China’s Currency may Impact Property Risks

China’s property sector, already a nagging economic risk, could become a victim of the unexpected weakening of the country’s currency as developers face rising debt costs.

“Most Chinese developers are heavily exposed to U.S. dollar debt (up to 90 percent of their total debt) with no hedging,” Credit Suisse said in a note Monday. “A potential renminbi depreciation may have a meaningful impact on both developers’ earnings and net gearing – especially since Chinese developers are already highly levered financially.”

The fate of China’s property sector is closely watched as a key economic risk. Capital Economics estimated that the property sector contributed 9.5 percent of China’s gross domestic product (GDP) in 2013.


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