Shanghai Developer Said to Suspend Project on Funding Shortage

A closely held Shanghai developer has suspended construction at a property project due to a lack of funds, according to two government officials familiar with the matter.

Construction at Shanghai Yuehe Real Estate Co.s mixed-use project, including residential, office and retail space, in the city was halted this month and the project was frozen by a court, according to the people, who asked not to be identified because they arent authorized to speak publicly about the matter. Shanghai Pudong Development Bank Co. (600000), a medium-sized Chinese bank, loaned about 240 million yuan ($39 million) to the 220,000 square meter (2.4 million square foot) development in suburban Jiading district, they said.

There will be more developers having troubles as the property downturn prolongs, said Duan Feiqin, a Shenzhen-based property analyst at China Merchants Securities Co., in a phone interview today. Many Chinese cities face oversupply of those mixed-use property projects amid the e-commerce boom, while a lot of developers, especially those small ones, are not capable of doing such developments.

Yuehe is the latest example of Chinese developers facing pressure as the nations slowing property market weighs on the growth of the worlds second-largest economy. Moodys Investors Service in May revised its credit outlook for Chinese developers to negative from stable, citing a slowdown in home- sales growth as liquidity weakens and inventories rise.

Home prices in Shanghai decreased 0.3 percent in May from April, the first decline in two years, according to the National Bureau of Statistics. New home supply in the city rose 16 percent in May on a monthly base, while sales fell 22 percent, according to SouFun Holdings Ltd., the nations biggest real estate website.

Premier Li Keqiang has sought to rein in credit expansion, particularly in the off-balance sheet shadow-banking industry, by tightening lending and curbing real-estate price speculation. He must balance such steps with efforts to meet a 7.5 percent economic growth target, after 7.7 percent expansion in the previous two years, which was the slowest since 1999.

Pudong Bank loaned more than 200 million yuan to Yuehe and has taken steps to preserve assets, the lender said in an e-mail statement to Bloomberg News queries yesterday. Collateral for the loan is adequate and valid, the bank said. Two phone calls to Yuehe went unanswered.

In March, Zhejiang Xingrun Real Estate Co., a closely held developer in a city near Shanghai, became insolvent with 3.5 billion yuan of debt. Its residential projects have been halted and authorities have detained its largest shareholder and his son, according to the citys government.

While the central bank last month called on the nations biggest lenders to accelerate the granting of mortgages, the government has refrained from broad-based easing of property restrictions imposed over the last four years to rein in prices.

Home sales fell 11 percent last month from a year earlier, the statistics bureau reported earlier this month, and private data also signaled the housing market is cooling.

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Shanghai Developer Said to Suspend Project on Funding Shortage