Sunac China's unit in Shaoxing faces liquidity pressure as government cooling measure stops it collecting sales revenues

heavily indebted property developers, market-cooling measures, , China’s biggest asset buyers, LeEco group of companies, China’s home prices

A local subsidiary of Sunac China Holdings, one of China’s most heavily indebted property developers, has come under liquidity pressure, as it was prevented from collecting sales revenues by the government’s market-cooling measures.

Sunac’s unit in the Zhejiang provincial city of Shaoxing has had to wait for local authorities to register the titles of its apartments, preventing the developer from collecting more than 4 billion yuan (US$619 million) in sales proceeds, according to sources familiar with the matter.

“We have nearly 600 sold units pending online registration, which involves the release of about 1 billion yuan in mortgage loans,” said an internal letter seen by South China Morning Post.

Under mainland Chinese regulations, sales contracts must be registered on the city government’s online platform before a buyer can get a mortgage from a bank. But the Shaoxing government recently suspended registrations in a move designed to keep home prices in check, according to one of the sources, who did not wish to be identified.

heavily indebted property developers, market-cooling measures, , China’s biggest asset buyers, LeEco group of companies, China’s home prices

Gearing ratio of China’s highly leveraged developers. SCMP Graphics

He said the local authorities would wait for more low-price homes to be sold in order to bring down the city’s average selling price and avert pressure from the central government to contain the market.

Sunac said demand for its huge, 7.7 billion-yuan Town of Shaoxing Wine project, which combines tourism, commercial and residential elements, has taken a hit as a result. Sales have been tepid as buyers fear they might encounter problems obtaining mortgages.

The developer said it has collected only 200 million yuan from pre-sale proceeds since it was launched in August.

In the draft letter, which was leaked to the media on Friday, the Tianjin-based developer urged the Shaoxing government to resume and speed up the online registration process, and said it hoped business could soon return to normal.

In response to mainland media reports about the letter, shares of Sunac China plunged 9.37 per cent to close at HK$12.96 on Monday.

In 2017, Sunac was one of China’s biggest asset buyers, going on debt-fuelled 100 billion yuan (US$14.9 billion) shopping spree for theme parks, a video streaming company and a carmaker.

The developer, chaired by Sun Hongbin, poured in 15 billion yuan to bail out fellow Shanxi entrepreneur Jia Yueting and his LeEco group of companies, which had run up huge debts funding a business that stretched from video streaming and movies to making an electric car.

It paid 43.8 billion yuan for 13 tourism-related projects including theme parks from the Chinese tycoon Wang Jianlin in July of 2017 when Dalian Wanda Group was subject to the Chinese government ‘s scrutiny.

In August of this year, the developer saw its sales drop 30 per cent to 45.06 billion yuan from 2020, according to its filing to the Hong Kong stock exchange.

Sunac’s liquidity problems come amid the debt crisis at China Evergrande Group, which accumulated more than 1.97 trillion yuan (US$305 billion) of liabilities.

“China’s authorities will seek to prevent Evergrande’s troubles from hurting the company’s home-buyers, suppliers and contractors. However, the company’s financial strife could restrict funding access for property companies and Chinese issuers, damage the asset quality of certain banks, and disrupt the real estate market, which is an important driver of economic growth,” said Michael Taylor, a Moody’s managing director and chief credit officer for Asia-Pacific.

He said Moody’s outlook for China’s property sector is negative, given the tight funding conditions and a likely slowdown in sales nationwide in the next six to 12 months.

“Investor concerns about the impact of tight regulatory conditions on funding and Evergrande’s distress have weakened funding access for developers, and intensified credit polarisation. Financing conditions for weaker developers will remain tight for some time,” he said.

China’s home prices grew at the slowest pace for eight months in August, as buying confidence took a hit from the government’s cooling measures. Evergrande’s troubles also weighed on sentiment.

The average price of new homes across 70 major cities rose 0.2 per cent month on month in August, slowing from a 0.3 per cent increase in July, according to figures released by the National Bureau of Statistics on September 15. In February, prices increased by 0.4 per cent, the highest this year.

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