Agile Property Stops Land Purchase, Slows Projects to Counter China Curbs
Agile Property Holdings Ltd. (3383), the Chinese developer in which JPMorgan Chase & Co. owns a stake, will stop buying land until at least February and is slowing construction at some projects as sales dwindle amid the government’s property curbs.
“We have put a full stop on land purchases,” Vice President Alex Liu said yesterday in an interview in the southern Chinese city of Guangzhou, which neighbors Zhongshan, where Agile is based. “We’ll stop for at least the next three months and probably assess the situation again after Chinese New Year.” The Lunar New Year runs Jan. 23-25.
Developers are lowering home prices on the outskirts of major cities to combat slowing sales after the government expanded property curbs this year including raising down-payment and mortgage requirements, and imposing purchase restrictions in about 40 cities to avert an asset bubble. China’s home prices in October had the worst performance this year, falling in 33 out of 70 cities monitored by the government from September.
Agile will stop or reduce the scale of some of its on-going projects to help the company lower its expenditure on construction, Liu said. It is also cutting prices of “selective units” at some of its projects to boost sales, Liu said.
Agile shares rose 1.8 percent to HK$5.56 at the close of Hong Kong trading, after dropping as much as 3.5 percent. They declined 51 percent this year, compared with a 24 percent drop in the MSCI China Index (MXCN), which includes Agile.
Seeking Cash Flow
Evergrande Real Estate Group Ltd. (3333), China’s second-biggest developer by sales, will stop buying land and slow construction of new projects next year, the Hong Kong Economic Journal reported Oct. 21, citing an unidentified executive from the company.
China Vanke Co. (000002), the nation’s biggest builder, said this week it may adjust prices at some projects though it has no plans to do it nationwide. The builder is offering discounts to buyers in Beijing and Shenzhen, 21st Century Business Herald reported on Nov. 1.
“During a tight market you need to sell for cash flow, and when the market is hot, you sell for profit,” said Agile’s Liu. “Right now we’re selling some leftovers from some projects at reduced prices, but the ones that we sold earlier have already given the projects very good return.”
Longfor Properties Co., a developer controlled by China’s richest woman Wu Yajun, said it sold all 216 units put up for sale at a Beijing project last weekend with marginal profit. Guangzhou-based Hopson Development Holdings Ltd. sold a project in Beijing with zero profit, Beijing Business Today reported this week.
China’s property market has reached a “tipping point,” Nomura Holdings Inc. said this week. Home prices may fall by 10 percent to 30 percent next year, according to Barclays Capital Research.
Agile is now aiming to build up its cash reserves so it can begin buying land at discounted prices “after the winter has passed,” said Liu. “But that won’t happen soon. It will have to wait at least until home transactions pick up first.” The developer’s landbank has 32 million square meters (344 million square feet).
China’s October housing transactions fell for the first time in three months, declining 25 percent from September, according to government data.
Analysts including Macquarie Securities Ltd.’s David Ng have lowered sales estimates for Agile this year from 37 billion yuan ($5.8 billion) set by the company earlier, amid declining sentiment as the government cracks down on property prices.
“There’ll be some difficulties for us to meet that target at the current market conditions,” said Liu, declining to give a revised target.
Agile was started by Chairman Chen Zhuo Lin in 1992 with capital from the furniture business he founded almost a decade earlier. The developer’s first project was holiday homes aimed at Hong Kong buyers. It began targeting local Chinese buyers after the city’s economy was damped by the 1997 Asian financial crisis.
JPMorgan, with 5.9 percent of the company, is the biggest shareholder after Chen’s family, according to data compiled by Bloomberg.
The developer is now expanding outside its home province of Guangdong to tap demand for private housing fueled by China’s growing middle class. Its 9 million square-meter resort and villa project in Sanya, Hainan Island province, may generate about 10 billion yuan in annual sales for the company over the next 10 years, according to Macquarie’s Ng.
The developer is also planning to build a resort project in the southwestern Chinese province of Yunnan, with an initial investment of 1.5 billion to 2 billion yuan, Liu said.
Agile had profit, excluding after-tax fair value gains on investment properties, of 2.6 billion yuan in the six months ended June 30.
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