SINGAPORE – The crisis surrounding China’s property sector continues to rumble, but Singapore property developers and banks with operations in that country may escape without serious harm, said market watchers.
That is because Singapore developers in China are not saddled with the liquidity problems afflicting their Chinese counterparts. And some have dodged a bullet because they mainly have operations in cities relatively unaffected by the crisis.
Similarly, Singapore banks have very limited exposure to China’s property sector and should not be troubled by the prospect of non-performing loans there.
On the other hand, the troubles facing some of China’s largest developers continue unabated and could affect China’s broader economy unless they are brought under control. For now, the can has only been kicked farther down the road.
Country Garden, China’s largest privately owned developer by sales, narrowly averted default for the third time over the past month after creditors agreed to extend repayment terms on seven of its local bonds.
One of the seven bonds had repayment obligations that would have been due on Thursday. The vote on the eighth bond has been delayed to Monday.
China’s property sector has been in the doldrums since the authorities introduced “the three red lines” policy to limit excessive borrowing by developers in 2020. In 2021, one of China’s largest developers, Evergrande, with debts running into hundreds of billions of dollars, started missing debt payments and filed for bankruptcy protection in August.
Since then, developers – particularly private ones – have struggled with sales as spooked buyers, afraid that the developer may go bust – have put off purchases. Banks have been hit by non-performing property loans, but Singaporean entities are relatively safe, observers said.
China-focused real estate players listed on the Singapore Exchange include Yanlord Land, Hongkong Land, Keppel Land and CapitaLand Investment.
Mr Pramod Shenoi, head of Asia-Pacific financial research at CreditSights, said Singapore-listed property developers in China “have the liquidity to complete whatever projects they started”.
Morningstar equity research analyst Jeff Zhang said Yanlord Land, for example, was lucky to be present in larger wealthier cities, less affected by the slump.
As at June 30, 88.7 per cent of Yanlord Land’s landbank is in Tier-1 and 2 cities, where housing demand has remained relatively robust.
The other Singapore developers are also in the richer cities in China.
The bulk (43 per cent as at June 2023) of Keppel Land’s residential landbank is in China, but the projects are mainly in Tier-1 cities like Shanghai, Chengdu, Tianjin and Nanjing.
Home sales in China also picked up in the first half of the year as Keppel Land sold 1,200 units.
That represented an increase of 150 per cent from the same period last year.
Meanwhile, Hongkong Land has five residential projects, which are all in the first-tier cities of Shanghai, Nanjing, Wuhan, Hangzhou and Chengdu.
Hongkong Land said in its first-half results briefing in July that the “focus on premium residential products in a select number of top-tier cities has resulted in a better sales performance than the general market”.
Another Singapore property giant, CapitaLand Development, has 13 residential projects in Tier-1 cities and one project in Kunshan, which is near the Tier-1 city of Suzhou.
And while non-performing loans have risen over the past couple of years, the situation is not of immediate concern as many Chinese banks have government support, said Ms Sheana Yue, China economist at Capital Economics.
Mr Michael Makdad, senior equity analyst at Morningstar, added that the exposure of the three Singaporean banks – DBS, UOB and OCBC – to China’s property sector is “not very large relative to their overall loan books”.
Among the three banks, Mr Makdad thinks DBS will be able to manage any credit contagion risks better than its peers.
“Losses are a function not only of a bank’s absolute exposure, but also its ability to manage its exposure,” he said, adding that “DBS may come out better than the other banks whose exposure is actually smaller”.
A DBS spokesperson added that the group’s asset quality remains resilient and its non-performing loan ratio is unchanged at 1.1 per cent in the second quarter.
A spokesperson for UOB said the bank’s China real estate exposures are relatively small.
Any loans are well-secured by collateral and borrowers are either clients who are backed by network sponsors, or state-owned enterprise (SOE) developers, the spokesperson added.
Network sponsors refer to the companies or conglomerates, who act as guarantor for the borrowers, and who UOB has a strong and extensive banking relationship with.
SOE developers are regarded as relatively more resilient as they have not encountered as sharp a decline in new home sales as their private developer peers, said Ms Yue.
She added that state developers are backed by the government and hence are likely to have better access to funding for their projects.
Even so, weaker state developers like Sino-Ocean and Greenland Holdings had their credit ratings downgraded by Moody’s in July.
Sino-Ocean suspended payment on eight of its US dollar bonds this week, saying it has insufficient funds. Beijing-based Sino-Ocean is the 25th biggest developer with more than 290 property projects in the country.
The developer is also one of the top home sellers in the Tier-1 cities of Beijing and Tianjin, according to its 2022 annual report.
Another state-backed developer, Greenland Holdings, missed payment on a dollar bond in July.
Among the private sector developers, Country Garden was the latest high-profile casualty in a crisis which has already hit others like China Evergrande, Sunac China, Shimao Group, Fantasia and Kaisa Group.
Market watchers warn that more developers, both state and private developers, could run into credit problems going forward.
And, with the property sector accounting for roughly a quarter of economic activity, there are fears of negative spillover into the broader economy.
Since real estate investments make up a large share of household wealth in China, Chinese consumers will experience a negative “wealth effect” and be less inclined to spend on discretionary items like cars and overseas travel, said Maybank Securities economist Erica Tay.
Ms Yue added that Asian economies such as Singapore, Japan and Thailand, which rely on Chinese travellers to drive tourism revenues, will face headwinds.
However, she noted that worries over slowing trade with China are over-done, as “China is mainly an intermediary and not many countries are exposed to the country for final demand”.
In fact, Ms Yue said for most countries that rely on China, “only about 2 per cent of their gross domestic product will be affected”.
“The spillages from China are not really as big as most people are saying,” she noted.
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