Chinese Property Prices to Decline in Next 12 Months, Shui On’s Lo Says
China’s property prices may fall in the next 12 to 18 months as banks curb loans to real estate companies, which may slow development, Hong Kong billionaire developer Vincent Lo said.
The government is pushing banks to hold back lending to property firms as it attempts to cool the housing market, said Lo, chairman of Shui On Land Ltd. (272) The developer received a Chinese bank’s approval for a loan, which was withdrawn as the lender had a policy change, he said in an interview with Bloomberg Television.
“We believe maybe the market is going to go through a tough time for another 12 to 18 months, and then I think it’s a good time to go and buy something” when prices are lower, said Lo, who’s known as “Mister Shanghai” after transforming century-old homes into a pub and entertainment project the city’s Xintiandi district.
China has expanded its property control measures this year, raising down-payment requirements and mortgage rates to ease gains in home prices. The government said in July it will rein in prices in smaller cities after limiting home purchases in markets such as Beijing and Shanghai.
The Shanghai-based developer has found a foreign bank for the loan for one of its projects in China, Lo said, declining to identify the development or the bank. Such cancelations are “happening quite frequently” to other real estate developers in the country, he added, referring to the Chinese lender which withdrew the loan it had approved for the company.
“For local developers, I think they would be going through a tough time right now,” Lo said. “That would bring the price down.”
Chinese regulators have told banks to tighten lending for real estate on concern credit risks will increase as the impact of government curbs deepens in the next three to five months, a person familiar with the matter said last month.
The property tycoon said he remains bullish on China’s residential and commercial property markets in the long term with more citizens moving into cities, creating demand for homes, shops and office buildings. “Right now, the commercial properties, if it is in a good location, good design, it will do very well,” Lo said.
Shui On said in June it will spend about 8 billion yuan ($1.3 billion) to develop an office and restaurant precinct under its Xintiandi brand near Shanghai’s smaller airport and high-speed rail station.
Heaven and Earth
Xintiandi, which means New Heaven and Earth in Chinese, is a residential and commercial complex built through the redevelopment of houses dating back to the 19th and 20th centuries located in downtown Shanghai. The project attracted local and international retailers and restaurants, including Paulaner Brahaus and Starbucks Corp. (SBUX)
Shui On is set to earn as much this year as it did last year, Lo said. “We’re still confident that we will deliver results that will be comparable to last year,” he said.
The company’s first-half earnings fell 50 percent compared with the year-ago period after it completed fewer properties. In the next two years, Shui On plans to sell more, Lo said.
“Next year we’re expecting to deliver over 10 million square feet, and the year after that we see a significant increase as well,” said Lo, who is developing projects in Shanghai, Wuhan, Chongqing, Fosan and Dalian.
Shui On plans to spin off its Chinese property leasing business next year in an initial public offering in Hong Kong, said Lo, who’s ranked the 19th richest person in the city by Forbes magazine, with an estimated net worth of $2.15 billion.
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