Property developers in China move into mining
A slump in the real estate market and the continued monetary tightening by the Chinese is pushing many property developers to seek higher returns in the mining sector, notably gold.
Author: Shivom SethPosted: Monday , 11 Jul 2011
MUMBAI -
China appears to be facing a real estate slump. As home sales fall, property developers are getting into mining in a big way, producing gold, lead, zinc and molybdenum. According to the China Mining Association, at least 15 property developers have tapped the mining industry recently with a total investment of about $3 billion by end-June.
Though the government in China has adopted various measures to cool the property market and curb rising prices, real estate developers have been struggling with declining home sales. The Chinese central bank also hiked bank reserve ratios 10 times in the last 18 months to a record high of 21%. Interest rates have also gone up four times since October in an attempt to fight inflation.
Analysts have said that in addition to monetary policies that have raised property developers' borrowing costs, 35 major cities restrict residents from buying second or third homes. What has also added to the woes of real estate majors is the higher down payment requirements for mortgages, and high property taxes.
From January to May, land sales in 128 Chinese cities fell by 5% year-on-year to $102.45 billion, while residential land sales also slid, according to data from CEBM Group, a Shanghai-based real estate investment advisory firm. According to available data, the free cash flow of 84 property developers that recently filed their annual reports for 2010 to the Shanghai Stock Exchange stood at a negative $10.79 billion. For developers with sufficient cash in hand, it was natural to enter the mining sector.
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