China Merchants Property is planning to raise 5 billion yuan through a private placement of new shares to help finance the acquisition of development land.
This is the latest move in a series of mega capital raising schemes by the country's leading real estate developers going on an expansion mode to take advantage of the recovering real estate market.
According to statistics from the National Development and Reform Commission (NDRC), property prices in 70 major cities were up 0.8 percent in June, the fourth month-on-month growth in a row this year. The average price of new homes in 36 medium- and large-sized cities rose to 6,554 yuan per sq m in June, up 6.3 percent from a year earlier.
"Currently, the average premium of China's housing market could be about 9 percent to 15 percent. But, in the short term, we don't expect a thorough adjustment period for the property sector like what Japan and the US experienced," said Lu Junlong, analyst, China Finance Online.
According to Lu, the industry chain of the property sector in China could contribute about 40 percent to the GDP. The government is making efforts to prompt the recovery of the property sector in order to maintain the GDP growth rate.
Lending to developers increased sharply recently following a period of credit restrictions, while mortgage lending has also accelerated, with the quarter-on-quarter annualized mortgage lending rising by 88 percent in the first quarter and likely to have continued at a rapid pace in recent months, Wang Tao, head of economic research in China for UBS Securities, said in a research note.
The quicker-than-expected property market rebound, largely driven by the loose monetary and credit policy and inadequate investment vehicles available for investors to fight looming inflation, has led experts to worry that the correction this time is incomplete and will sow the seeds for future problems.
"The over-abundant liquidity might result in asset bubbles and the over-heated housing market might restrain demand for self-use home buyers. The risks of an asset bubble could even surpass inflation," Wang warned.
With the rebound of the A-share market, listed developers have embraced chances to raise capital through additional share offerings, which has further eased their pressure on capital.
Recently, Poly Real Estate Group Co, the nation's second-largest property developer, got approval to raise up to 8 billion yuan through an additional share issue to fund eight projects. China Merchants Property and some listed developers too have followed in Poly's wake.
"Since the stock market is buoyant and policy is stable, the market could see more developers choosing share issues to raise funds in the near future," said Bai Hongwei, analyst with China International Capital Corporation.
For wiping out asset bubbles in the property sector, "it's important to develop the housing guarantee system to increase supply, while controlling land cost to assure profits for developers," Lu said. "The government is on the right track in doing it, but it takes time to take effect."
(China Daily July 29, 2009)