Could China’s Property Debt Crisis Deepen?

China's Property Debt Crisis

The prolonged slump in China’s property market appears poised to persist, as a series of rescue efforts by Chinese authorities have yielded disappointing results. Lackluster home sales in China’s major cities signal that policy interventions have failed to reverse buyer sentiment. Concerns are mounting that China’s property debt crisis may soon cast its shadow over the nation’s commercial banks, exacerbating the pressure on home prices and denting consumer confidence.

During the first two weeks of September, new home sales in China’s tier-one cities dropped compared to August figures. The repercussions of the property crisis have now extended to investment-grade developers. Moody’s Investors Service has placed China Jinmao Holdings Group Ltd. and China Vanke Co. under review for possible downgrades, while simultaneously lowering the outlook for seven other builders to negative. Credit Insights has expressed pessimism about the Chinese property sector, predicting a multi-year downturn and painting a less rosy picture for the country’s commercial property market.

In a bid to stimulate home purchases, the Chinese government has intensified efforts to relax home-buying restrictions, with 11 cities in China unveiling such measures this month, according to China Index Holdings. Chinese developers are pinning their hopes on a revival in home sales in anticipation of the upcoming Golden Week holidays, which traditionally mark a peak season for homebuying. However, confidence in the effectiveness of these new measures is dwindling rapidly as the crisis threatens to dampen the spirits of developers with relatively healthier financial positions.

China’s property debt crisis took a sharp turn for the worse when China Evergrande Group canceled a creditor meeting and announced a need to revisit its restructuring plan. Additionally, China Oceanwide Holdings Ltd. disclosed its impending liquidation after a Bermuda court issued a winding-up order against the company, involving a $175 million unpaid loan principal. Moreover, concerns are mounting that China Country Garden Holdings may face an imminent default after missing initial deadlines for paying dollar bond interest.

At the heart of China’s property crisis lies China Evergrande Group, the second-largest property developer in China by sales. The company is grappling with an ever-growing mountain of total liabilities, amounting to a staggering 2.39 trillion yuan ($327 billion) – one of the largest among property firms worldwide. The clock is ticking for Evergrande to finalize a plan for its offshore debt restructuring, as the company faces an October 30 hearing at a Hong Kong court on a winding-up petition, potentially leading to its forced liquidation. As several other Chinese developers find themselves in a similar predicament to Evergrande, the debt crisis in China appears poised to worsen, potentially leading to court-ordered liquidations for these companies as well.

Featured Image: Freepik @ dashu83

Please See Disclaimer

About the author: I am a writer and an editor with experience in publishing, research, and SEO strategies. I have an honors BSc in Social Work from the University of Benin, Nigeria.