in Bengaluru and Kane Wu in Hong Kong; additional reporting by Roxanne Liu in Beijing; Editing by Savio D’Souza and Christian Schmollinger
Our Standards: The Thomson Reuters Trust Principles.
WASHINGTON, Sept 26 (Reuters) – U.S. consumer confidence dropped to a four-month low in September, weighed down by persistent worries about higher prices and rising fears of a recession, though households remained generally upbeat about the labor market.
The second straight monthly decline in confidence reported by the Conference Board on Tuesday also reflected higher interest rates and concerns about the political environment.
The nation faces a potentially disruptive shutdown of the federal government on Saturday amid political wrangling. Confidence fell across all age groups, and was most pronounced among consumers with annual incomes of $50,000 or more.
“Inflation is slowing, but prices are still higher than they were before the pandemic and this is taking a toll on consumer confidence,” said Christopher Rupkey, chief economist at
FWDBONDS in New York.
The Conference Board said its consumer confidence index dropped to 103.0 this month, the lowest reading since May, from an upwardly revised 108.7 in August. Economists polled by Reuters had forecast the index easing to 105.5 from the previously reported 106.1. Consumers’ perceptions of the likelihood of a recession over the next year ticked back up.
A sharp decrease in the expectations measure accounted for the decline in confidence, which economists partially attributed to the looming government shutdown, with Congress so far failing to pass any spending bills to fund federal agency programs in the fiscal year starting on Oct. 1.
Hundreds of thousands of federal workers will be furloughed and a wide range of services, from economic data releases to nutrition benefits, suspended beginning on Sunday.
“Consumers also expressed concerns about the political situation and higher interest rates,” said Dana Peterson, chief economist at The Conference Board in Washington.
The cutoff date for the preliminary survey was Sept. 18. Millions of Americans will also start repaying their student loans in October and most have run down their pandemic savings.
The survey showed consumers increasingly concerned about their family finances.
The Federal Reserve last week left its benchmark overnight interest rate unchanged at the 5.25%-5.50% range. The U.S. central bank, however, stiffened its hawkish stance, projecting another rate hike by year end and monetary policy staying significantly tighter through 2024 than previously expected.
The Fed has hiked the policy rate by 525 basis points since March 2022.
Though consumers continued to fret over the higher cost of living, their inflation expectations over the next year remained stable and they showed no intentions of drastically pulling back on purchases of motor vehicles and other big-ticket items like television sets and refrigerators over the next six months.
Fewer, however, expected to buy a house, with the rate on the popular 30-year fixed-mortgage the highest in more than 22 years and home prices reaccelerating.
Consumers’ 12-month inflation expectations were unchanged at 5.7% for the third straight month.
Consumer spending remains underpinned by a tight labor market, which is keeping wage growth elevated.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, widened to 27.3 this month compared to 26.7 in August. This measure correlates to the unemployment rate in the Labor Department’s closely followed employment report.
Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.
HOUSE PRICES ACCELERATE
A separate from the Commerce Department showed new home sales plunged 8.7% to a seasonally adjusted annual rate of 675,000 units in August after racing to a 17-month high in July.
Economists had forecast new home sales, which account for a small share of U.S. home sales, falling to a rate of 700,000 units. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 5.8% on a year-on-year basis in August.
Though new home sales remain supported by a dearth of previously owned homes on the market, the resurgence in mortgage rates is reducing affordability for prospective home buyers.
The rate on the 30-year fixed mortgage vaulted above 7% in August and climbed to an average of 7.19% last week, the highest since July 2001, according to data from mortgage finance agency Freddie Mac. Mortgage rates are rising in tandem with U.S. Treasury yields, which have surged on worries that soaring oil prices could hamper the Fed’s fight against inflation.
“While we expect higher rates to hurt new home sales, we think they will be more resilient than existing home sales as builders seem willing to scale up their use of incentives to motivate sales,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.
