OREANDA-NEWS. Fitch Ratings says that asset sales remain a viable option for troubled Chinese homebuilders that have good assets to raise immediate liquidity and improve their balance sheets.

This is because sustained demand for residential properties in China continues to support stable home prices and hence, land bank values, which allow for the orderly liquidation of a homebuilder's assets. At the same time, most of the larger homebuilders have strong balance sheets and ample liquidity to buy these assets.

This was most recently demonstrated by Sunac China Holdings Limited's (BB-/Positive) purchase of land from the financially distressed Kaisa Group Holdings Limited. The acquisition of the four projects in Shanghai by Sunac, announced on 30 January 2015, offered Kaisa respite in a relatively short period of time. Kaisa had halted trading in its shares in December 2014 after Shenzhen authorities placed restrictions on the sale of some of its projects, which the company said would have an adverse impact on cash flow. Sunac will pay CNY2.37bn, or an average of CNY6,277 per square metre of sellable area, for the projects.

This transaction shows that it is possible to find buyers for assets in the higher-tier cities, where housing demand remains strong because of urbanisation. This resilient housing demand in higher-tier cities also drove Sunac's decision to form a joint venture with Greentown in 2012.

Financially strong homebuilders have also been trying to add to their land banks via other channels, including negotiating purchases, to skirt the higher prices at competitive government land auctions, especially in higher-tier cities in China. These strategies have emerged as homebuilders try to preserve margins at a time of lacklustre growth in selling prices. The national aggregate residential property selling price increased only 1.4% in 2014, compared with an average annual growth of 7.4% between 2011 and 2013.