Chinese Builder Evergrande Offers Homebuyers Refund Option

Evergrande Real Estate Group Ltd., among China’s most indebted listed developers, is offering a refund option at its residential projects nationwide, a move that could help it attract more homebuyers.

Buyers can get their money back without giving a reason any time before the homes are delivered, according to documents provided by the Guangzhou-based company. The policy takes effect April 16, Evergrande said.

Chinese builders have trimmed forecasts for new-home sales this year as their debts rise amid a slowing real estate market. Evergrande, which was China’s second-biggest developer by floor area sold last year, missed estimates with an 82 percent plunge in 2014 core profit despite a 19 percent increase in revenue, according to JPMorgan Chase & Co. analysts.

“We see this as a sales strategy; it’s very rarely done,” said Franco Leung, a Hong Kong-based senior analyst at Moody’s Investors Service. The campaign could weaken the company’s cash flow as it typically uses sales proceeds to fund construction, “but the level of impact would depend on how many people actually seek refunds,” he said.

Evergrande shares rose 1.9 percent to HK$4.76, set to close at the highest in nearly three years, as of 3:16 p.m. in Hong Kong. Chinese developer stocks rallied in the past month, outperforming the benchmark Hang Seng Index, as the government relaxed policies to aid the real estate market.

‘New Normal’

“Housing is a commodity and should have a refund agreement,” said Xia Haijun, Evergrande’s vice chairman, according to the documents. More developers should join in offering unconditional refund policies so it’ll become the “new normal,” he said.

Evergrande is targeting 14 percent increase in contract sales this year to 150 billion yuan ($24 billion) even as some of its competitors remain more conservative.

A slowing market is posing a risk to developers that funded rapid expansion using borrowing, with Evergrande the most indebted among 18 listed companies tracked by Bloomberg.

If treating perpetual equity instruments as debt rather than equity, Evergrande’s net debt was almost triple its common equity, according to Bloomberg Intelligence.

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