China’s coronavirus outbreak is slowing down sales activity and putting pressure on domestic Chinese developers. If the outbreak extends, developers could be out billions of dollars in funding.
Developers in the country tend to sell condos and other residential properties before they complete construction and rely heavily on those advance payments and deposits to complete development. If they lost just 10 weeks of activity — a roughly 20 percent decline in advance payments — they’d be short $173 billion in funding, according to the Wall Street Journal.
Deposits and advance payments are the biggest pool of funding for domestic Chinese developers, making up just below a billion dollars in funding for builders last year.
Self-financing is almost as popular, but domestic and personal mortgage loans only each contributed less than half than deposits and advance payments did last year.
The developers at the highest risk are of course the developers active in areas most heavily affected by the coronavirus, like Wuhan. Sino-Ocean and Longfor have substantial land banks in Wuhan and saw year-over-year sales declines of 28 percent and 33 percent respectively in January, according to the Journal.
The coronavirus has infected around 30,000 people as of Friday afternoon, most of them in China, but cases have turned up across the globe. At least 630 people in China have been killed by the virus. The Chinese government has flown in thousands of medical workers to Wuhan from across the country and built a prefabricated medical facility that can accommodate at least 700 patients.