- Homebuyers of projects that are subject to construction halts are calling to suspend their servicing of mortgages before resumption of project constructions
- We believe this can potentially become an unneglectable risk if the government fails to timely contain the movement
- Physical market recovery witnessed since June will likely take a halt, especially for the primary new home sales market
- Surviving developers will likely face tougher liquidity pressure
- We recommend to stay with unaffected quality names upon looming uncertainty in the sector
An increasing number of homebuyers are calling to stop their servicing of existing mortgages on projects that have halted construction and/or are subject to delivery uncertainty.
A significant risk if uncontained in a timely manner. The number of projects involved in the mortgage suspension activity has increased dramatically from c.30 on Monday to >100 by this morning. In the event that the government fails to step up and settle this issue in a timely manner, we believe more mortgage borrowers will join the movement and number of involved projects will likely increase at an exponential rate and pose unneglectable uncertainty to both the physical market and to surviving developers.
Recovery witnessed will likely take a halt, primary sales market to take a hit. We believe this will likely pause the wave of presales recovery we have been witnessing since the second half of June in the physical market, particularly for uncompleted projects developed and presold by developers that are deemed weaker in financials (i.e. non-SOEs, aside from Longfor). Homebuyers will likely step back and stay on the sideline for clarity over the development of the matter.
Surviving developers to face tougher liquidity pressure. On one hand, cash collection will be affected as the approval for mortgages will likely be affected at least in the near term for the surviving developers. On another, surviving developers will likely be losing flexibility over construction pace, which will put pressure on its operating cashflow. These will likely put additional weights on their liquidity and adversely affect their repayment capabilities.
Looming uncertainty; stay put for clarity. We believe the physical market recovery witnessed since June will likely be temporarily put out by the rising uncertainty stemming from this phenomenon. Surviving higher beta names of Country Garden (2007 HK), CIFI (884 HK) and the like will likely face sell-off pressures in the near term and witness stronger headwinds over liquidity. With this in mind, we resume our conservation on the property development sector and recommend investors to stay with unaffected quality names of COLI (688 HK), Longfor (960 HK), CR Land (1109 HK), Yuexiu (123 HK) and COGO (81 HK).
Projects whose homebuyers have vowed to suspend mortgage payments
Source: Local news