A third report from the Federal Housing Finance Agency showed annual home price growth quickened for a second straight month in July, largely reflecting the tight supply in the market for previously owned homes. House prices jumped 4.6% on a year-over-year basis in July after rising 3.2% in June. Prices shot up 0.8% month-on-month after advancing 0.4% in June.
The resurgence in house prices was seen feeding through to higher inflation, likely giving the Fed cover to maintain its hawkish posture for some time.
“The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer,” said Bill Adams, chief economist at Comerica Bank in Dallas. “Renting households are seeing some relief in new lease prices, but since two thirds of Americans are homeowners, the Fed cannot afford to look past house prices’ influence on the cost of living.”
Reporting by Lucia Mutikani; Additional reporting by Amina Niasse; Editing by Chizu Nomiyama and Andrea Ricci
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China Evergrande Group’s logo is seen on its headquarters in Shenzhen, Guangdong province, China, Sept. 26, 2021. REUTERS/Aly Song/File Photo Acquire Licensing Rights
HONG KONG, Sept 25 (Reuters) – China Evergrande Group’s latest trouble in firming up a long-pending debt restructuring plan led to a sell-off in its and peers’ shares on Monday, as worries resurfaced about the crisis-hit property sector after a brief respite.
Evergrande, the world’s most indebted property developer, which has become the poster child of China’s property crisis, has been working to get its creditors’ approval for a debt restructuring plan after having defaulted in 2021.
Under the plan unveiled in March this year, Evergrande (3333.HK) proposed options to offshore creditors including swapping their current debt holdings into new notes with maturities of 10 to 12 years.
In an unexpected development, the embattled developer said late on Sunday it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary, Hengda Real Estate Group Co Ltd.
Hengda said last month it was being investigated by China’s securities regulator for suspected violation over the disclosure of information.
Shares in Evergrande plunged as much as 24% on Monday, while Hong Kong’s Hang Seng mainland property sector index (.HSMPI) was trading 3.7% lower.
“Its debt restructuring plan is now stuck and can’t go any further,” said Steven Leung, sales director at UOB Kay Hian in Hong Kong. “Other options, such as converting the debt into shares of other listed units, are also seen not workable now.”
Evergrande’s offshore debt restructuring involves a total of $31.7 billion, which includes bonds, collateral and repurchase obligations, potentially making it one of the world’s biggest such exercises.
The developer’s latest woes reverse a brief respite for the Chinese property sector, which accounts for roughly a quarter of the economy, on the back of Beijing’s support measures and two other major developers forged debt deals with their creditors.
“Concern over the financial health (of developers) still clouds the property sector, especially those smaller property developers with high gearing but very few property projects on hand,” Leung said.
WINDING UP PETITION
A string of leading Chinese developers have defaulted on their offshore debt obligations since the property sector was hit by an unprecedented liquidity crisis in 2021 after regulators reined in a debt-fuelled building boom.
Many of the defaulted developers have been trying to get their offshore creditors’ approval for debt restructuring plans to avoid a messy collapse or being forced into liquidation proceedings.
Not many of those plans have succeeded.
Developer China Oceanwide Holdings Ltd (0715.HK), which has failed to meet its debt obligations, said in an exchange filing on Monday that a Bermuda court has ordered the winding up of the company and has appointed joint provisional liquidators.
The latest roadblock in Evergrande’s debt restructuring plan opens a new front for the developer just a week after police detained some staff at its wealth management unit, sending its shares slumping.
Earlier this month, Evergrande said it had delayed making a decision on offshore debt restructuring from September to next month to allow holders of its debt more time to consider its proposal.
Evergrande needs approval from more than 75% of the holders of each debt class to approve the plan.
The Evergrande development comes as leading developers such as Country Garden (2007.HK) scramble to avoid a default, keeping home-buyer sentiment depressed despite Beijing’s raft of support measures to prop up the sector and spur property demand.
As of the end of August, the combined floor area of unsold homes stood at 648 million square metres (7 billion square feet), the latest data from the National Bureau of Statistics (NBS) show.
