China Property Sector Debt Woes: Debt troubles in China’s property sector are poised to escalate as beleaguered developers grapple with a bleak outlook for home sales and challenges in raising funds, according to credit analysts.
The latest calculations by research firm Credit Sights reveal that a whopping $124.5 billion worth of bonds in the $175 billion China property dollar bond sector are currently in default. This includes the country’s once-largest private developer, Country Garden, whose entire dollar bond has been declared in default due to a cross-default clause.
October brings a total of $60.5 billion worth of Chinese property bonds due in the next six months, with offshore bonds making up at least a third of this, according to Dealogic data.
International bondholders of Country Garden are urgently seeking talks with the company.
Similar pressures have emerged in other firms. State-backed Sino-Ocean Group is set to convene a bondholders’ meeting and has proposed extending the grace period for repaying bond interest due this week to next Thursday, citing operational difficulties. The company has expressed willingness to create a reasonable debt repayment plan should it fail to meet its bond obligations.
Also Read: China Property Market Puzzle: A Never-Ending Challenge
The recent resignation of Gemdale’s chairman has led to a decline in the company’s bonds, sparking concerns about its financial stability.
Meanwhile, Dalian Wanda Group is in negotiations to avoid repaying approximately 30 billion yuan ($4.11 billion) if it fails to complete an initial public offering (IPO) plan this year, according to Bloomberg News.
Ting Meng, a credit analyst at ANZ Bank China, commented on the situation, stating, “For property developers who have yet to default on debts, the outlook remains bleak, as we haven’t seen a turnaround by the industry with sales numbers remaining weak.”
Official data showed that China’s new home prices fell for the third consecutive month in September, despite efforts to revive the crisis-hit property sector.
Ricky Tsang, an analyst with S&P Global Ratings, noted that aside from the weak cash flow from home sales, fund-raising for developers, particularly the private ones, remains challenging. “Developers who are most in need of financing are struggling to find qualified assets, in most cases shopping malls or office buildings, as pledges to issue guaranteed bonds,” Tsang said.
Our Reader’s Queries
What is the problem with the property sector in China?
In China, apartment homes are usually sold before they are even completed. This means that developers must finish constructing the houses in order to sell more. However, financing difficulties and other problems have caused delays in home delivery times, which has discouraged potential home buyers. To overcome these challenges, developers must prioritize timely completion of their projects to ensure continued success in the market.
Is China’s property market in crisis?
Over the last two years, the market for Chinese developers’ dollar-denominated bonds has experienced a significant decline, losing a staggering 87% of its value. This has resulted in a loss of USD135.5 billion from the outstanding notes, which were originally valued at USD154.9 billion, according to Debtwire.
Which Chinese real estate company is in debt crisis?
On Friday, Zhongzhi Enterprise Group declared bankruptcy liquidation due to its inability to repay its debt amidst a worsening real estate crisis in China. As a major player in the shadow banking industry, this conglomerate’s financial struggles have significant implications for the country’s economy.
How bad is China’s debt problem?
China’s public sector debt stands at RMB 30.3 trillion, which is equivalent to 53.2% of the country’s GDP. On the other hand, private sector debt, which includes both household and non-financial corporate sector, amounts to RMB 103.5 trillion, or 181.9% of GDP. The banking sector remains the largest lender in China.