December 2, 2008 - Chinese Developers, Beijing China

Suffering from a slumping housing market, Chinese developers are scrambling to find new ways to keep the cash flowing in and creditors at bay, with anything from factories to timeshares in their sights. An oversupply of new apartments in an economic downturn, and the lingering effects of government steps to stamp out rampant property speculation have sent home sales and prices tumbling.

Capital markets are closed, and loans have dried up.

"Banks give you an umbrella when it's sunny and want it back when it's raining," said Li Xiaodong, chairman of J&J Assets Management, whose $300 million fund invests with property firms.

"So you have to choose products that are more suitable for the market at the moment," he advised developers at a conference in Beijing. "There's money out there, but there's no confidence."

In a five-year boom, China's developers grew quickly and notched up huge profit margins, often of as much as 50 percent, as they built on land accumulated cheaply and sold apartments in a fast rising market.

But many who bought land at a 2007 price peak are suffering now, with sales down by as much as half from last year. The country's biggest developer, China Vanke, has slashed prices by a third, and others have gone further. And now they are looking away from housing.

Beijing-based Antaeus Group is selling rooms at Hainan island resorts, giving buyers stays of 30 days each year and a share of room rates.

"A lot of movie stars and real estate developers are buying," said the firm's chairman, Zhang Baoquan.

"We need to survive the winter," he said of the market downturn. "But once spring comes, demand will be released."

"BAD TIME"

Shanghai-listed developer Vantone Estate aims to spend 3 billion yuan ($435 million) on industrial property in the next couple of years, according to Dongwei Wu, general manager at the unit responsible for the venture.

His first deal, which is still being negotiated, is for a factory in Wuxi that will be bought and leased back to a television maker faced with slowing exports.

"We're trying to diversify," Wu told Reuters. "There are a lot of companies that bought a lot of land very cheaply, or for zero because local governments gave it to them," he added.

"But now is a very bad time, so they're trying to get more cash in and divesting assets."

Holding investment properties usually produces much lower returns on assets than building homes because equity is tied up for much longer.

But Hong Kong developers have used the tactic well to smooth earnings, in a volatile property market. Office and retail rents are typically renegotiated every three years, while industrial and warehouse property leases can last a decade.

Developers Soho China, Poly Real Estate and Shanghai Forte Land are among prominent office landlords in China. But even they might fall victim to sliding property prices, needing to inject more equity into their buildings as banks refuse to refinance loans at former levels.

"It's very risky," said Zhao Bingdong, vice president for property finance at Credit Suisse in Shanghai.

"As 2006-2007 loans mature in the next two years, we'll find that the rental rate of commercial buildings has fallen and refinancing capabilities will be lower."

Many firms have unsold apartment blocks or empty hotels that they want to sell as timeshares -- an industry that is only just catching on in China but could grow to as big as the U.S. market, worth $10 billion in sales last year, according to Gavin Cheong, Asia head of business development at timeshare firm RCI Group.

"Developers have approached us for our help and possible partnership," Singapore-based Cheong said. "In China, there's a very strong instinct of 'where's the money?," he added.

Original Story - Reuters