Reporting by Donny Kwok, Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Lincoln Feast and Sam Holmes
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A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo Acquire Licensing Rights
Sept 22 (Reuters) – Shares in real estate companies fell on Friday, adding to a massive sell-off the previous day, when bond yields jumped to their highest levels in 16 years after the Federal Reserve signaled that U.S. interest rates would stay high for longer.
The S&P 500 real estate index (.SPLRCR) lost 0.7% on Friday after falling 3.5% on Thursday, which was its biggest daily decline since March when the banking sector was in crisis.
The U.S. Treasury 10-year yield , fell slightly on Friday, after rising on Thursday to around 4.5%, its highest since 2007. This provided tempting returns for fixed-income assets, making the relatively high dividend payouts of Real Estate Investment Trusts (REITs) a little less tempting.
REITs also tend to borrow heavily so the prospect of higher rates for longer puts pressure on their profit outlook. While the Fed decided not to hike interest rates after its meeting on Wednesday, it indicated that rates could stay at elevated levels for longer than investors had expected.
“Not only are REIT’s bond substitutes but they also rely on borrowing so that just makes them doubly interest-rate-sensitive,” said Jack Ablin, chief investment officer of Cresset Capital who says that even though the sector seems cheap by some measures, he is not ready to step in right now.
The S&P 500 real estate index is the second weakest performer among the benchmark S&P 500’s 11 major sectors with a decline 6.5% so far this year, second only to utilities’ (.SPLRCU) 10.3% drop. This compares with year-to-date a gain of about 15% for the benchmark index.
But Gina Szymanksi, portfolio manager for REITs at AEW Capital Management, said she expects Treasury yields will peak around current levels, which will help REIT stocks that have “already baked in” 10-year Treasury yields in this range.
“The knee-jerk reaction is, as interest rates rise, you sell REITs. It’s not totally unrealistic. They are capital intensive businesses that require financing,” said Szymanski, adding that if 10-year yields rise sharply from here it would add pressure to REIT stocks.
But if the economy weakens, REITs often outperform.
“When the Fed tries to slow the economy, it’s usually successful. That usually results in declining earnings for companies in general and when that happens it’s the time for REITs to shine,” says Szymanksi who estimates a roughly 20% total return for real estate stocks in the next two years.
On Friday the biggest real estate loser was American Tower (AMT.N), which finished down 1.8% while the biggest gainer was Extra Space Storage (EXR.N), up 1.2%.
Alexandria Real Estate Equities (ARE.N) fell 1.6% on Friday, after losing 8% on Thursday and hitting its lowest level since 2016.
Reporting By Sinéad Carew, editing by Lance Tupper and David Gregorio
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Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach Acquire Licensing Rights
BERLIN, Sept 22 (Reuters) – German housing prices fell by the most since records began in the second quarter as high interest rates and rising materials costs took their toll on the property market in Europe’s largest economy, government data showed on Friday.
Residential property prices fell by 9.9% year-on-year, the steepest decline since the start of data collection in 2000, the federal statistics office said. Prices fell by 1.5% on the quarter, with steeper declines in larger cities than in more sparsely populated areas.
In cities such as Berlin, Hamburg and Munich, apartment prices fell by 9.8% and single and two-family house prices dropped by 12.6% on the year.
For a decade, low interest rates have fuelled a property boom in Europe’s largest real estate investment market. A sharp rise in rates and increasing construction costs have put an end to the run, tipping a string of developers into insolvency as deals froze and prices fell.
Building permits for apartments in Germany declined 31.5% in July from a year earlier, the statistics office disclosed on Monday, as construction prices rose by almost 9% on the year.
Germany aims to build 400,000 apartments a year, but has struggled to meet the goal.
German housing industry association GdW on Friday sounded the alarm over the situation calling for government support for construction companies.
“The construction crisis in Germany is getting worse day by day and is increasingly reaching the middle of society,” GdW, which represents around 3,000 housing companies nationwide, said in a statement.
