2020 may turn out to be a watershed year for Chinese property developers as they face a slowing economy, regulatory constraints both on financing and demand ends, as well as intensified competitions within the industry. Under the backdrop of tightened policies and regulations, we believe contracted sales growth rate may be gyrating around zero or even dipping into a negative territory in 2020. While we do not expect any material change of policy stance in 2020, we will not rule out any loosening of purchase restrictions under the “one city, one policy” stance.
China’s economic growth will likely slowdown in 2020 amid the ongoing deleveraging campaign. In addition, China’s ongoing trade tension with the U.S. will further dampen the growth of its GDP and foreign currency reserves which put pressure on its currency RMB. Furthermore, many Chinese property developers are facing re-financing schedules of upcoming maturing bonds in 2020 and 2021. Bond investors shall pay close attention to the liquidity positions and debt maturity profiles of these Chinese property developers.
We also believe large property developers with leading market position, strong and diversified financing channels will continue to outperform. The same cannot be said for smaller property developers. Medium-to-small property developers with high operating efficiency (i.e. higher asset turnover, on-pace delivery of properties), sufficient land bank on balance sheet to support contracted sales growth, and improved debt maturity profile will likely outperform. We also expect polarization to intensify within the industry in which large-to-medium property developers will likely gain at the expense of small ones in terms of market share, funding, regional dominance, as well as land acquisitions.