China's top property developers are not lowering their aggressive sales targets for the next three years even as the Chinese government continues to tighten its grip on the real estate sector, pushing up borrowing costs.
"There is no denying it is a very tough market," David Ng, head of China and Hong Kong property research at Macquarie Capital, said during a May 11 media round table in Hong Kong.
Ng said the current policy cycle of tightening — including price controls, home purchase restrictions and credit tightening — is longer than expected and is likely to remain in place until 2018-end.
Borrowing costs for Chinese homebuilders rose 1-2 percentage points on average in the past 12 months, according to Macquarie.
In the face of stringent policies and rising financing costs, however, big Chinese developers are not giving up on their growth ambitions, as the scale of sales has become the pivotal factor impacting market competitiveness.
China's top 30 developers by sales aim to achieve an average 30% climb in yearly contracted sales during the period between 2018 to 2010, the Australian investment bank said.
"Even if borrowing costs increased by this degree, they [wouldn't] change their three-year growth plans, " Ng said, citing a survey the bank conducted with some of the leading developers.
"The mentality is that if I don't get enough scale in the near-term, there's a risk of survival," he added, citing the condition of developers not being able to obtain bank loans or secure a piece of land as market conditions become challenging.
Major domestic banks now tend to only extend loans to some top 50 developers amid the country's deleveraging efforts, Ng added.
The executive stressed that the resilience capacity of Chinese real estate firms has continued to improve even after several rounds of property cooling measures in the country over the past several years.
Ng told S&P Global Market Intelligence that developers are coming up with different ways to cater to the current downturn in the market, such as tapping on shorter-term loans, launching projects faster or even asking homebuyers to pay higher down payments in order to boost cash collection.
Country Garden Holdings Co. Ltd., for example, recently requested to start project pre-sales within five months after a land purchase.
As a result, top Chinese developers continued to see strong contracted sales performance in the first four months of 2018. The major 32 real estate firms tracked by China Real Estate Information Corp., or CRIC, posted an average 24% year-over-year growth in their year-to-April 30 contracted sales.
Among them, Country Garden's contracted sales grew 26% year over year to 257.5 billion yuan, China Evergrande Group's rose 47% to 212.2 billion yuan, China Vanke Co. Ltd. saw a 3% increase to 198.7 billion yuan, and Sunac China Holdings Ltd.'s jumped 79% to 107.1 billion yuan during the period, according to CRIC data.
As of May 10, US$1 was equivalent to 6.35 yuan.