GdW called for a cut in value added tax (VAT) to 7% from the current level of 19% for affordable rentals and government funding loans with a 1% interest rate to support companies.
The government is scheduled to hold a summit with the industry on Monday to discuss the situation.
GdW and the Haus&Grund owner’s association said they were boycotting the summit as they had too little influence on its agenda.
The German cabinet plans to present an aid package for the industry by the end of month after announcing plans to promote the construction sector, including reducing regulatory and bureaucratic requirements.
Reporting by Riham Alkousaa and Klaus Lauer, editing by Kirsti Knolle and Sharon Singleton
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[1/2]People on a property tour visit a show flat of a real estate property developed by Sunac China Holdings in Xishuangbanna Dai Autonomous Prefecture, Yunnan Province, China, June 22, 2019. Picture taken June 22, 2019. REUTERS/Lusha Zhang/File Photo Acquire Licensing Rights
HONG KONG, Sept 19 (Reuters) – Chinese developers Sunac (1918.HK) and Country Garden (2007.HK) brought some relief to the crisis-hit property sector by forging debt deals with creditors, but the outlook remained clouded by uncertainty about a recovery in home sales.
Shares in Sunac China Holdings surged as much as 14% in early trade on Tuesday after creditors approved its $9 billion offshore debt restructuring plan, the first green light of such a debt overhaul by a major Chinese developer.
The stock, however, gave all its gains later and dropped more than 7% in the afternoon trade after reports, citing court documents, showed Sunac has filed for U.S. bankruptcy protection under Chapter 15.
Under the U.S. bankruptcy code, the move shields non-U.S. companies that are undergoing restructurings from creditors that hope to sue them or tie up assets in the United States. The step is seen as procedural in large offshore debt revamp processes.
China Evergrande Group (3333.HK), which is seeking to restructure a total of $31.7 billion in one of the largest such exercises in the world, also sought protection under Chapter 15 last month.
TROUBLED SECTOR
Separately, cash-starved Country Garden won approval from creditors to extend repayment on another onshore bond, the last in the batch of eight bonds it has been seeking extensions for, two sources familiar with the matter said on Tuesday.
The developments come as Beijing steps up efforts to revive the property sector, which accounts for roughly a quarter of the world’s second-largest economy, with a raft of support measures unveiled over the last few weeks.
Sunac said late on Monday that creditors holding 98.3% of the total value of the bonds who attended the vote had approved the restructuring plan proposed and agreed to by some creditors in March.
The developer will seek approval of the plan by a Hong Kong court at a hearing scheduled for Oct. 5.
As part of the restructuring terms, a portion of its debt would be exchanged into convertible bonds backed by its Hong Kong-listed shares along with new notes with maturities of between two and nine years.
“I will treat it as a positive … We haven’t seen much progress on the offshore market, so this shows at least some Chinese developers are trying to reach an agreement,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
If the plan could be implemented well, and depending on whether the recovery of China’s property market could generate sufficient cash flows, investors would be able to get something back, he added.
PROPERTY SECTOR OUTLOOK
While Sunac is among a string of Chinese developers that have defaulted on their offshore debt obligations since an unprecedented liquidity crisis hit the property sector in 2021, Country Garden has not missed any offshore payments yet.
The latest debt agreements with creditors will give some breathing room to Chinese developers and help them avoid default or a messy liquidation process, but the success of the agreements will depend on a recovery in the property sector.
Some offshore bondholders say they don’t have many options apart from agreeing to debt restructuring proposals, given their returns will likely be very low if they choose to liquidate a cash-strapped developer.
Even as Beijing implements measures to prop up the sector, house prices have continued to decline – latest data show new home prices fell at their fastest pace in 10 months in August, while falls in real estate investment and sales deepened.
ANZ Senior China Economist Betty Wang said the support measures could spur some “genuine demand” especially ahead of the traditional sale season during late September/early October in top-tier cities.
“However, the pace and the extent of such a turnaround will be much smaller than in previous cycles,” she said in a report published on Tuesday.
