China’s real estate investment slows as caution sinks in

Real estate worries are adding to broader economic growth worries in China. (AFP)
Updated 19 October 2018
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China’s real estate investment slows as caution sinks in

  • Property increases downside risks to economy
  • September new construction starts up by a fifth

BEIJING: Growth in China’s real estate investment eased in September and home sales fell for the first time since April, as developers dialled back expansion plans amid economic uncertainties and as additional curbs on speculative investment kicked in.
A cooling market could increase the downside risks to the world’s second-largest economy, which faces broader headwinds including an intensifying trade war with the United States.
However, while analysts acknowledge increasing caution in the property market, they say investment levels are still relatively high, suggesting a hard landing remains unlikely.
Growth in real estate investment, which mainly focuses on residential but also includes commercial and office space, rose 8.9 percent in September from a year earlier, compared with a 9.2 percent rise in August, Reuters calculated from National Bureau of Statistics (NBS) data out on Friday.
“I think overall, China’s real estate market is still resilient, and the decline in sales is within our expectations,” said Virginia Huang, Managing Director of A&T Services, CBRE Greater China.
“There is no sign that the government has relaxed their control, but it still has many methods and tools to support the market if the economy deteriorates rapidly,” Huang said.
Real estate has been one of the few bright spots in China’s investment landscape, partly due to robust sales in smaller cities where a government clampdown on speculation has been not as aggressive as it is in larger cities.
The market has struggled as authorities continued to keep a tight grip over the sector, ramping up control in hundreds of cities. Transactions fell sharply over the period dubbed “Golden September and Silver October,” traditionally a high season for new home sales.
Property sales by floor area fell 3.6 percent in September from a year earlier, compared with a 2.4 percent gain in August, according to Reuters calculations, the first decline since April. In year-to-date terms, property sales rose 2.9 percent in the first three quarters.
China’s central bank governor Yi Gang said last week he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
The government has implemented four RRR cuts this year, releasing hundreds of billions in new liquidity to the market.
China has for several years pushed a deleveraging campaign to reduce financial risks, clamping down on shadow banking and closing many “grey” financing channels for real estate firms.
For many highly leveraged developers, there are already signs of increasing caution as exemplified by a surge in failed land auctions due to tight liquidity and thinning margins.
New construction starts measured by floor area, an indicator of developers’ expansion appetite, rose 20.3 percent in September from a year earlier, compared with a 26.6 percent gain in August, Reuters calculations showed.
That’s against the backdrop of seemingly looser funding conditions for China’s real estate developers, who raised 12.2 trillion yuan ($1.76 trillion) in the first nine months, up 7.8 percent from the same period a year earlier, the NBS said.
The growth rate compared with a 6.9 percent increase in January-August period.
“Many developers will face lots of maturing debt by the end of this year, and there are perceived risks in the economy, so they will be more cautious,” Huang said.
China’s housing ministry is considering putting an end to the pre-sale system that developers use to secure capital quickly, in an effort to crack down on financial risks in the property sector.
China’s home prices held up well in August, defying property curbs. But analysts expect additional regulatory tightening and slowing economic growth will soon take the wind out of the property market’s sails.
The National Bureau of Statistics will release September official home price data on Saturday.


Adnoc signs deal with Eni on Ghasha concession

Updated 13 November 2018
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Adnoc signs deal with Eni on Ghasha concession

  • ADNOC grants Eni 25 percent stake in ultra sour gas project
  • Follows Adnoc award to France's Total

LONDON: The Abu Dhabi National Oil Company (ADNOC) has granted the Italian oil company Eni a 25 percent stake in an off-shore gas mega-project, in a move that will support the emirate’s efforts to become self-sufficient in gas.
The energy company is now in discussions with other potential partners for the remaining 15 percent of the available 40 percent stake in the concession earmarked for foreign companies.
The award covers the Ghasha ultra-sour gas concession just off the coast of the UAE, including the Hail and Dalma and other offshore fields. Eni will contribute 25 percent of the development cost of the project which is likely to cost billions of dollars.
The deal comes just days after ADNOC awarded a 40 percent stake to French oil firm Total on Nov. 11 to explore and develop its Ruwais Diyab unconventional gas concession.
The Ghasha gas fields are estimated to hold trillions of standard cubic feet of recoverable gas, according to a company statement.
Once on stream, the project is expected to produce more than 1.5 billion cubic feet of gas per day. This could provide enough gas to supply electricity to more than 2 million homes, said ADNOC.
The project is set to produce 120,000 barrels of oil and high-value condensate per day once complete, the company said.
“ADNOC is committed to ensuring a stable and economic gas supply to the UAE, which is a core component of our 2030 strategy,” said Sultan Ahmed Al-Jaber, UAE minister of state and ADNOC group CEO.
“Development of our Hail, Ghasha and Dalma ultra-sour gas offshore resources, at commercial rates, will make a significant contribution towards delivering that strategic imperative and bringing forward the day when the UAE will not only be self-sufficient in gas but also transitions to net exporter of gas,” he said.
Eni won its first concession rights in the emirate’s oil and gas sector earlier this year, with Adnoc granting the Italian firm a 10 percent interest in its Umm Shaif and Nasr concession and a 5 percent stake in the Lower Zakum concession in March.
“We are pursuing a strategy of growing in the Middle East and today’s signature is further confirmation of our willingness to root our presence in Abu Dhabi,
following the agreements signed last March, with Adnoc,” said Eni CEO, Claudio Descalzi, in a statement.
ADNOC is exploring opportunities beyond Abu Dhabi, having also signed a framework agreement with the Uzbek energy company, Uzbekneftegaz on Tuesday.
The agreement will see the Gulf company provide advice on Uzbekistan’s upstream and downstream operations.