Residential buildings developed by Country Garden Holdings Co. in Baoding, China, are depicted in the accompanying image. This comes as concerns about China’s real estate sector resurface two years after Evergrande’s debt troubles.
Reports suggest that Country Garden, one of the largest non-state-owned developers, has missed two coupon payments on dollar bonds that were due Sunday. These bonds, due in February 2026 and August 2030, have raised concerns about the company’s financial situation.
Dalian Wanda, another prominent real estate company, has also faced issues as its senior vice president Liu Haibo was taken away by police following an internal anti-corruption probe. The situation raises doubts about the stability of the real estate sector in China.
As a result, Country Garden’s Hong Kong-listed shares closed lower on Wednesday, indicating a negative market sentiment that has spilled over to other non-state-owned developers like Longfor.
Sandra Chow, co-head of Asia Pacific Research for CreditSights, warns that China’s authorities do not need another developer default, especially given the declining home sales, falling prices, and faltering economic growth. The potential default by a large developer like Country Garden could have significant consequences.
Analysts also express concerns about the impact of lifting property restrictions in major cities, potentially draining demand in lower-tier cities that contribute to 70% of the national new home sales volume. They worry that easing restrictions on existing home sales without lifting restrictions on home purchase could flood the market with supply and depress home prices.
The Chinese government has been trying to control debt-fueled speculation in the real estate market for several years. However, the recent defaults and ongoing issues suggest that the private property sector will continue to weigh down the country’s growth.
Experts note that Chinese families have become hesitant to invest in real estate due to developers defaulting and failing to deliver completed homes. Consequently, the private property sector’s waning confidence will likely hinder China’s growth for the remainder of the year.
In an effort to avoid defaults, Rhodium Group analysts suggest that asset sales may be the only solution for struggling developers like Country Garden. However, refinancing and raising capital will be challenging, especially for Chinese developers offshore.
While state-owned developers have performed relatively better in the current slump, the overall drop in home prices remains a concern. The average existing home prices fell by 2% in July compared to the previous month, indicating a downward trend.
In addition, the tight capital controls in China make it difficult for individuals to invest outside the country, and the local financial markets are less developed compared to those of other developed nations. This, coupled with the declining real estate market, has caused people to reassess real estate as a long-term investment.
In conclusion, the concerns surrounding China’s real estate sector continue to grow as prominent developers like Country Garden face financial troubles and market sentiment deteriorates. The potential defaults and declining home prices pose challenges to China’s economic growth, which may have lasting effects on the country’s real estate market.
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