“It’s also questionable whether it will kick off a sustainable rebound especially considering the uncertain job outlook, deteriorating income inflows, a shift in expectations, and potential increase in housing supply in the long-term.”
Reporting by Donny Kwok and Xie Yu in Hong Kong, Steven Bian in Shanghai, and Kevin Huang in Beijing; Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Lincoln Feast
Our Standards: The Thomson Reuters Trust Principles.
Zhao Youming, 60, looks at an unfinished residential building where he bought an apartment, at the Gaotie Wellness City complex in Tongchuan, Shaanxi province, China September 12, 2023. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
HONG KONG, Sept 18 (Reuters Breakingviews) – Chinese developers are in trouble. Many are struggling to stay afloat as both financing and sales dry up. Why don’t they simply slash prices and sell down their bloated inventory? Well, they can’t. Restrictions imposed after the last property crisis in 2016 were intended to contain runaway home prices. Those limits endured and are now obstructing a recovery in the world’s second largest economy.
“Guidance” set by local governments helped officials to achieve price stability. Average new home prices in the 70 major cities, per official data, have fluctuated around just 2% on a monthly basis for more than a year even as top developers wrestle to restructure their debt. Evergrande (3333.HK) and Country Garden (2007.HK) alone have combined liabilities worth 3.8 trillion yuan ($524 billion).
Yet the restrictions hid distortions. When the mood was bullish, price caps in major cities were far below what people were willing to pay. Crowds of buyers typically flocked to project launches. Those who were lucky enough to be allocated a new apartment could then flip it for a handsome profit in the limited secondary market.
That’s one reason many Chinese viewed caps as a “subsidy” for prospective homeowners. Fast forward, and these controlled prices are much higher than the perceived market value. Some developers have tried to work around the problem, by offering homebuyers “discounts” including car parking lots or even gold bars. Home sales last year fell 27% to return to 2017 level, per National Bureau of Statistics, and sales this year are on course to be worse.
Scrapping the price caps would be a cleaner fix and officials are weighing up such a move, Reuters reported this month. The Guangzhou government has already quietly abandoned its seven-year-old policy in regulating new home prices, according to Caixin, a financial publication. Hard up developers will be able to start generating much-needed cash if more cities follow. Take Country Garden, it had a 202 million square metre landbank at the end of 2022, including 3,000 projects under construction. How quickly it can monetise some of those assets ultimately depends on how attractive the selling prices are.
A price slump would spur demand but the government would need to brave enormous fallout. Existing owners will be unhappy to see the value of their homes tumble: China’s homeownership rate reached 90% by 2020, and real estate accounts for 70% of household wealth. In a weak economy, it is unclear where an undistorted price will settle. Still, finding the bottom of the market looks crucial to any property market revival.
CONTEXT NEWS
China’s Guangzhou city has cancelled price caps on new residential projects, Caixin reported on Sept. 12. Developers still need to share their planned selling prices with authorities but regulators will no longer provide price guidance, the financial publication said.
Price caps of various kinds were introduced in many Chinese cities from 2016 following the central government’s call for a stable residential market.
Editing by Una Galani 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.
Men stand near residential buildings in Beijing, China April 14, 2022. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
BEIJING, Sept 15 (Reuters) – A slump in China’s property sector worsened in August, with deepening falls in new home prices, property investment and sales, despite a recent flurry of support measures, adding pressure to the world’s second-largest economy.
New home prices fell at the fastest pace in 10 months in August, down 0.3% month-on-month after a 0.2% decline in July, according to Reuters calculations based on National Bureau of Statistics (NBS) data. Prices were down 0.1% from a year earlier, after a 0.1% decline in July.
For August, property investment fell for the 18th straight month, down 19.1% year-on-year from a 17.8% slump the previous month, separate data showed on Friday. Home sales are down for the 26th consecutive month, according to Reuters calculations based on the data.
China has in recent weeks delivered a raft of measures to boost home buying sentiment, including easing some borrowing rules, and relaxing home purchasing curbs in some cities.
