The cash flows of Chinese property developers fell this year after a decade of steady growth.
According to an analysis from the firm's lead economist, developer cash flows through July are down 25% on an annual basis.
The data shows that growth has slowed every year since 2009. The total funding as of July was more than double what it was in the previous year.
Credit demand in China fell short of expectations in July.
Two years ago, Beijing began to crack down on developers using debt for growth. Last year, Evergrande failed. Even though they appear to have healthier balance sheets, other developers have Defaulted.
While investors have turned cautious on Chinese property companies, developers are at risk of losing another important source of cash flow.
A lot of homes are sold in China before they're finished. Some home buyers have stopped mortgage payments in protest of apartment construction delays.
According to a report last week, the crux of the problem is that property developers have insufficient cash flows, whether because of debt servicing costs, low housing sales, or misuse of funds.
Improving developers' financial health will be a result of resolving this problem.
According to Morgan Stanley, more than $2 billion in high-yield property developer debt is due in September.
According to a report by the U.S. investment bank, 25% of people who bought property before their completion are likely to stop their mortgage payments if construction is stopped.
Property and industries related to real estate make up more than a quarter of China's GDP. The economy has slowed this year due to the real estate slump.
In an effort to support growth, the People's Bank of China has cut rates, including an unexpected cut on Monday of 10 basis points to some one year interest rates for institutions.
Bruce Pang, chief economist and head of research for Greater China at Jones Lang Lasalle, said the problem isn't just about funding, it's also about affordability.
It has become harder for developers to get funding on their own and they have had to rely more on pre-sales. People are more cautious about buying new homes because of their expectations for future employment and returns on investment products, he said.
The central government has yet to officially announce support for real estate despite multiple reports. Local governments are responsible for delivering houses, according to a readout of a high-level government meeting.
The analysis shows that advance payments and deposits have fallen the most this year.
The data showed that self-raised capital, including stocks and bonds, was down by 17%.
Investment funds have shied away from Chinese property developers.
The lack of willingness and speed by top policymakers in resolving real estate developer's funding issues has been worrying.
Brandywine holds high quality real estate bonds that have been given preference in terms of government support.
Some investors have turned to companies in other countries.
Most of our holdings in China residential have been exited. It's more of a wait-and-see game when it comes to getting back exposure. She wouldn't give a time frame of those sales.
She said that there are still many alternatives in the region and that the fundamentals are strong.
Japan Metropolitan Fund Invest is one of the top holdings in her co-managed fund.
Some funds have turned away from China property to other Asia high-yield sectors, such as Indian renewable energy companies and Indonesian property, according to a report by Patrick Ge.
Money invested in China property funds fell over the course of six months.
According to the report, the investment giant was buying China real estate bonds.
The asset manager didn't reply to CNBC's request.
Michael Bloom was a contributor to this report.
All Rights Reserved © 2024
