Early this month, another real estate development firm, Country Garden Holdings, failed to make coupon payments totaling $22.5 million on two dollar-denominated bonds, sparking fears of another property market meltdown. The firm has 30 days to make those payments before being declared in default.
On Aug. 10, Country Garden, which is listed on the Hong Kong Stock Exchange, issued a profit warning in anticipation of net losses for the half-year ending June 30 to range from 45 billion yuan ($6.2 billion) to 55 billion yuan. Four days later on Monday, the firm suspended trading of its onshore bonds.
The firm attributed the loss to a drop in sales figures within the industry, an increase in impairment of property projects as a result of the decline in sales and foreign exchange fluctuations. It also noted the difficulties the industry has faced with making sales and securing public market financing since 2021.
China's real estate market has continued to suffer this year, even after China Evergrande secured payment extensions and made debt restructuring plans under the supervision of regulators.
Property investment growth fell to -12.2% in July from -10.2% in June, and growth of new home sales volume was -15.4% year-on-year in July, only a slight improvement from June's -17.6% growth, according to a commentary by Japanese financial holdings company Nomura Holdings on Tuesday.
"Amid slumping new home sales and rising developers' defaults, we reckon that markets still underestimate the aftermath of the significant collapse in the property sector. … We believe that at some point in time Beijing will be compelled to undertake more measures to stem the downward spiral," the commentary wrote.
Sources are hopeful that Beijing will bail out the sector as property developers have struggled to gain access to financing ever since the government issued in 2020 the rules known as the Three Red Lines, which govern the amount of debt and liabilities that real estate companies should have.
In 2021, these rules were loosened slightly, and Chinese banks began to provide credit lines to these developers.
"Beijing has already done some things to ease the tensions in the property sector, but it has been too slow and too little, in our view," the Nomura commentary said.
One Hong Kong-based asset management consultant who spoke on condition of anonymity said that a second property market crisis is already happening, and it might not recover for another three-to-five years unless there is a massive bailout from Beijing.
He also expressed concern over the property market collapse spilling over to other markets in mainland China, which could even extend to Hong Kong markets.
Another analysis written by a European asset management firm said that sentiment on China has turned from bad to worse, following the release of China's negative CPI inflation and poor economic growth data for July, and news of Country Garden suspending trading of its 11 onshore bonds earlier this week.
Country Garden, which had 1.4 trillion yuan in liabilities as of Dec. 31, is not the only real estate firm to have missed payments this year. Sino-Ocean Group Holding has requested extensions for payments for several bonds this year, and KWG Group Holdings missed a dollar bond payment even after an earlier extension.
"Country Garden's escalating debt crisis, on the heels of Sino-Ocean's failure to repay a 2 billion yuan bond on Aug. 2 and KWG's default on April 28, suggests the risk of a second wave of defaults for private developers despite China's property-sector rescue package," said Kristy Hung, senior industry analyst at Bloomberg Intelligence.
"A shutdown in dollar bond refinancing since 2022, on top of very limited onshore bond issuance for private developers despite policy support, threaten the survival of the private sector as banks back away from lending amid credit-quality concerns," she added.
Buyer confidence is set to sink to a new low as buyers question if government policy is enough to steer the sector through a downturn and stem the spread of developers' defaults, she said.