HONG KONG -- Property developer Sunac China Holdings has asked for "special policy support" from a city government to stem slowing sales, underscoring challenges faced by once high-flying companies in the world's second largest economy.
Sunac asked Shaoxing city -- famous for its yellow rice wine -- in eastern Zhejiang province for support as rules introduced in June had curbed demand and hurt local projects, according to a letter written by one of its units and seen by Nikkei Asia. The company did not specify what type of support it needed in the letter.
"We earnestly request the government to provide us with special policy support as our daily operation in Shaoxing is difficult to move forward and the situation is deteriorating every single day," Sunac said in the letter in Chinese.
Sunac did not reply to an email seeking comment on the letter, which went viral on Chinese social media. Property, which by some economist estimates contributes to as much as a third of China's gross domestic product, is facing a regulatory crackdown aimed at reducing risk and leverage in the financial system. Data this month showed home sales by value dropped 20% in August, and new housing starts in China fell 1.7% in the Jan.-Aug. period compared to the year before.
The crackdown included curbs on real estate company borrowing and has led the world's most indebted developer China Evergrande Group to the precipice of default. The company missed an offshore bond interest payment last week and is has not paid retail debt holders, banks, suppliers and employees on time, leading to suspension of work at more than half its 800 developments across the country.
Sunac, which is on a much stronger footing than Evergrande, said it had invested 7.7 billion yuan ($1.2 billion) into a multi-use project that spans tourism, business and residences, in Shaoxing. However, it sold only one to two units a week since it opened the project for sales in August. Since then it has recovered just over 200 million yuan in sales, according to the letter.
The news "reflects the current pressure on developers in terms of operations and liquidity management," Nomura credit analysts wrote in a note.
"However, we do not think it is Sunac alone who is facing difficulties on falling presales and slow cash collections. We actually believe the whole sector should be facing similar challenges and presales for September will decline materially due to a hold-off from purchasers on the Evergrande noise," the analysts said.
Nomura said the company had clarified to it that the letter was just an internal draft to communicate with the local government and it is not an official document. Sunac had also clarified that Shaoxing only contributed 2.4% of its presales in the first half and accounted for 2% of its land bank.
The analysts added that with Sunac's "improving capital structure," it was not a "near-term default candidate."
Still, shares in Sunac dropped 9.4% on Monday following a 6.9% decline in the previous session. This year the company has lost 45% of its market value and some of its offshore bonds were reduced to as low as 85 cents on the dollar on Friday from over 90 cents previously.
Sunac's unit said a series of tightening measures introduced by Shaoxing to control the rising house prices since June 3 had severely affected sentiment, with used housing sales slumping 62% year-on-year during the three months to August.
It is a similar story for newly-built housing, where the letter describes "the temperature of the overall [real estate] market is near freezing point."
The letter especially points to the dire situation of "Huangjiu Xiaozhen" -- a joint comprehensive development project, which literally means "Yellow liquor town" involving the local government.
The project's cash flow has "encountered very large hindrance and difficulties," it said. With support from the parent diminishing, the heavy cost of operation has forced the project "to enter an impasse."
The company estimates that a total of 11.7 billion yuan of cash is stuck in the eight projects in the city.