13 April 2012

Chinese Real Estate Market Struggling

Story first appeared in the Wall Street Journal.

SHANGHAI—A property developer in China's Hangzhou city has filed for bankruptcy protection, falling victim to the government's two-year campaign to rein in property prices and pointing to wider problems ahead in the country's real-estate market.

Analysts said the financial woes of Hangzhou Glory Real Estate Co., a small developer, won't drag down other firms in the hard-hit property sector. But they said that other weaker players could see similar strains. Small developers may find themselves in need of the services of a Shanghai Bankruptcy Lawyer soon, unfortunately.

Bankruptcy proceedings for Hangzhou Glory Real Estate have begun, an official at the Yuhang district court in Hangzhou said on Wednesday. The date of the filing wasn't clear. Calls to the company—whose Chinese name is Jin Xing, or Gold Star—went unanswered. Attorneys at T&C Law Firm, which is handling the company's bankruptcy filing, couldn't be reached for comment.

Hangzhou Glory Real Estate has delayed delivery of some homes at its only project, West City Times Home, a saleswoman said by phone. She declined to give further details.

The company is based in Hangzhou, the capital of coastal Zhejiang province and a magnet for well-to-do speculators looking for high-end real estate. The West City Times Home project is near Hangzhou's famous West Lake, a coveted area for wealthy Chinese.

It's normal to see some small-sized, cash-strained property developers go bankrupt following a two-year tightening cycle.  Other smaller firms could be in danger, although blue-chip developers should be safe for now at least.

The central government has set restrictions on home purchases and tightened credit to developers as part of its campaign to keep prices from spiraling higher. Average housing prices in Hangzhou fell 0.5% to 20,261 yuan (about $3,211) a square meter in March from a month earlier, according to data from the China Real Estate Index System.

Local authorities have also set restrictions in an effort to tamp down prices, though some have tested loosening those limits to let prices rise again.

Officials in the city of Zhongshan in China's southern Guangdong province on Tuesday said they set new average price targets for newly built homes for the second half of the year. The move effectively raised a price ceiling for inner-city homes. The land bureau there set an average price target of 7,696 yuan a square meter for the city area and 6,290 yuan a square meter for town areas surrounding the city.

Zhongshan in late January set a price ceiling for newly built homes in both the city and town areas of 6,590 yuan a square meter, raised from 5,800 yuan a square meter set in November.

For more real estate related news, visit the Commercial and Residential Real Estate Market Blog.
For more law related news, visit the Nation of Law blog.

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