PROPERTY | China Overseas Land plunges after sale of homes is blocked

Cranes operate at a residential construction site in Beijing

China Overseas Land & Investment Ltd. led property stocks lower in Hong Kong after authorities in the southern city of Shenzhen blocked unit sales by the company and other developers.
China Overseas Land tumbled as much 7 percent, the most since March 4, 2013, and traded down 3.8 percent at HK$24.30 as of 1:17 p.m. local time Friday. Fantasia Holdings Group Co. fell 3.7 percent, while Guangzhou R&F dropped 4 percent. The benchmark Hang Seng Index slid 0.8 percent.
More than 2,800 apartments developed by China Overseas Land, along with homes by other homebuilders including China Merchants Property Development Co. in Shenzhen, would not be allowed for sale, the local land bureau said on its website, without citing a reason. China Overseas Land said all the blocked units have been sold and the move won’t affect its business or finances, according to a company statement.
The Shenzhen authorities’ expanding restriction of property sales is fueling investor concern that developers are getting caught up in a government anti-corruption drive. Kaisa Group Holdings Ltd., which this month missed a coupon payment on a USD500 million bond and also had units barred from sale in the city, is being investigated for alleged links to Jiang Zunyu, Shenzhen’s former security chief who was taken into custody over a graft probe, according to two people familiar with the matter.
“Risk aversion among investors has increased noticeably,” Alan Jin, Hong Kong-based analyst at Mizuho Securities Co., said by phone. “When people don’t know what actually happened, they always fear something bigger may be coming.”
The yield premium on China Overseas Land’s $300 million of 5.35 percent notes due 2042, sold at a spread of 255 basis points in November 2012, jumped 37 basis points to 363 basis points as of 11:55 a.m. in Hong Kong, the highest since February 2014, according to prices compiled by Bloomberg.
Shenzhen’s land and resources commission said on its official microblog Friday that authorities block transactions if developers are found to have violated laws or rules. Transactions may also be temporarily suspended for “normal processing,” it said.
The blocked China Overseas Land units belong to a social-housing project it built for the local government and handed over in 2013, and the developer doesn’t own them anymore, Hugo Hou, Hong Kong-based analyst at Haitong International Securities Co., wrote in an e-mailed note.
“Unlike some of the aggressive regional private developers, China Overseas Land is a prudent large national state-­owned enterprise whose project acquisition and development activities have been standard,” Hou said. “We believe this has little to do with the company’s operations, and investors don’t need to overreact.”
Mizuho raised share-price forecasts for China Overseas Land and China Resources Land Ltd. as their state-owned background has become “more valuable,” Jin wrote in an e-mailed note dated Thursday.
“I still believe the state-owned developers, particularly the big ones, are relatively safe” because they face fewer risks from shareholder changes, he said Friday.
More than 2,300 units developed by China Merchants Property in Shenzhen are blocked from sale, according to the local land authority’s website. Two calls to the company’s branding department went unanswered.
“In the past, developers may have had projects blocked because they owed money to lenders or banks,” said Andy Lee, chief executive for Southern China at realtor Centaline Property Agency Ltd. “But now the restrictions seem to be targeting specific developers rather than projects, which is quite rare. Everyone is looking at this government website, talking about who’s next, but it’s all guessing.” Bloomberg