These policies have given major cities like Beijing a tiny boost in new home sales, but some worry they might be short-lived and could potentially dry up demand in smaller cities.
China’s broader economy is showing signs of stabilisation with economic figures showing quickening growth in industrial output and retail sales.
However, analysts say a series of supportive policies have yet to firm up the crisis-hit property sector with major Chinese developers still fighting to avoid default.
“We are still hopeful that housing sales would stage small sequential pickups in the coming months, but stimulus will ultimately stop short of reflating the sector,” said Louise Loo, China economist at Oxford Economics.
China’s central bank said on Thursday it would cut the amount of cash banks must hold as reserves, its second such easing this year.
“The more material risks in the near-term come from some property developers and financial institutions, and a small RRR cut could do very little to help,” said Nomura in a research note on Friday.
Around 30 cities eased home purchase curbs and relaxed mortgage rules for buyers in recent weeks but analysts say Beijing may have to introduce more aggressive property easing measures to deliver a real recovery.
Authorities may also need to lift almost all restrictions on home transactions, invest more in the urban renovation programme, speed up infrastructure spending and restructure local government debt, said Nomura.
Moody’s on Thursday cut China’s property sector outlook to negative from stable, citing economic growth challenges, which the rating’s agency said will dampen sales despite government support.
China’s property crisis is seen as one of the biggest stumbling blocks to a sustainable economic recovery, with rising risks of default among private developers threatening to imperil the country’s financial and economic stability.
Reporting by Liangping Gao, Ella Cao and Ryan Woo
Editing by Sam Holmes
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STOCKHOLM, Sept 15 (Reuters) – For months, Sweden’s government has sought to play down a property crisis that has throttled confidence in the Nordic state, repeating a simple message: While some companies are in trouble, the country is not.
Now Heimstaden Bostad, a $30 billion property investor with swathes of homes from Stockholm to Berlin, is grappling with a multibillion dollar funding crunch, which has rebounded on one of its owners – the country’s biggest pension fund.
That undoubtedly raises the stakes for Sweden, the European nation hardest hit by a global property rout triggered by the steep rise in interest rates last year that abruptly ended a decade of virtually free money.
Sweden is one of Europe’s wealthiest states and the biggest Nordic economy, but it has an Achilles Heel – a property market where banks have lent more than 4 trillion Swedish crowns ($360 billion) to homeowners. Weighed down by these home loans, Swedes are twice as heavily indebted as Germans or Italians.
Earlier this year, the International Monetary Fund flagged Sweden’s historically high household borrowing coupled with debt-driven commercial property firms and their dependence on local banks as a financial stability risk.
The property crisis accelerated this month when pension fund Alecta, which owns a 38% stake in Heimstaden Bostad, said Sweden’s biggest residential landlord needed cash and it may contribute.
Swedbank estimates the current shortfall for Heimstaden Bostad could be roughly 30 billion crowns ($2.7 billion).
Sweden’s financial regulator launched an inquiry into why and how Alecta had invested $4.5 billion in the property giant, in the first place. Its troubled investment accounts for 4% of its funds.
Christian Dreyer, a spokesperson for Heimstaden, said it had made “good progress covering 2024 bond repayments”, and was “not reliant on immediate capital injection for meeting our obligations”.
But he also signaled that the company was open to other support.
GOVT GETS READY
As the property crisis widens, Sweden’s government is readying for action while crossing its fingers that it will not be needed.
Earlier this year, Karolina Ekholm, Director General of Sweden’s Debt Office, said the government had a light debt load and could afford to borrow more to intervene, addressing the possibility of giving credit guarantees or subsidised loans.
One person familiar with government thinking said that while the state was willing to help in principle, it was conscious of the potential political backlash of supporting companies which had taken big risks.
Heimstaden’s Dreyer said it was examining a “potential recapitalisation from existing shareholders” and was confident it could “mitigate financial risk” in part through bank financing but expressed openness to other forms of support.
