China’s real estate market has been rocked by default fears, and Country Garden has investors spooked

BEIJING – After two years of Evergrande’s debt troubles, concerns about China’s real estate sector are on the fore again.

Country Garden, one of the largest non-state-owned developers by sales, has He reportedly missed two payments for the voucher On dollar bonds that were due on Sunday. Citing the company, Reuters said the bonds in question are due in February 2026 and August 2030.

Country Garden did not immediately respond to CNBC’s request for comment on the reports.

Meanwhile, Dalian Wanda witnesses her Senior Vice President Liu Haibo being taken away by the police after the company’s internal anti-corruption investigation, Reuters reported on TuesdayAccording to a source familiar with the matter. Dalian Wanda did not immediately respond to CNBC’s request for comment.

Shares of Hong Kong-listed Country Garden closed down more than 1.7% on Wednesday, after sharp declines earlier in the week.

“With total home sales in China in the first half of 2013 declining year-on-year, home prices falling month after month over the past few months and economic growth faltering, perhaps another developer default (a very large deficit at the time) is The last thing the Chinese authorities need right now,” according to Sandra Zhao, co-head of Asia Pacific research for CreditSights, which is owned by Fitch Ratings.

A Country Garden investor relations representative did not deny media reports about missed payments or clarify the company’s payment plans, Zhao and his team said in a note late Tuesday.

The report noted that negative market sentiment spread to other non-state-owned developers such as Longfor. Longfor shares closed up about 0.8% Wednesday in Hong Kong after trading down more than 1% on the day.

“Overall homebuyer sentiment is likely to suffer as a result,” the analysts said.

China’s huge real estate market has remained sluggish despite recent policy signals. In late July, its top leaders signaled a shift towards greater support for the real estate sector, paving the way for local governments to implement specific policies.

Doubts remain on the sensitive topic of housing prices.

Nomura analysts said: “We are concerned that as large cities lift restrictions on domestic property, it will drain demand in lower-tier cities, which account for 70% of national new home sales volume and are the real driver of commodity demand and construction activity. “. In the Aug. 4 report.

“We are also concerned that simply easing restrictions on existing home sales without lifting restrictions on home buying could lead to oversupply and lower home prices,” the report said.

Over the past several years, Chinese authorities have tried to curb debt-fueled speculation in the country’s huge and hot real estate market. In 2020, Beijing cracked down on developers’ heavy reliance on debt for growth.

Debt-ridden Evergrande faltered in late 2021, followed by a few others.

Last year, many people stopped their mortgage payments after delays in receiving the homes they purchased. Most apartments in China are sold before they are completed.

“After watching developers default on their debts and fail to complete housing for other families, few Chinese families are willing to pay in advance for new housing,” Rhodium Group analysts said in a note this week. “With such faltering confidence, the private equity sector is likely to remain a drag on the country’s growth for the rest of the year.”

Analysts noted that new starts in residential construction have fallen for 28 months in a row.

Real estate and related industries account for about a quarter of the Chinese economy.

Redmond Wong, market analyst at Saxo Markets Hong Kong, said Country Garden would find it “extremely difficult, if not impossible” to refinance — and other Chinese developers would struggle to raise money as a result, especially abroad.

He noted that since China launched its deleveraging campaign in 2016, it is unlikely that the state will intervene to bail out real estate developers. “The most likely way for Country Garden or similarly positioned Chinese developers to avoid defaults would be asset sales,” Wong added.

China’s state-owned developers have generally fared better in the latest downturn in the real estate sector.

Country Garden had the worst sales performance so far this year among China’s top 10 real estate developers, with sales declining 39% year-on-year, according to Data published by the E-House Research Institute.

The research showed that Vanke was the only other one of the 10 developers to report a year-over-year decline in sales in the January-July period, down 9%.

Other names were mostly owned by the state, such as Poly Development, which ranked first with a 10% increase in sales over that period, according to the analysis.

But this had little effect on housing prices in general.

And Nomura noted in a separate report that median existing home prices fell 2% in July from the previous month, worse than the 1.4% decline in June, based on a sample of Beike Research Institute data from 25 large cities.

The July level is 13.4% below the all-time high of two years ago, Nomura’s report said.

The seven-day moving average of new home sales as of August 6 is down 49% compared to 2019, according to Nomura. This is worse than the previous week’s drop of 34.4%.

The fortunes of Chinese families were locked up in property much more than in many other countries.

And the strict capital controls make it difficult for people in China to invest outside the country, while the domestic financial markets are less mature than those of developed countries.

“Currently, people are re-evaluating what will be a good investment in the future,” Liqian Ren, leader of quantitative investing at WisdomTree, said in an interview last week.

“Since the beginning of last year, people have begun to realize that real estate prices are not going to go up,” Ren said. “I don’t think it’s a lack of trust. For a lot of people they still have money in the bank.”

– CNBC’s Hui Jie Lim contributed to this report.