Asia Pacific: Chinese regulators announce tighter conditions for local developers seeking to raise funds offshore

Philippine offshore gaming operators a boon for landlords

The proliferation of offshore gaming operators in Manila (POGOs) has become a major boon for its office and residential sectors and minimizing the impact from the BPO sectors’ slowdown and large influx of office supply. At the end of 2018, there were 56 licenses POGOs compared to 36 back in 2016 while Chinese work permit holders numbered at c.110,000, nearly quadruple compared to two years ago.

Our thoughts: Not only has the surge in POGOs driven up office rents in Manila, the residential market has also benefitted from investors snapping up units to lease to Chinese companies as staff housing. Over the short to medium term, this trend is expected to continue as the country’s maintains its warm ties with China and local regulators continue to grant further gaming licenses.

Tighter conditions on Chinese developer offshore borrowing

In a move to reduce potential financial risks to its system, Chinese regulators announced tighter conditions on local developer offshore fund raising. Under the new rules, any new offshore bond issuance by real estate firms can only be used to replace medium to long term offshore debt maturing in the next year.

Our thoughts: Previously, developers were issuing offshore Dollar bonds at lower rates to fund various activities (e.g. repaying more expensive domestic debt, replenish working capital or acquire land). 1Q 2019 saw the issuance of US$47.1 billion in dollar-denominated bonds, up 4.8% year-on-year despite an active effort by authorities to slow bond issuance approvals. Expectations are for the latest measure to slow the country’s rising land prices as developers readjust their acquisition strategies.

China home price growth decelerates in June

China’s new home prices for its 70 major cities rose 0.66% month-on-month in June, down from the 0.71% rise seen in May; year-on-year prices were up 10.1%.

Our thoughts: Looking at the various cities, the slowdown was mainly led by Tier 1 and 3 cities which recorded 0.25% and 0.58% month-on-month increases. However, Tier 2 cities continued to outperform expectations with prices up 0.8% month-on-month as many had loosened on resident permit requirements which is a requirement to buy homes. While the government has stayed firm on general housing policy controls, especially those over the T1 markets, our expectations are for the government to allow localized adaptation of those controls such as those facing slowing economies and rising housing inventories.

Singapore 2Q19 property results

The URA released its 2Q 2019 real estate statistics:

i) Residential non-landed prices rose +2.0% QoQ compared to the -1.1% fall see in 1Q 2019.

ii) Central office rents rose +1.3% QoQ compared to the -0.6% decline seen in 1Q 2019.

iii) Central retail rents fell -1.5% QoQ compared to the -0.2% decline seen in 1Q 2019.

Our thoughts: The price increase for non-landed residential homes were led by the core and rest of central region markets which recorded a 2.3% and 3.5% quarter-on-quarter as  buyer appetite for mid to high end homes improved. This is was evident when One Pearl Bank sold 160 units or 80% of units launched over its initial weekend in late July at prices on average above S$2,000psf.

Returning Chinese interest for Australian real estate?

One of China’s largest international real estate portals,, reported enquiries for Australian properties from the mainland rising 40% year-on-year in 1Q 2019. This followed the 54% increase witnessed in 4Q 2018 and is the first consecutive quarterly increase seen since 2016.

Our thoughts: Chinese buyers have been attracted to Australian real estate in recent years and their return would be a boon for the sector. One major factor has been the c.10% devaluation of the AUD against the Yuan over the past year which has offset transaction cost hurdles such as foreign buyer stamp duties. Along with recent local stimulus, the Australian residential market is starting to see a lift in confidence following a market correction across most capital cities.