“While we’re not dependent on external support, we could consider suitable governmental programs if available,” Dreyer said.
In public, the government has sought to play down the crisis.
“There are potential problems that we must keep close eyes on,” Financial Markets Minister Niklas Wykman told Reuters, shortly before Heimstaden Bostad’s problems became public. “We know that rain and snow is coming. But we have shelters.”
“The government is ready to act to secure financial stability if there should be any threats or turmoil,” he said, cautioning that the problems of individual firms did not mean the wider sector was in trouble.
Sweden is among the first European countries to find itself struggling as interest rates climb because much of its property debt is short-term, making it a harbinger for the wider region, where the rising cost of money has also rocked Germany.
Roughly half of Swedish homeowners have floating-rate mortgages, meaning rate hikes quickly trigger higher bills for them.
Its developers, meanwhile, often relied on shorter-term loans or bonds that have to be replaced with pricier credit.
Heimstaden Bostad and other companies such as struggling SBB (SBBb.ST) grew quickly, in part by selling cheap short-term Eurobonds, which has since become tougher.
“We’ve seen a crazy housing boom. We’re not seeing a bust – yet,” said David Perez, a Sweden Democrat lawmaker. “If interest rates continue to rise and it’s coupled with unemployment, that’s what we are afraid of.”
With interest rates still climbing, analysts such as Marcus Gustavsson of Danske Bank, believe the worst is not yet over.
He reckons that Swedish residential property prices have fallen by roughly 10% and that the property market may only be half way through the rout.
“Until recently Swedes were bidding up the price of homes with funny money,” said Andreas Cervenka, author of “Greedy Sweden”, a book examining inequality driven partly by the housing boom.
“With rising interest rates, that funny money has turned into real money and it is painful.”
($1 = 11.1242 Swedish crowns)
Additional reporting by Simon Johnson and Johan Ahlander in Stockholm, Greta Rosen Fondahn in Gdansk, Chiara Elisei in London; Writing by John O’Donnell; Editing by Hugh Lawson
Our Standards: The Thomson Reuters Trust Principles.
Terraced houses are seen in Liverpool, Merseyside, Britain May 28, 2023. REUTERS/Carl Recine/File Photo Acquire Licensing Rights
LONDON, Sept 14 (Reuters) – British house prices showed the most widespread falls in 14 years in August as demand weakened against the backdrop of elevated mortgage costs and economic uncertainty, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) house price balance, which measures the difference between the percentage of surveyors seeing rises and falls in house prices, slumped to -68 in August from -55 in July.
Thursday’s house price balance marked the weakest reading since February 2009 and was below the -56 forecast in a Reuters poll of economists.
Simon Rubinsohn, chief economist at RICS, said the survey pointed to a sluggish housing market with little sign of relief in prospect.
“Prices are continuing to slip albeit that the relatively modest fall to date needs to be seen in the context of the substantial rise recorded during the pandemic period,” Rubinsohn said.
The survey results echoed other signs of slowdown in the property sector.
Mortgage lenders Halifax and Nationwide have both shown prices falling in monthly terms as the Bank of England’s sustained run of interest rate rises, persistent inflation and a prolonged cost-of-living crisis squeeze home-buyers.
Official figures, released on Wednesday, showed the country’s economy shrank by a sharper-than-expected 0.5% in July after public sector strikes and unusually rainy weather weighed on output.
Overall across Britain, RICS’ measure of agreed sales was the weakest since April 2020 when much of the property sector was on lockdown due to the COVID-19 pandemic, and new buyer enquiries fell marginally from the month before.
In the rental market, tenant demand continued to outstrip landlord instructions, limiting the number of available homes to rent, while a net balance of +60% surveyors expect to see a rise in rental prices over the coming three months.
Separate figures from property website Zoopla on Thursday showed the joint-highest rental affordability squeeze, with tenants spending 28.4% of their earnings in July on rent.
Reporting by Suban Abdulla, editing by Andy Bruce
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