Chinese property companies are rushing to the dollar bond market, almost matching last year's sales in the first month of 2013 alone, in a frenzy that could inflate the sector's gearing and the broader risk of a housing price bubble.
In a highly competitive sector where even the biggest developers have market shares of just low single digits, nobody wants to get left behind building up cash as optimism grows that a recovering Chinese economy will boost housing prices.
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And with foreign investors desperate for the yields on offer, developers can't match demand and their funding costs are falling.
"Even if you were not planning on buying land this year, the fact that your competitors are doing so at potentially cheaper prices at the start of a new cycle by raising cheaper funding changes that equation," said Raghav Bhandari, credit analyst with CreditSights.
Three developers among the first to tap the market this year, Shimao Property Holdings, Kaisa Group Holdings and Country Garden Holdings, offered a total of just over $2 billion of dollar bonds.
Orders exceeded $45 billion.
Total dollar bond sales by Chinese property companies in January was more than $6 billion, just shy of the $7 billion issuance for all of 2012.
Sector benchmark Country Garden issued 10-year bonds at a 7.5 percent coupon, 4.25 percentage points lower than the coupon on its 5-year bonds in 2009. Fast-expanding Kaisa, which sold 5-year bonds at 12.875 percent in September, was able to sell 7-year bonds at 10.25 percent in January.
The easy access to long-term funding is a boon for developers, but the concern for policymakers is the cash merely pushes up land prices and creates a housing-price bubble.
"That may put more pressure on land prices if developers start aggressive land acquisitions. That may in turn push property prices higher and if the situation becomes uncontrollable, there are fears these restrictive measures will return," said Jacphanie Cheung, credit analyst with Deutsche Bank.
A government campaign to cool exuberant prices by limiting home purchases, raising mortgage rates and downpayment levels is stretching beyond its third year, but results are mixed.
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Officials remain sensitive to the risk of a sudden price spike and government leaders have stressed their intention to keep curbs in place, and even introduce new ones such as taxes.
On Tuesday, Vice Premier Li Keqiang, who is expected to become premier next month, said controls would remain to ensure a healthy property market along with the construction of affordable housing, the official Xinhua News agency reported.
China's housing market picked up in the second half of 2012, consistent with signs the economy had bottomed out.
"Even if the government takes fresh curbing measures this year, it might not be able to stop the stabilizing and rising trend of home prices," Ren Zhiqiang, chairman of Huayuan Property, said last week.
Loans to homebuilders and buyers rose 39 percent in the second half of 2012 from the first, and the average price of land for residential homes in 105 cities rose 1.2 percent in the fourth quarter from the third, when they had risen 0.9 percent.
This is feeding through to home prices, with data showing average prices in the top 100 cities rose 1 percent in January from December, the eighth straight monthly rise.
China Vanke, the country's largest real estate developer by revenue, said its January sales soared 56 percent to 19.1 billion yuan ($3.1 billion).
A Reuters poll found economists expect a 7.0 percent increase in house prices in 2013 and 5.0 percent in 2014.
"We will be more active in the land market in Beijing this year and we are also looking at some land parcels outside of the capital, which should be qualified for quick development," said Wang Yi, board secretary of Beijing Capital Development, a mid-sized listed developer.
While authorities worry about housing prices, analysts are also worried about how developers will use their windfalls.
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"Fundamentally, I am worried about companies' expansion plans and there is a risk that they could become more aggressive in their land acquisitions this year," said Agnes Wong, credit analyst with Nomura.
The reliance on debt funding, rather than equity, will also increase gearing, which could become a problem if property prices fall or housing stock cannot be sold.
"It would be good to see them use these improved conditions to de-lever themselves a little bit. Data has been so good that people forget that the gearing on these balance sheets is high," said ANZ Bank's head of Asia credit strategy, Owen Gallimore.